Property Damage Appraisal Methods in Insurance Contracts

Insurance policies are often an overlooked part of our day-to-day lives. However, when a claim must be made, those overlooked (or never read) provisions may limit your recovery. After over four years of arguing and litigation, two homeowners may have learned this lesson.

In the case of Thomas v. The Standard Fire Ins. Co., et al., a home in Chattanooga suffered extensive storm damage in April 2011. Over 130 trees on the property were damaged along with the house. The homeowners turned in a claim and quickly reached an agreement on the value of the tree damage. However, the insurance company and the homeowners had differing opinions on the cost to repair the home. The difference in estimates is unknown; however, the court noted that a neutral umpire found the damage to be approximately $133,000. The homeowners were unhappy and sued.

At issue in the lawsuit was the appraisal process contractually agreed to by the homeowners and the insurance company. In short, the appraisal process stated that if the parties can't agree on the repair estimate, then each party will pick an independent appraiser, and, if those two can't agree, they will then select a "competent, impartial umpire" to determine the cost of the repairs. This was the process that the parties agreed to, and did, follow, yet the homeowners were unhappy with the resulting number.

Both the trial court and court of appeals found in favor of the insurance company. The courts concluded that the appraisal process was not an arbitration clause subject to the Uniform Arbitration Act. Further, the courts found that the homeowners did not take issue with the appraisal clause or practically any part of the process taken under the clause. Rather, they just wanted more money. The courts found that this was not a sufficient reason to vacate the umpire's finding, and further that the valuation should stand, as the umpire clearly acted within the scope of authority granted to him under the appraisal clause. In other words, the homeowners were stuck.

Although insurance policies are often non-negotiable, there are a multitude of carriers which may offer differing policy terms and valuation methods. Understanding what such policies say upfront can be helpful in knowing what you are or are not entitled to as an insured. Further, understanding the policy is crucial in determining the appropriate path to resolve disputes should they arise.