In Part 1 of my review of the Farmers “Next Generation” Homeowner’s Policy, I explored Farmers; new definition of Actual Cash Value. In this post, we are going to explore the new appraisal clause offered by Farmers.

The standard appraisal clause in an HO-3 policy generally reads as follows:

Appraisal.: If you and we fail to agree on the amount of loss, either one can demand that the amount of the1oss be set by appraisal: If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. Each shall notify the other of the appraiser’s identity within 20 days of receipt of the written demand,, The two appraisers shall then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, you or we-can ask a judge of a court of record in the state where the residence premises is located .to select an umpire. The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire: Written agreement signed by any two of these three shall set the’ amount of the loss. Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by you and us.

As in the ACV context, Farmers has gotten much more verbose. The “Next Gen” Policy provides:

10. Appraisal.
If you and we fail to agree on the amount of loss or damage, or the actual cash value or the costs of repair or replacement of covered loss or damage, either one may make a written demand for appraisal. Each will then select a competent and disinterested, independent appraiser and notify the other of the appraiser’s name within 20 days after the written demand is received. If the appraisers cannot agree on the amount of loss or damage, the actual cash value or the costs of repair or replacement, the appraisers will then choose a competent, independent and disinterested umpire. If the appraisers cannot agree upon an umpire within 15 days, you or we can ask a judge of a court of record in the judicial district where the residence premises is located to choose an umpire. Any person or entity which has performed any function or service for either party, whether for remuneration or not, as respects the particular loss or damage claimed under this policy may not serve as an appraiser or the umpire.

The appraisers will then determine the amount of loss or damage. With specificity the written appraisal agreement will:

a. describe each item or category of property being appraised;
b. describe the type(s) of damage to each item or category of property;
c. describe the extent of the damage to each item or category of property;
d. estimate the costs of repair or replacement of each item or category of property;
e. estimate the amount of depreciation and/ or obsolescence of each item or category of property; and
f. state the actual cash value each item or category of property

If the appraisers submit a written appraisal agreement to you and us made in accord with this Condition, the agreed amount will be the amount of loss or damage and actual cash value. If the appraisers cannot agree, they will submit their differences to the umpire. A written appraisal agreement made in accord with this Condition signed by any two will set the amount of loss or damage and actual cash value. Each party will pay the appraiser it chooses. The umpire and all other expenses of the appraisal will be paid equally by you and us. Interpretations of this policy may not be determined under this provision, including by way of example but not limited to:
a. whether any particular loss or damage to covered property is in fact insured under this policy;
b. whether any amount is payable for overhead and profit or building ordinance or law coverage; or
c. the cause(s) of the loss or damage to the covered property.

Appraisal has been around forever, and usually works well to settle claims. Farmers is looking to change the game here. First, this clause requires the appraisal panel to list each item they have considered, including type of damage and the extent to which it was damaged. I find it very interesting that they are requiring this to be stated by the panel considering the last line of the appraisal clauses states that the panel cannot state “c. the cause(s) of the loss or damage to the covered property.” I would argue this portion of the policy is ambiguous, if not plainly inconsistent.

Perhaps the worst part of this new clause, is the second to last sentence which states that the appraisal panel cannot determine “whether any amount is payable for overhead and profit or building ordinance or law coverage.” On a claim with major damage, how can the appraisal panel set the amount of the loss without determining appropriate payments to the repairing contractors for overhead and profit or if the current building code would require repairs to be done in a certain manner? By limiting what appraisers can do, Farmers is essentially writing appraisal out of their policies—especially for larger claims.

This reminds me of this cartoon I saw some time ago.