Under California Insurance Code sections 2070-2071, fire insurance policies must contain an appraisal provision that may be invoked to settle disputes over the value of losses. A form of contractual arbitration, appraisal only applies where the disagreement involves the amount of the loss, and may not be used to determine the cause of the damage, policy interpretation, or coverage issues. Several recent cases have reinforced appraisal as a potentially productive tool, and have offered guidance on reaching and sustaining a valid award.
In Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, the appellate court held that parties may appraise a loss which involves disputes about coverage, causation, or policy interpretation. The court suggested that, in those situations, the award form should show that the panel did not actually decide those issues, but that it instead determined only the dollar value of the loss. This requires a careful approach by the parties and panel in preparing a clear award form which preserves disagreements outside a panel’s authority for later resolution.
In 2018, California’s Second District Court of Appeal issued two opinions upholding the validity of appraisal awards, despite post-appraisal attacks on procedural grounds. In Khorsand v. Liberty Mutual Fire Ins. Co. (2018) 20 Cal.App.5th 1028, the Court of Appeal ruled that appraiser declarations are inadmissible to challenge an award, other than for purposes of demonstrating fraud. In Lolachi v. Allstate Ins. Co. (2018) 2018 WL 2716333 (unpublished), the court rejected an insured’s attempt to imply panel misconduct on the basis of various procedural complaints (such as awarding “zero” for certain repair categories without further explanation).
In light of the trend set by these cases, both insureds and insurers should continue to consider appraisal as a viable ADR option, to narrow or resolve disputes about the amount of loss.