November 11, 2015 Articles

Insurance Appraisal Proceedings: What May the Appraisers Decide?

By Sheila J. Carpenter

A recent California Court of Appeal case, Lee v. California Capital Insurance Co., 188 Cal. Rptr. 3d 753 (Ct. App. 2015), attempted to clarify the dividing line between the authority of the appraisers and the courts in considering disputed property damage claims. California Insurance Code section 2071(a), like the insurance codes of many states, dictates standard language for fire insurance policies, including a procedure for appraisal if the insurer and insured cannot agree on the amount of a loss. Each party selects a "competent and disinterested" appraiser within 20 days of the request for appraisal. The appraisers are then to select an umpire. If they cannot agree on the umpire within 15 days, a court of record where the property is located makes the appointment. The party-appointed appraisers "shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss." Formal discovery is prohibited, and the rules of evidence do not apply. In California, a party seeking to confirm the award follows the same procedure as a party seeking to confirm an arbitration award. California Capital, 188 Cal. Rptr. 3d at 760; see Cal. Civ. Proc. Code ยง 1286.2.

In California Capital, the insured and the insurance company had wildly different views as to cost of repairs due to a fire in a 12-unit apartment building owned by Li-Lin Sung Lee. The insurer claimed that the damage was largely confined to the one apartment that it asserted suffered flames from the fire. It initially approved payment of about $70,000. Lee's public adjuster asserted that smoke damage required the interior rooms of five other apartments to be completely dismantled and replaced, iron balcony railings and part of the building's stucco exterior to be removed, and the entire building to be repainted. Costs were submitted for asbestos abatement, cleaning, reconstruction of the apartments affected, and loss of rent. The claim exceeded $800,000.

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