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by Dennis Anderson

As those familiar with property insurance appraisal know, the outcome is often determined by the third member of the appraisal panel—the umpire—whose role is to resolve issues the two appraisers cannot agree on. Yet many insurance policy appraisal provisions provide little to no framework for who the appraisers can select to serve as umpire or what qualifications the umpire should have.

When a claim goes to appraisal, each party chooses its own appraiser, and the two appraisers choose an umpire. Most appraisal provisions specify that all three members of the panel must be “competent and impartial” (or “competent and disinterested”). But others only apply these requirements to the appraisers. For example, one common appraisal provision states that “each party will select a competent and impartial appraiser. The two appraisers will select an umpire.” In this article, we discuss why the umpire should also be “competent and impartial,” what that means in practice, and how to help ensure that the umpire in your appraisal measures up.

Appraisal provisions, statutes, and case law often provide little to no guidance about what it means for appraisers and umpires to be “competent.” In our view, a “competent” appraiser is one who has the skills and experience to evaluate the type of loss at issue and independently assess the extent of damage, the cost of repair, and other issues an adjuster would typically be called on to assess in the investigation of a claim. The same goes for umpires. When the two appraisers can’t reach agreement, an umpire who lacks the skill and experience to independently assess the disputed issue is less likely to really engage with it, and more likely to shift into a “mediator mode” focused on finding a numerical middle ground, regardless of the merits of the parties’ positions. When one party has set their position ridiculously high (or low), the middle ground will not be a fair outcome consistent with the facts of the claim.

When it comes to being “impartial” (or “disinterested”), the basic question is whether the umpire can be trusted to resolve disagreements between the two appraisers objectively, based on the facts of the claim, without being swayed by self interest or other interests outside of the appraisal. For starters, the umpire must not have any financial stake in the outcome. The umpire is entitled to a fair fee (which the parties generally split 50/50) but must not be in a position to gain (or lose) depending on whether the appraisal award is higher or lower. This means the umpire must not have a financial stake in the building at issue or (for commercial claims) the business that owns it.

Less direct financial interests should also be considered. For example, does the umpire have a financial stake in the restoration company that provided the insured with an estimate for repairing its water-damaged property, and which is likely to get the job? If so, a higher appraisal award that would result in more profits for the restoration company would indirectly benefit the umpire, which creates a conflict of interest. Another consideration: Does the umpire get so many appointments through a connection with a certain appraiser that their income depends on the continued favor of that appraiser? If so, that umpire will be more likely to resolve disputes in favor of that appraiser’s party. Does the umpire have a family connection with the insured? If so, the motivation to avoid an awkward dinner table conversation might motivate the umpire to err in favor of the insured.

What steps can insurers take to ensure the appointment of a competent and impartial appraiser? One is to make sure the policy’s appraisal clause requires competence and impartiality, or similar requirements, for the appraisers and the umpire. Another is to add language spelling out what that means and clearly reserving the right to verify that the requirements are met. When working from a policy without these specifics, insurers can still seek agreement that the umpire will be competent and impartial. In most cases, the insured (or their representative, such as a public adjuster or attorney) will agree. If they will not, you may be in for litigation over umpire appointment—but that’s a subject for another article.

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The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.