OGC Opinion No. 04-09-06: Right to Invoke Appraisal

OGC Op. 04-09-06

The Office of General Counsel issued the following opinion on September 14, 2004, representing the position of the New York State Insurance Department.

Re: Right to Invoke Appraisal

Question Presented:

Where the insurer has made a settlement offer and the public adjuster has submitted his estimate that differs by approximately $45,000, may the insurer invoke the policy provision for appraisal without engaging in further settlement negotiations with the insureds independent adjuster?

Conclusion:

Where the insurer has made a settlement offer and the public adjuster has submitted his damage estimate, neither the New York Insurance Law nor the Regulations promulgated pursuant thereto requires that further settlement negotiations take place before the policys appraisal provisions can be invoked.

Facts:

A licensed public adjuster was hired by an insured who was dissatisfied with his insurers claim settlement offer for a non-fire loss under his homeowners policy. The public adjuster inspected the loss, completed his estimate and sent the same to the independent adjuster. There was approximately a $45,000 discrepancy between the insurers settlement offer and the public adjusters estimate. The independent adjuster acknowledged receipt of the estimate and stated that he would respond within 30 days. Two weeks later, the public adjuster received a letter from the independent adjuster advising that the insurer was invoking the appraisal provision in the policy. The public adjuster asks whether, without further settlement discussion between the two parties, the insurer can invoke the policys appraisal provisions.

Analysis:

The Department has previously opined that an insurer that includes an appraisal clause in a homeowners policy, which not only covers fire losses but also non-fire perils, is contractually obligated to submit to an appraisal. See Office of General Counsel Opinions dated 5-1-92 and 9-27-91. The policy in question has an appraisal provision that provides in part that "If you or we do not agree on the amount of the loss, either can demand that the amount be set by appraisal." The policy then goes on to provide the procedure to be followed for invoking the appraisal process.

Under the facts presented, the insurer made its settlement offer and the public adjuster submitted his evaluation and estimate to the independent adjuster. It may be that because there was a $45,000 discrepancy between what the insurer and the public adjuster concluded was the amount of damage, the insurer may have determined that further discussion would not be fruitful and that invoking the appraisal process was appropriate. There is nothing in the New York Insurance Law or the Regulations promulgated pursuant thereto that imposes a specific requirement that the parties engage in a certain amount of settlement discussion before invoking the appraisal process provided for in the policy. Where the policy sets forth the procedure for invoking the appraisal process, it is that procedure that has to be followed.