The Insurance Appraisal and Umpire Association (IAUA) debate between Steve Badger and myself was “spicy.” Badger was getting so much heat from our debate that he took off his jacket halfway through the presentation. 

Yesterday’s post, Can the Appraisal Award Be Challenged Because the Appraisers Used Wrong Methods to Arrive at the Award?, promised to discuss cases that allow a challenge to the award based on the methodology to determine the amount of the loss. There are two points on this topic.

First, each state law is a little different regarding this issue. The case today will discuss Wisconsin law. 

Second, parties should remember that most courts are not inclined to overturn appraisal awards. It is why appraisers and umpires need to responsibly conduct their work and come to the most accurate award they can.  

Turning to the case,1 the Wisconsin federal court noted this regarding the policyholder’s attempt to overturn the appraisal award: 

[T]he mere fact that Wadena paid Meier an $939,136.58 award does not mean the award itself is unimpeachable. While appraisal awards are ‘presumptively valid,’ they can be set aside based on a ‘showing of fraud, bad faith, a material mistake, or a lack of understanding or completion of the contractually assigned task.’ Meier invokes the final exception, accusing the appraisers of misunderstanding their contractually assigned task: to determine Hartland Inn’s ‘actual cash value.’ But actual cash value is exactly what the appraisal award purports to calculate. Meier dislikes the number the appraisers arrived at and the method they used to get there. ‘Actual cash value,’ though, is never a matter of mathematical certainty, and there is no single correct method for calculating it. In this way, it is not dissimilar to body fat. Medical practitioners commonly use two different tools to calculate a patient’s body fat percentage: skinfold calipers and Dual-energy X- ray absorptiometry (DEXA) scans. See D.R. Wagner & V.H. Heyward, Techniques of Body Composition Assessment: A Review of Laboratory & Field Methods, 70(2) Rsch. Q. for Exercise & Sport, 135 (1998). The techniques virtually always produce slightly different results. But neither is ‘wrong.’ And if a party to a contract agrees to have her body fat determined by an appraisal panel, and that panel uses the DEXA method, the party cannot seek reversal on the grounds that the panel should have used skinfold calipers. Yet that is essentially the basis for Meier’s lawsuit. Her complaint is not that the appraisers failed to calculate ‘actual cash value’; it is that they did so according to the broad evidence rule, a viable method but not her preference. The debate over expert methodology, however, is not for resolution in this Court. ‘Ultimately, the greater danger in reviewing appraisal awards is not an unjust award, but litigants second-guessing an award obtained as a result of a process to which they agreed.’ 

Meier analogizes her case to Coppins, where the Wisconsin Court of Appeals took the extraordinary step of vacating an appraisal award. Meier’s situation, though, is more akin to that of the insured in Farmers. Just like Meier, the insured in Farmers challenged an appraisal ‘award on the grounds that the appraisers did not understand their role in the process.’ The Wisconsin Supreme Court rejected that argument because ‘the face of the award demonstrate[d] that the appraisers understood and accomplished their contractual task.’ The same applies to the appraisal award in this case. It compiles the estimates of various experts and averages them to reach the actual cash value of Hartland Inn. Calculating actual cash value—not calculating actual cash value according to any particular methodology—was the assigned task. And the appraisers completed it. Had they, instead, returned an award that estimated Hartland Inn’s sentimental value, Meier would have a point. See Quinn v. New York Fire Ins. Co., 126 N.W.2d 211 (Wis. 1964) (setting aside an appraisal award that did not calculate ‘actual cash value’ as the contract required). But nothing in the contract, nor in Wisconsin law prohibits use of the broad evidence rule to determine actual cash value as a general matter.

I can appreciate many claiming that what the panel did to determine actual cash value did not comply with Wisconsin law. But judges will often come up with extraordinary reasons to find the case over and the award binding. In this case, the court went so far as to say the following:

Meier could have, of course, negotiated for a provision that would have assigned Wadena a more active role in the dispute resolution process. But she did not. And freedom to contract necessarily entails freedom to enter into contracts that one might ultimately regret.

This is a strained statement. One of the basic principles of insurance law is that most insurance contracts are contracts of adhesion. There is no bargaining power for the vast majority of policyholders. It is a “take it or leave it” proposition. These are form contracts with many insurance competitors sharing the same adhesion forms. Except in rare cases, insurance companies write the contracts, and policyholders have no say about the terms. 

Today, those same insurance companies are addressing the issue of methodology to their benefit by rewriting the standard appraisal clause. We discussed this trend in State Farm New Policy Filing In California Should Be Concerning To All In the Property Insurance Industry—An Example Is the New Appraisal Language. State Farm is not bargaining with policyholders over this new language. 

The point of this post is a warning that it is hard to overcome the methodology of an award. When an appraiser is pushing a crazy idea, which most would never agree with, as part of a value proposition in an appraisal, it may take a very skilled and prepared opposing appraisal and competent umpire to understand how ridiculous the proposition might be.  

This leads me to my final point—the selection of an appraiser is important. In my afternoon presentation to appraisers and umpires, I discussed the need for them to take their duties seriously and be the best educated and skilled they can be. Steve Badger said that panelists should look at their roles as being an “honor.” I agree. 

The answer to today’s post is “yes.” But the success ratio of doing so is slight. 

Thought For The Day 

  • Lloyd Christmas : I want to ask you a question, straight out, flat out, and I want you to give me the honest answer. What do you think the chances are of a guy like you and a girl like me ending up together?
  • Mary Swanson : Well Lloyd, that’s difficult to say. We really don’t…
  • Lloyd Christmas : Hit me with it! Just give it to me straight! I came a long way just to see you Mary, just… The least you can do is level with me. What are my chances?
  • Mary Swanson : Not good.

[the background soundtrack music suddenly stops] 

  • Lloyd Christmas : [he gulps, his mouth twitching]  You mean, not good like one out of a hundred?
  • Mary Swanson : I’d say more like one out of a million.
  • Lloyd Christmas : [long pause while he processes what he’s heard]  So you’re telling me there’s a chance. YEAH!

—Dum and Dumber – 1994

1 Meier v. Wadena Ins. Co., No. 23-cv-0158, 2023 WL 3821346 (E.D. Wis. June 5, 2023).