The appraisal clause should not be removed from Florida insurance policies. The concerns of insurers and policyholders can be addressed if we simply do two things:
1. Mandate that the appraisal clause remain in all property insurance policies.
2. Pass legislation which provides the safeguards for a fair procedure while allowing the parties to make the process as formal as they need to insure due process and still reflect the desire to avoid the time and expense of litigation.
This is the legislation I will recommend to the Florida Insurance Consumer Advocate Sean Shaw and the Office of Insurance Regulation tomorrow:
(1) In the event parties to an insurance contract enter into an appraisal, either party may demand that the procedures set forth in the Florida Arbitration Code (Section 682.02 et seq.) shall control in the appraisal process except as to the selection of the appraisers and appointment of the umpire.
(2) If mutually agreed to in writing, the parties may modify the procedures set forth in the Florida Arbitration Code.
The practicality of this law is that it recognizes claims are not all the same. There is a huge difference between a $500 automobile claim dispute (automobile policies have appraisal clauses as well) and a $150 million commercial property damage claim with business interruption issues. When the stakes are high and the parties really want to make certain that the process is fair and each has its opportunity to be fully heard on the merits, the Florida Arbitration Code has long been recognized as providing such procedures.
But what about a far more common dispute involving $25,000? In that case, the parties may want to conduct the appraisal in much the same manner as is commonly done today–with little or no rules to save money and time for all. This suggested law allows the parties to modify the arbitration procedures regarding discovery, to afford savings in costs through mutual agreement.
My suggested method for resolving the current trend of insurers eliminating appraisal has come about through a number of observations.
1. Florida law does not mandate the appraisal clause to be in property insurance policies because the Standard 165 line policy is no longer mandated in Florida. As a result of laws requiring policies to be easy to read, Florida, unlike many other states, dropped laws requiring property insurance policies to have minimum protections found in the 165 Line Standard Fire policy.
2. Insurers are increasingly changing property insurance policies to vary from standard forms. Whether our Office of Insurance Regulation is doing a proper job is of concern to all because such changes can harm consumers through reductions of coverage and give competitive advantages to insurers that play "word games" with the products they sell. Deleting the appraisal clause is another example of this increasing trend by Florida insurers when they do not like the results the more standard forms in use throughout the country would otherwise require.
3. Policyholders and insurers benefit by having alternative dispute methods which are quick and inexpensive. However, both desire fairness. The smaller the dispute, the greater the need for less costly methods. The greater the dispute, the greater the need for a method of fairness that ensures transparency and a result that is not based on gamesmanship.
4. The Florida Supreme Court has mandated that appraisal is an informal process. In doing so, it overruled a lower appellate court ruling indicating that arbitration was the procedure that had to be followed in appraisals. In the past, many parties asked whether the appraisal would be conducted "formally," meaning following the arbitration code, or "informally" with the panel to make their own rules. Today, the panel makes their own rules based on the Florida Supreme Court decision.
5. A cottage industry of appraisers and umpires has emerged over the past decade. The use of appraisal has become more common as an alternative to voluntary agreement through adjustment. Recognizing that informal appraisal may lead to gamesmanship and unfairness, at least one organization of considerable influence in Florida, the Windstorm Network, has educational classes on appraisal and the role of the Umpire. The Windstorm Network has a Certification course for Umpires and promulgated a set of ethical requirements for "Certified" umpires to follow. In doing so, the Windstorm Network recognized that umpires wield considerable influence in process and ultimate determination of the result.
6. Appraisal, unlike mediation, is binding. Like arbitration, it is a true alternative to litigation. To suggest that mediation is an alternative to appraisal is incorrect and disingenuous. Without a binding method to litigation, insurers with the money can threaten a policyholder with expensive and time consuming litigation to gain negotiation leverage over the policyholder. Mediation is simply a more formal means to reach a voluntary adjustment of damage with a professional facilitating a compromise.
As an experienced attorney limiting my practice to policyholders with disputes, I cannot say that policyholders are better off resolving their disputes through appraisal, even with arbitration procedures available, versus litigating the matters. Litigation can raise a number of consumer protection statutes that benefit policyholders when insurers unreasonably underpay or delay payment. These rights cannot be raised by public adjusters or contractors because it involves the practice of law. Unless a policyholdere is very well educated in insurance law, an attorney is almost always necessary to successfully litigate these rights.
Indeed, the policyholder successful in appraisal has to pay for his costs of the appraisal and half the umpire’s costs. In litigation, the successful policyholder can often recover all those costs along with interest for the unpaid sums.
While I have long been a critic of appraisal because it is a binding process with no rules, I can appreciate that the cost to reach a binding amount owed can be much less, and costs may be an overriding concern to all in claims where the amount in dispute is not great.
My suggested change to the law is merely a practical recognition that insurers do not, and should not, have to remove the appraisal clause from property insurance policies.
I appreciate all the comments and viewpoints which many of you have shared with me on this blog over the past month. I will provide my thoughts of the Roundtable discussion on Thursday.