With the advance of technology and a little advance notice, you can watch your Florida Legislature at work, commercial free via live streaming on your computer or mobile device. Folks, unless you want to testify at a committee meeting you can forget the long drive or airplane flight to Florida’s hither land aka Tallahassee, Florida. All you need is the committee meeting schedule and click the link to watch your favored or disfavored proposed legislation being debated or voted on. Of course this also comes with the ability to hear your elected officials ask questions and comment on the topic being addressed. Believe me, this is at times interesting stuff.

An item of high importance to folks in the property insurance trade is legislation that once again (according to one speaker this is a five year work in progress) has been filed to attempt to license and I suppose de facto, regulate folks making a living serving as appraisers and umpires in the resolution dispute process called Appraisal. Today, this clause is found in some property insurance policies but until a few years ago was ubiquitous in those policies. I have watched two sessions of the back and forth on this topic held in two separate legislative committees on different days. So I thought I would offer you my take on what’s going on along with a little background information. Please take my word on this, if you live in Florida and you suffer a property loss for a covered peril, you may be faced with decisions involving Appraisal. So you may want to pay attention.

Appraisal is the process of settling or determining the value of insured property that is damaged when the damage is contested on the dollar amount and or scope of the damages. Appraisal can be used when there are disputes on losses, either personal (as in contents) as well as the building, both of which are insured under a residential or commercial insurance property. The Appraisal panel can also determine the pre-loss value of property (read your policy) in the event there is a dispute where the insurance carrier (due to underinsuring value limits chosen by the policyholder) attempts to apply a coinsurance penalty. However, Appraisal is generally used to find and set the scope and price of damaged or destroyed property, post loss. Absent fraud or the lack of coverage for the items being claimed, the findings of the appraisal panel will be final and binding on both parties. The following is the text from STANDARD FIRE POLICY also known as the 161 Line New York Fire Policy, edition 1943.

 Lines 123-140 If there is disagreement between the insured and the insurance company, regarding the value of the claim, the “appraisal clause” provides a remedy for both. Each party can select a neutral appraiser and they in turn will select an umpire to try to resolve the problem of the value of the loss. Sometimes, if requested, a judge will act as the umpire to settle the dispute. Each party must pay their fair share of the expenses for the appraisers and umpire.

Sound fair?

As background, following Florida’s disastrous hurricanes in 2004 – 05, appraisers and umpires came into vogue. To put it bluntly, they were everywhere. Depending on what advice you were given in the years following the five hurricanes, the appraisal process simply jumped the tracks. The insurance carriers got spooked since anyone who could pronounce appraisal or umpire suddenly became an appraiser or umpire with no experience or license required. Nor was any regulation in place to govern the process or participants.

To be fair, there are now and were a number of folks who served in the appraisal process that were trained, experienced, ethical and honest. The problem is that unless you were an insider, you would not likely know who these people are. For the purpose of this blog and I assume for the author of the pending legislation, we are talking about the newbies or wannabees that followed the 2004-05 hurricane seasons. 

After being hit with awards and what some would call run-away appraisals, (some awards were actually signed off on for more than the disputed amount) some carriers in Florida took the resolution dispute process out of their policies. Others modified the policy language to such an extreme, that the process became unilateral where the carrier could enter into an appraisal but only on their terms and conditions.

This lack of a reasonable and cost effective forum to resolve property disputes became a gift from on high for lawyers, and the lawsuits and attendant legal fees skyrocketed. So too did the insurance policy premiums as carriers passed this cost on to their policyholders. So here we are, back to the legislature to fix this quagmire, which to some seems to be a licensing and regulatory framework for appraisers and umpires. Anybody want to guess how this is working out?

The following are my takeaways.  First, if it’s not broken why fix it? Well, as I outlined above, the insurance industry feels it was broken and has convinced the Tallahassee crowd that appraisal needs to be taken out of property policy forms or modified. This should not be a surprise, since in my view, the appraisal process was in fact widely abused following those swarm of hurricanes 10 years ago. It seems that years after the storms, folks were engaged in appraisal for what I was hearing were a lot of reopen claims.  “Reopen” means that the claims were settled but someone convinced the policyholder they should ask for more money.  It seems many of the practitioners in the policyholder representation business including some in the legal profession who most likely knew their cases would not stand up in court but might get a pass with the split the baby  (get at least get 50 % more money) scheme, used the appraisal umpire forum as a cash cow. As a result, many insurances companies took Appraisal out of their policies and in some cases crafted appraisal language that was so convoluted it served as an open invitation for guess what, yep more lawsuits.

