What is a “Competent” Umpire for a Property Insurance Appraisal?

The Insurance Appraisal and Umpire Association held a training session in Orlando today. The session was led by Robert Norton. The audience had a number of very experienced appraisers and umpires, many with insurance company backgrounds. Robert Norton has been teaching on this area for twelve years. He is truly an expert on the various issues involved with appraisal. I learned a lot from him and the discussion with the audience.

I also found my curiosity drawn to the issue of the selection of an umpire. The selection of an umpire is very important. But what qualifications should an umpire have?

The 1943 New York 165-line Standard Fire Policy has this requirement about an umpire:

The appraisers shall first select a competent and dis‐interested umpire

Current ISO forms and the National Flood Policy are silent about the qualifications of an umpire. Still, I was intrigued by the concept of a “competent” umpire which many policies require. What is a “competent umpire?”

When used as an adjective, one dictionary definition states:

“having the necessary ability, knowledge, or skill to do something successfully” and “legally qualified or adequate.”

So, what does an umpire do? To determine if they are adequate or have the ability to perform, it would seem that the first criteria would be to state what the umpire is required to do under the policy to see if they fit the “competent” criteria.

When reading the appraisal clause as a whole, the duties of the umpire do not include making independent estimates of loss. Instead, under most property insurance forms, the umpire is having differences of loss brought by the two appointed appraisers and then making judgments based on what is brought by the appraisers.

The standard fire insurance policy, ISO policy forms and the National Flood insurance forms list no specialized procedures for the appraisal process. They list no duties or the authority of the umpire other than making judgments as to the differences of loss brought by the appraisers.

One insurance law professor made this remark regarding appraisers and the appraisal process:

Appraisers….where it is not otherwise provided by the agreement, are generally expected to act upon their own knowledge and investigation, without notice of hearings, are not required to hear evidence or to receive statements of the parties, and are allowed a wide discretion as to the mode of procedure and source of information.¹

The Windstorm Insurance Network also has high quality educational sessions and training for appraisers and umpires. It states that “an ideal umpire” has these qualities:

• Will render a timely and impartial decision.
• Is competent.
• Observes high standards of conduct.
• Has integrity.
• Has the ability to render an intelligent decision.
• Commands respect.
• Recognizes a responsibility to the public.
• Guards the integrity and fairness of the appraisal process.
• Can promote an efficient and just process.
• Is able to maintain the confidentiality of the process.
• Is trustworthy.

I agree. The process falls apart without having a person who fits the above characteristics. But what does it mean when it uses the word, “competent?” Does it mean that the person must have some special ability or merely be adequate to render a judgment of the differences brought by the appraisers?

Jonathon Held is a very experienced and competent appraiser. He published a paper on the topic of selecting an umpire.² His paper implies that the competency of the umpire does require special skills and possibly expertise beyond just being able to make judgements. Held makes the following points regarding the selection of an umpire in a high value and complex appraisal:

In large complex matters the selection of the umpire can be a costly, time consuming and closely scrutinized endeavor. In general the following guidelines should almost always be followed, which will insure that there can be no claim of mischief in the umpire nomination and selection process:

• Parties should unilaterally research umpire candidates to determine competency to serve on the panel.
• No ex parte contact with should be made at any time by a party, an appraiser or counsel involved in the matter, even to request a resume or determine interest or availability.
• The parties should agree to a simultaneous exchange of candidate names.
• The parties should agree on language of a joint introductory letter to be sent by the appraisers to the umpire candidates (the umpire should not know who the nominating appraiser or party is). The letter should include at least the following:
  • That the nominee is being considered to act as umpire of a disputed insurance claim (name the matter without specific detail).
  • That the appraisers desire to meet with or have a conference call with the umpire nominee to determine qualifications and fitness.
  • That the umpire nominee should provide the appraisers with a resume and/or information regarding his or her ability.
  • That the umpire nominee should review the conflict list and be prepared to report on any potential conflicts during the initial interview.
  • Dates and potential times for a telephone or in person interview with the appraisers.
• The parties should agree on a comprehensive conflict list to include with the introductory letter.

It can also be useful to limit the number of nominees, and agree that in the event the appraisers cannot agree on the umpire, that the sides will jointly petition a court to name the umpire from the party’s nominees (or one finalist for each party).

Held, Norton, and the Windstorm Insurance Network teach about making certain the umpire has no hidden agendas and a person capable of being fair and free to make judgments of loss based upon information and evidence provided.

My impression is that the role of the umpire has been expanded by industry standards rather than by law or some formal procedure. The IAUA and The Windstorm Insurance Network are writing and teaching these procedures. I am not complaining about this because procedures that are fair and promote practical and honest methods of dispute resolution are far better than the “Wild West” where there are no agreed to rules.

As far as “competent,” who is going to say that a retired judge cannot be “competent?” Most intelligent people who are respected and of high character should qualify as “competent.”
Held and Norton raise the issue if those types of umpires, who might not have some skill sets into the issues being presented, are the best umpires for parties to an appraisal. That is a different standard of “competent.” While not being the legal minimum standard, they make a great point that in fairness to the parties, the judgment of the appraisal panel might be better and more accurate with the selection of an umpire that has some education into the specific issues which are being appraised. While not technically required, the suggestion of this type of “qualified by criteria of what is to be appraised” umpire has a lot of practical advantages.

Thought For The Day

The single most exciting thing you encounter in government is competence, because it’s so rare.
—Daniel Patrick Moynihan
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¹ J. Parker, Understanding the insurance policy appraisal clause: a four-step program, 37 U. Tol. L. Rev. 931 (2006).
² Jonathan Held. The Appraisal Process. 2007.