Let’s get right to the point of this post because it is the same message I made in Appraisal Is Not Governed Under Arbitration Rules in Utah:
For appraisers and umpires, it is important to read the policy language regarding the appraisal process and policy terms regarding valuation. Then, the panel must thoroughly understand the state laws and regulations impacting the policy language regarding appraisal and valuation. State law varies on these issues and is constantly changing. Appraisers and umpires have to keep up.
The first issue you must resolve before answering this post’s question is: “What state law applies?” This is sometimes not an easy determination. The policy may say what state law applies—assuming state law allows the policy to do so. Often, the state law where the loss occurred applies.
A good example is a recent Rhode Island case1 where the insurance company argued in its brief that Rhode Island law recognizes that appraisal is governed under Rhode Island arbitration laws. It then argued that the appraisers were expected to act as advocates on behalf of the parties:
Non-neutral (or party-appointed) arbitrators are expected to advocate on behalf of the party who appointed them and to do their best to present the facts to the neutral arbitrator in the light most favorable to that party. See Local 472, International Brotherhood of Police Officers v. Town of East Greenwich, 635 A.2d 269 (R.I. 1993). Evident partiality is an elusive concept for which no one has been able to articulate a precise legal standard. On this issue, most courts have decided that a finding of evident partiality requires a showing of more than an appearance of bias but less than actual bias. The standard emerging from these decisions is that ‘evident partiality’ will be found ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’ The burden of proving facts that would establish a reasonable impression of partiality rests with the party challenging an award. The Court in Grabbert noted that the parties who select party-appointed arbitrators also expect them to serve as non-neutrals. The reason the parties contract for the choice of their own arbitrator is to ensure that each party will have his or her ‘side’ represented on the arbitration panel by a sympathetic member. Id. at 93 (quoting Astoria Medical Group v. Health Insurance Plan of Greater New York, 11 N.Y.2d 128, 182 N.E.2d 85, 227 N.Y.S.2d 401 (1962).
The insurer further argued that the policyholder should have objected to the insurance company’s appointed appraiser as soon as the policyholder became aware of any alleged partiality or bias of the insurer’s chosen appraiser:
The plaintiff requested appraisal and was fully aware and on notice of Mr. Boudreau’s prior involvement in the claim, as well as his employer, Vertex. At no point, until after the appraisal award was issued did the plaintiff protest the selection of Mr. Boudreau as the defendants’ selected appraiser. Unsubstantiated allegations in the Complaint that insinuate the defendants’ selected appraiser was biased due to prior involvement in the claim and prior business connections to the defendants is without merit. Nonetheless, whether it be through the parties’ written submissions to the Court or an evidentiary hearing to be scheduled at a later date, the plaintiff cannot sustain its significant burden in demonstrating that Mr. Boudreau was somehow biased or partial toward any of the defendants. The fact that the umpire went with Mr. Boudreau’s submitted estimate materials does not permit the plaintiff to cry foul after the fact.
This is not what others could argue in many cases. Many states do not allow appraisers to act as advocates nor have a pre-existing opinion about the amount of the loss before being appointed as an appraiser. I also think it is a best practice to immediately object to the known bias or partiality of another side’s appraiser and the umpire rather than wait to see if the appraisal award is favorable.
I will discuss the court’s holding and Rhode Island appraisal law in tomorrow’s post. Again, the point of this post is to highlight that parties to an appraisal and panel members should first determine or get agreement about what state law applies to an appraisal.
Thought For The Day
Formal education will make you a living; self-education will make you a fortune.
—Jim Rohn