So with no sane or practical forum to settle property disputes, the law of unintended consequences reared its head. Lawsuits mean legal fees and lawyers love legal fees; so much legal fees that seemingly no one disputes the figures.  Millions and millions of dollars have been paid out to litigate cases that a two or three member Appraisal panel could have settled for a reasonable cost provided insurance fraud was not involved.  So over the past five years, folks have been searching for a path of righteousness that’s fair to all parties.

That brings us to this year’s legislative session where Florida House Bill 79 (HB79) has wound its way through committee and was passed last week.  The companion bill Florida Senate, SB336 is in the Appropriations Committee.  SB336 may be heard and passed in the Appropriations Committee this week. Then it must have three readings on the Senate Floor and may be amended during each reading and then passed by the full Senate.  SB336 must match HB79 as it was passed or they both go into a Reconciliation Committee to work out a compromise bill. Once that is achieved, both the House and Senate must approve the Reconciliation Committee's compromise which creates a passed bill that would eventually go to the Governor to sign into law, veto or let sit.

The first eye opener to me while watching the hearings was the fact that other than a few of the speakers, the elected officials on the committees knew practically nothing about the issue being presented. Now in all fairness, these folks are elected to represent their districts on a wide range of subjects and very few are insurance nerds.  But it’s a little more than scary to see votes being cast either up or down based on “two minutes and your time is up” speakers. 

So as the debate continues on this very important matter, I have learned there have been a number of modifications to the original bill that was filed. As an example, questions have been raised about who can be an appraiser and there have been questions about the qualifications required to be an umpire. It was interesting to me to hear that some folks in these committee meetings felt that appraisers did not need to be licensed. The logic was that most likely adjusters would be appraisers and since they are already licensed, why duplicate the process? The problem with this is that as it stands now, anybody can be an appraiser and I doubt the policyholder’s brother-in-law or close friend is a trained, licensed adjuster.  So now it appears more debate will be needed on the very important question of who can or cannot be an appraiser and a separate license may be required if this legislative bill is to move forward. 

Turning to the umpire role and qualifications, seemingly there is a tempest in the teapot on this one. There was a great deal of discussion and concern at this year’s Windstorm Insurance Network Conference on some amendments being floated in the committees about who can be an umpire. For example, who possesses the qualifications for this position, how many CE credits does a licensed umpire have to maintain, are retired judges exempt from any regulation or for that matter does a lawyer who has presided as a judge even have the qualifications to decide often complex property insurance disputes involving construction issues and other sundry repair or replacement disputes to real and personal property that adjusters do on a daily basis? However, as pointed out by one of the legislative committee members, judges, retired or otherwise, have been calling balls and strikes in all types of complex legal matters during their careers. So the argument that they are not trained adjusters may have little merit. 

Another hot issue concerns the retention time that may be required once an appraisal is complete. Does a licensed umpire have to provide the basis of his or her award, either through testimony or through an examination under oath, a deposition and review of their records? 

And then there was the presentation by the Florida Justice Association (trial lawyers group) who in both committees made it very clear that this group was not in favor of a resolution dispute process the insured and insurer have enjoyed from the inception of the 161 line Standard Fire Policy.  The gentleman who was representing the trial lawyers kept hammering the committee that he/they were not in favor of a process that required the policyholder to pay their appraiser one half of the umpire’s fee and one half of any expert fees. In other words, it was all about litigating a case with the time delays and all the court costs that go with that process.

From my experience, this could not be further from the truth, as I have always found the appraisal process to be both cost effective and timely. Many times an umpire is not needed (although it is always a good idea to have an umpire agreed upon at the inception of an appraisal and in a stand-by mode) and only in limited cases are outside experts retained and needed by the umpire.

So in conclusion, with competing forces, a very large learning curve and probably many more amendments to follow, my vote is that the appraiser/umpire licensing legislation will fail to pass and not become law.  Notwithstanding a new format to bring some sanity back into the appraisal process, I think many insurance companies may reenter the appraisal process since the legal alternative has proven to be a costly, time consuming and very ineffective process to make policyholders whole following a loss to their insured property.

Let us know what you think.