The Flood Insurance Appraisal Clause
As a flood insurance attorney, I speak to many victims of Hurricane Sandy in the hardest hit areas – Ocean County, Monmouth County, Atlantic County, as well as the shores of New York and Long Island. Often times I am asked about the “Appraisal Clause” and when it can be used. On May 15, 2013, the Federal Emergency Management Agency (FEMA), administers of the National Flood Insurance Program (NFIP), issued additional guidance regarding when the Appraisal Clause may be used and what the necessary conditions are for invoking it. This guidance not only severely limited when the Appraisal Clause could be evoked, but also impacted the role of public adjusters in flood insurance disputes.
All three of the forms of the Standard Flood Insurance Policy (SFIP) — the Dwelling Form, the General Property Form and the Residential Condominium Building Association Policy (RCBAP) — contain an Appraisal Clause in its General Conditions. According to FEMA, the SFIP appraisal process is a mechanism for resolving only disputes regarding the dollar amounts to be paid for flood damages covered by the SFIP. The appraisal process cannot be used as a method to determine scope of damage, coverage under the SFIP or causation of damages.
According to FEMA’s notice, for the Appraisal Clause to be properly invoked, the following conditions must be met prior to the parties using the appraisal process:
1. Scope: The named insured and the issuer of the SFIP must agree to the scope of loss and damages. This means that there must be a list of damaged items (the scope) that both parties agree were damaged by the flood event and covered by the SFIP. If the insured and insurer cannot agree on the scope of loss, then the appraisal provision cannot be invoked. This means that a claim cannot be partially resolved by the appraisal process and partially resolved by other means (such as an appeal to FEMA or through litigation). Appraisal can only be used when it will result in complete resolution of the entire claim.
2. Proof of Loss: The insured must have submitted a timely and complete Proof of Loss with supporting documentation for the items which the insured is seeking appraisal. If an insured submitted a Proof of Loss for a dollar amount of damages and the insurer paid that amount in full, the Appraisal Clause cannot be invoked because there is no dispute between the insured and insurer as to the scope of loss or pricing.
3. Pricing: Appraisal is available only when the dispute between the parties involves the price to be paid for an SFIP-covered flood-damaged item. No other dispute of any type (e.g., coverage, scope or causation) can be submitted to appraisal. If any issue other than pricing is attempted to be resolved through use of the appraisal process, then the appraisal provision has not properly been invoked and the appraisal process is not valid.
4. Qualified and Impartial Appraisers: The appraisers and umpire selected for the appraisal process must be competent and impartial. This means that the individuals nominated to serve as appraisers by the parties, and the umpire to be selected by the appraisers, cannot be in a position to profit from a higher claim(s) payment made to the insured. For example, if the insured has hired a public adjuster or attorney whose fee is based upon the insured securing a higher claims payment, no one employed, affiliated with, or related to the public adjuster or attorney could serve as the appraiser or the umpire. The same rule applies to the insurer; no one employed, affiliated with or related to the adjuster or owner of the adjusting company who could receive a higher fee based upon the insured receiving a greater payment could serve as the appraiser or umpire. The appraisal process would not be valid if the appraiser and/or umpire were not competent and impartial.
About the Author: Christopher W. Gerold is an attorney in Wolff & Samson’s Disaster Recovery Claims Group. Chris represents homeowners, condominium associations and businesses with their Sandy related insurance claims with a special focus on flood insurance. For more information on flood insurance and ways Wolff & Samson can help you with your flood insurance claim, please contact Chris at (973) 530-2061.