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Insurance Law

Appraisal: No Excuse For Failure to Appoint Umpire

The Supreme Court of Alabama was asked, in Ex parte Tower Insurance Company of New York Inc., 1120228 (Ala. 08/23/2013) [enhanced version available to subscribers],, to grant a petition for a writ of mandamus filed by an insurance company, an independent adjusting firm, and an adjuster employed by that firm (collectively “the petitioners”) directing the Cullman Circuit Court to set aside its order appointing an umpire to resolve a dispute between the insurance company and its insured concerning a claim for damage to the roof of the insured’s commercial property. The insured had moved the trial court to appoint an umpire pursuant to an appraisal clause in its insurance policy designed to resolve disputes in the event the insurer and insured “disagree on the value of the property or the amount of loss.” The insurance company had previously declined to follow the procedure set forth in the appraisal clause because, it argued, its dispute with the insured was not over “the amount of the loss” but whether the alleged loss was, in fact, a covered loss in Ex parte Tower Insurance Company of New York Inc., 1120228 (Ala. 08/23/2013).

The Alabama Supreme Court refused to issue an opinion and simply refused the petition. One justice wrote a concurring opinion that is informative to all insurers faced with a demand for appraisal when the insurer believes the only issue was a dispute over the coverage and not the amount of the loss.

The Supreme Court considered a similar issue in Rogers v. State Farm Fire and Casualty Co., 984 So.2d 382 (Ala. 2007) [enhanced version available to subscribers],; in that case it was the insureds that argued that the trial court had improperly ordered the parties to submit to the appraisal process set forth in their insurance policy. When the trial court subsequently entered a judgment in accordance with its appointed umpire’s findings, the insureds appealed to this Court, arguing that the trial court had erred in ordering them to submit to the appraisal process because, they argued, the gravamen of their dispute was whether the alleged loss was a covered loss. In reversing the trial court’s judgment, we stated:

“Having considered the holding of other jurisdictions regarding the scope of an appraiser’s rights and duties under an appraisal clause in an insurance policy, we conclude that the more persuasive authority is the authority holding that an appraiser’s duty is limited to determining the ‘amount of loss’ – the monetary value of the property damage – and that appraisers are not vested with the authority to decide questions of coverage and liability; we thus adopt that holding as our rule of law. Questions of coverage and liability should be decided only by the courts, not appraisers.”

The Supreme Court found no ambiguity in the term ‘the amount of loss’ as used in the appraisal clause in the Rogerses’ homeowner’s policy that would permit an appraisal to include questions of coverage and liability.

Rogers supports the general argument made by the petitioners in this case that disputes regarding the scope of insurance coverage should not be decided by appraisers or umpires in proceedings conducted pursuant to an appraisal clause in an insurance policy; rather, those proceedings should be used only to establish the amount of loss when both the insurer and the insured agree on what constitutes the covered loss.

In this case it was unnecessary to examine the alleged facts to determine whether the dispute is truly one of coverage or one of value because the petitioners have not established that they are entitled to mandamus relief.

Mandamus is a drastic and extraordinary writ that will be issued only when, among other things, the petitioner has no other adequate remedy. The insurer petitioners cited no authority and have made no argument establishing that mandamus relief is appropriate in this case. For all that appears, the insurer petitioners may obtain relief, if they are ultimately entitled to it, via the normal appellate process – not unlike the appellants in Rogers, the case upon which the petitioners primarily rely.

The burden rests on the petitioner to demonstrate that its petition presents such an exceptional case – that is, one in which an appeal is not an adequate remedy. The insurer petitioners failed to do so and the appointment of an umpire and appraisers will establish the amount of loss.


Appraisal is designed to establish only the amount of loss. The Umpire and appraisers know, or will be told by the parties, the limitation on their duties to determine only one thing, the amount of loss. They know, or will be told, that they must limit their award to the amount of loss and should never make any decision regarding coverage issues.

If, for some strange reason, the appraisers and umpire violate their duty and resolve coverage issues their award will be set aside by a trial court. The insurer petitioners did not provide the court with facts needed to receive a writ of mandate nor did they present any evidence that they would lose their right to question any award of appraisers in a trial court or an appellate court if the appraisers exceeded their responsibility.

Appraisal is supposed to help resolve a claim quickly and easily without any dispute over coverage limitations.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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