Pursuant to the Standard Fire Policy,
“An award in writing, so itemized, by any two when filed with this company shall determine the amount of actual cash value and loss.”
- The award must be in writing and sufficiently clear so that a reasonable person could comprehend its conclusion.
- The award must be signed by at least two of the three members of the appraisal team.
- It must be sufficiently itemized so as to satisfy the requirements of the policy and any applicable statutes.
- The award should be responsive to the original submission or appraisal agreement and care should be taken that its scope does not exceed the submission.
- Upon the execution of the award as required, the original should be filed with the company forthwith with copies immediately transmitted to the parties.
- Upon receipt, the carrier should immediately pay upon the award, taking care not to delay beyond the shortest period provided for in the policy, by regulation or statute.
Consideration must be given to situations where hidden damage is first disclosed after the rendering of the appraisal award. If such damage was not known to the parties during the course of negotiations and appraisal, and where such hidden damage was not reasonably discoverable under the circumstances, nor contemplated by the parties, one could reasonably imagine the need to reopen the appraisal process in order to do justice to the claim, particularly where neither party would be prejudiced by this procedure.
For example, where demolition of damaged property awaited the conclusion of the appraisal process, and in the midst of that demolition, damage within walls, floors, ceilings, cocklofts or other hidden areas is discovered and then immediately made available for the carrier and its representatives to inspect and document, it would be difficult to imagine why the appraisal could not be reopened if the parties were unable to agree on the amount of damage. The appraisers and the umpire could then reexamine the newly discovered covered damage and render an additional award thereon.
It has been held that where the policy limited the insured’s recovery to “the amount actually spent that is necessary to repair or replace the damage property,” the carrier was entitled to await the presentation of proof of the necessary expenditures prior to having to pay the full amount of the appraisal award. As the court pointed out, the appraisal provision establishes the value of the property and the amount of loss, but read in conjunction with the Loss Conditions provisions of the policy, the insureds were required to submit proof of the amount expended to replace the damaged roof in order to come within compliance with the policy. Geary v. CNA Ins. Co. , 2003
FORM AND SUBSTANCE OF THE AWARD As stated in the appraisal provision, the award must be in writing, itemized, and signed by any two among the umpire and two appraisers. The two required signatures are either both appraisers or one appraiser and the umpire. If an umpire and only one appraiser sign the award, due to the second appraiser’s disagreement, the award is still valid and sufficient to bind an insurer and insured who had agreed to an appraisal, so long as the insured’s appraiser and the insurer’s appraiser had submitted their differences to the umpire and had an opportunity to have their views considered. However, if the appraisers do not follow a prescribed method, the award may still be considered valid if the appraisers unanimously agreed on the deviation from the general procedure.Form and Substance of the AwardThe lack of detailed itemization has been held to invalidate an award. If there is non-compliance with an itemization provision wherein one of the parties can show that there was prejudice or injustice, then the award will be vacated. An appraisal award is expected to set forth basic explanations and adjustments, including the necessary facts, figures and calculation to account for any adjustments. However, the award generally need not contain an explanation of the means by which the umpire reached the award.Interestingly, in Georgia, the form of an award was found to be proper where an umpire did not include an itemized list of damage to specific articles of personal property or components of an insured’s home. There, the policy in effect did not require such itemization and the court was further unconvinced that the Standard Fire Policy imposed such a requirement. The court found that absent an explicit provision in the Standard Fire Policy directing itemization, there was no need to impose an obligation in the matter before it that was not specifically contracted for. The insured’s argument that failure to itemize resulted in irregularity, palpable mistake of law or fraud by the umpire was not accepted by the court.
Where the carrier failed to follow its own appraisal process and where such dereliction was responsible for the confusion over the actual cash value of the damage, the carrierwas estopped from relying on the policy provision that requires payment of actual cash value until the property is rebuilt. In Hall v. Farmers Alliance Mut. Ins. Co., the insurer failed to ensure that there was a determination of actual cash value as well as replacement value and was thus partially to blame for the participants’ ignorance regarding actual cash value.The appraisal award becomes effective only after meeting the above-mentioned criteria and upon its being filed with the insurance company. Upon the filing of the award, the appraisers have acted to the full extent of their authority. Where the insurance policy and submission agreement requires appraisers to ascertain “the sound value of goods,” meaning the value before the fire, the appraisers’ failure to ascertain sound value invalidates the award.With respect to the term “sound value,” the sound value of anything is its worth, its actual cash value in an undamaged condition. Thus, it was held that an item’s sound value was the value of the insured property in the condition in which it was immediately before the loss and is not synonymous with replacement value in that it represents the depreciated value of the item as it stood before the loss when it was “sound” and undamaged.In states that have not adopted the Standard Fire Policy, the policy may not have language requiring itemization. In those states the court lacks authority to require itemization.Inreciting a requirement for itemization, this is not to say that the requirement contemplates valuation of “every nail and brick.” It has been stated with respect to the extent of detail required, as follows: “[A] reasonable interpretation of the policy language necessitates only an itemization of the damage to the basic component systems (e.g., electrical, plumbing, heating, structure, carpentry, painting, refinishing) so as to insure a modicum of accountability and reliability in the appraisal process.”DeCrescenzo, supra. 981Other states have resolved the issue of the degree of itemization and specificity necessary by requiring the award to be segregated by category of coverage in order to be deemed adequate.There is a minority view that construes the phrase “sound value and loss or damage to each item” to mean actual cash value and loss to the “building” as an item, as distinct, for example,
from personal property or lost earnings claims, rather than to each item that comprises the building.Additional Coverage/CostsThe award should generally contain an allowance for debris removal and/or demolition costs if such are covered costs under the policy. Many policies provide additional coverage for such costs in excess of the policy limits. The policy should be consulted for the extent of the coverage. Unfortunately, too frequently the appraisal agreement or the panel focuses exclusively on costs and calculations of repair and replacement and fail to consider these additional coverages in the award. After the issuance of the award the omission is realized and it leads to needless contentiousness. Thus, these expenses and other “Additional Coverages,” if any, should be considered and included in the award.”An umpire in an insurance appraisal pursuant to the policy is not required to articulate the reasons for his or her award. However, when they choose to do so, the explanation accompanying the award becomes part of the award for purposes of judicial review.”North Carolina Farm Bureau Mut. Ins. Co. v. Floyd Harrell Other than providing a copy of the award, appraisers may properly refuseto provide anything further concerning their activities as an appraiser. Explanations for the award or the documents that result from their appraisal process are generally not discoverable because the deliberations that constitute theappraisal process are sacrosanc