Resolving Claims Efficiently: Inside the Insurance Appraisal Process

Colin Daigle (00:09):
Welcome to another Imperium Risk Brief. My name is Colin Daigle, and I'm joined today by Frank Russo. We are managing directors with Imperium Consulting Group, and today we're going to have a conversation about insurance appraisals and the process involved. Welcome, Frank.

Frank Russo (00:27):
Thank you, Colin.

Colin Daigle (00:28):
So let's just start with generally what is the appraisal process?

Frank Russo (00:33):
Inside of commercial insurance claims, many property policies, sometimes other types of first-party properties, have built in clauses within their coverage known as insurance appraisal. Sometimes it's referred to as arbitration, even though that word means something different outside of insurance. The idea being that if an insurance claim is not settled through normal actions or one party, either the claimant or policy holder or the insurance company themselves disagree on valuations and claim dollars that are being submitted and or not being paid. It's normally a basic coverage that exists in the policies as a way or path to have some sort of dispute resolution for either party.

Colin Daigle (01:20):
Right, so it's not formal litigation, but it is a dispute resolution process. It involves what we might consider experts on both sides with the insured and the insurer known as appraisers and then an umpire. How is that typically set up?

Frank Russo (01:36):
So again, as we say on our other podcast, each insurance policy is different. You have to always look at the specific text and language within your specific insurance policy, to the listeners. Normally the coverage would include some sort of description that allows for either party, again, either the policy holder, the buyer of that insurance policy or the insurance company representatives, to have the ability to invoke the appraisal to basically say, alright, we've tried to get this claim settled through normal claim submission processes. We're at an impasse and let's say I, the claimant or policy holder, want to try this path or I, the insurance company, want to try this path. Once either of those sides trigger that coverage by asking for appraisal, the process becomes that both parties now have to go out and seek another expert or what's known as a first-party appraiser for both sides. That's the first step. So the claimant would find an appraiser, a new person or a new individual, that normally has experience in the industry or maybe somebody that's a non-practicing attorney or former judge, somebody that's involved in general disputes.

They have to always be disinterested, impartial, and each party selects one of those individuals to be their "appraiser." Once each party has their own appraiser, the very first step, and I think honestly the most important step, which we'll talk about the whole process, is how each of those party appraisers then have to meet with each other and discuss a third element of the appraisal process, which is the umpire or what's referred to as the neutral party that will come in and help finalize any disagreements from either appraiser.

Colin Daigle (03:24):
Let's just say for example, you have a property policy and property damage and business interruption and some of the claim has been agreed and perhaps even paid. Then there's a portion of it where there's just disagreement or it's not moving and either the insured or the insurer invokes this appraisal process. You might be brought in and hired as an appraiser for the insured, for example. The insurer will appoint an appraiser and then the two of you pick an umpire. How does that work? Do you have to both agree on the umpire?

Frank Russo (03:55):
Great question. So normally, my experience as an appraiser, I've been doing it throughout my whole career. I would say a caveat to answering your question, there's really no certain rule book on how the process should work. Normally what happens is both appraisers would put forth two or three umpire candidates to each other and then interview those umpire candidates collectively, or both the appraisers would interview those umpire candidates and then have the conversation on whether or not they can agree on one of those candidates. Now, as you would imagine, it sometimes may be not that simple where the appraisers cannot agree on an umpire. I've been in matters where, again, back to the policy language, on that particular insurance policy, it would then go to the court or pending litigation in a particular claim to decide who the umpire should be. I've been in other matters where as an appraiser we could not agree on an umpire, and we both selected our best candidates and they were both former federal judges. They were both upstanding candidates, but we could not agree on either or. We literally left it to chance, and this was a suggestion by the other appraiser that I was working with that worked out well. Based on the close of the Dow the following day, the Dow Industrial Average, if it was a negative number, it was Person X. If it was a positive, it was Person Y. You might laugh and say that's kind of unusual. Again, the idea is we want someone who has no skin in the game, is going to call balls and strikes, hence the term umpire. Then it's really a matter of trying to find somebody that is completely neutral. That particular scenario, that's how we found an umpire.

Colin Daigle (05:26):
So you flipped a coin essentially.

Frank Russo (05:28):
Yeah, we flipped a coin. Exactly.

Colin Daigle (05:30):
Let me ask you this. With this process, so certainly something that is not litigation, but do insureds and insurers get coverage counsel, outside counsel involved whether in the forefront or in the background?

Frank Russo (05:42):
Again, each case is different. One that we just finished recently, there was significant litigation going on for a large portion of a large property claim and dispute over whether or not certain items should be covered. I want to be clear, in the insurance appraisal process, it is not a process that is meant to be a place to determine coverage. It's a process in place to determine valuation or quantification or costs. So in the example, there was significant litigation involving coverage from both the claimant and the insurance company. At the same time, in parallel, they had items that they agreed were covered, but there was a difference in valuation of those items. To answer your question, in this particular matter there was ongoing litigation and the court actually was involved in helping move forward through the insurance appraisal process to limit or should say to reduce the issues related in litigation to can it be resolved in the appraisal process. They had a very defined scope on what the two appraisers would focus on.

Again, no coverage issue, just a quantification issue or application of how you quantify items. Can you help come to agreement on those specific items? I think it's a really useful exercise for attorneys that may be listening to this, especially if your clients, let's say on the policy holder side, their insurers want to pay them but they don't agree with everything in their claim. Well it's a good way to get them or your client money, cash flow, while the bigger picture litigation issues still loom. What was really cool about this last engagement was as part of the appraisal process, myself and the other appraiser were able to, took a while to get there, but come to a meeting of the minds on what our focus was on. Ultimately that helped lead to an overall resolution of the litigation. It wasn't the only reason as part of the appraisal, but we were told it had a significant impact in helping resolve the overall issues that would've went to court.

Colin Daigle (07:33):
That sounds great. I mean I think the dispute resolution process is about making the problems and the issues smaller, and certainly the appraisal process provides that roadway to do that and not go to full litigation. I know you and I have actually been involved in some appraisals together even before we worked together. I found you highly reasonable and very impartial and skilled by the way.

Frank Russo (07:54):
You're just saying that because we're on this podcast together.

Colin Daigle (07:57):
That's exactly why I'm saying it. That's correct. So what do you actually end up doing? Maybe as one last kind of point on this, so you're retained, you didn't do the original claim preparation and a client or an attorney brings you in and says, we'd like you to be the appraiser. What is your approach there?

Frank Russo (08:13):
Approach is to get all the facts as quickly as possible. Again, usually this is an ongoing claim. It's been maybe months if not years and everyone's not satisfied. The client hasn't received all the money they're entitled to, the insurance company thinks they paid enough. Everyone's, I would like to say, maybe stressed out. The idea of the appraisal process is again, how do you come in with fresh eyes in an efficient manner, try to get data together to help make that appraisal process go smoothly as possible. The way I think about it is, again, with no bias. If I were looking at this particular matter from day one, what do I think the strengths of the claim are or the weaknesses are? As well as, what do I believe the strengths and weaknesses are of the insurance company? Then usually what happens is you'll find that, it's like anything else, almost like the 80/20 rule. That even within the appraisal process, it's the last 20% of items that are really complicated.

Again, trying to seek agreement with the other appraiser on the easier items within that appraisal process. Then kind of whittling down to the more difficult items. What I've always found effective is rather than myself as an appraiser trying to support my position to an umpire on why I am right, solely for those last items, I've always found it effective to give the parties another chance to speak about why they believe they're right to all three members of the appraisal process. It's almost like a mini court session, but Colin, you know this in generally in claims, a lot of times the numbers on a piece of paper or a spreadsheet or the emails really don't tell the whole story. It's the person that can sit there in front of somebody and tell everybody exactly what happened and why certain things were done. Because time may have passed and people may have forgotten that, so it's a good way of getting a fresh view of really what the main drivers of those issues are. Lastly, the appraisal process is if both appraisers agree, then there's an appraisal award. Or if the umpire and one of the appraisers agree, there's an award. Basically, two of the three decide on how that specific issue or issues will be resolved.

Colin Daigle (10:13):
So, just thinking about this and maybe even wrapping it up with appraisals, so what might make for a good appraiser? Clearly, somebody that understands how to quantify claims, whether that's property damage, business interruption, extra expenses, whatever it might be, but also has the ability to work with another party who might have a different view and collaborate, try to resolve as many of those issues. I'm talking about the other appraiser, so that if you do have an umpire that has to make a decision, you further reduce the number of issues. Then can clearly and concisely and factually present the reason for your position on a claim quantification or a valuation of a claim. Also, just really working to resolve it, not to protract a dispute or make it more complicated. Then beyond that, I would think it would be very helpful for any parties involved to know both appraisers, whether it's us or some other firm, but just certainly understand this is kind of a niche area. You don't see these as often. There's often litigation that clients and organizations will go to, but for the appraisal process, finding people that are familiar and experienced doing it as well as being able to identify umpires. If you've never done it before and you need to come up with an umpire, I would imagine that the insurance carriers have a good handle on what umpires are out there, but for the insurers, that's something certainly to think about.

Frank Russo (11:38):
If I can jump in on that point, Colin, because it's actually on the project you and I were on. I mentioned some of the challenges on appraisers agreeing on an umpire. The case that you're referring to, it just popped in my mind. When I was the appraiser working with the other appraiser and both of us put forth three names to each other, one of those names that we put forth were on both of our lists. So that's an example of it working well where we both think John Doe is great. That's an easy one. John Doe became the umpire. I think a really good point to kind of end with too is just, while you're a party-appointed professional, you're really supposed to look at this as independently as possible. I sometimes tell the clients that bring me in things that they don't like to hear, but that's just being honest with how I view it. I think that lends credibility to getting those other issues taken care of over time with having a reputation of just trying to be somebody doing something that's transparent and as quickly as possible. Some of the insurance adjusters that I've worked with that going in, we started out a little kind of at odds, but at the end of the process, we really got to know each other. I'm happy to refer to those folks as my own umpire candidates. In the world that we live in, it's very side-oriented, but I think in the appraisal process it seems to be much more collaborative, which is a good thing for I think the clients and the insurance companies.

Colin Daigle (12:50):
It really seems in the right circumstances, an appraisal would be the most cost effective or a very cost effective way to settle an insurance claim for ideally what a fair value of that disputed claim is without taking a long time by staying in the typical claims process where your progress has just stopped or going to litigation, which certainly may not have a better outcome, could be more costly and take longer. It's making sure that insureds are aware of the ability to do appraisals and are prepared if they choose to elect that. Well, thank you, Frank, for joining me this afternoon for this Imperium Risk Brief. Thank you all for tuning in and listening. For more information about Imperium, you can find us at ImperiumCG.com. Thank you. Thanks, Frank.

Frank Russo (13:37):
Thanks, Colin.