Steve Badger forwarded me the Texas Division of Insurance coverage (TDI) request asking for feedback on draft rules that will, for the primary time, mandate appraisal procedures in each private auto and residential property insurance coverage coverage in Texas. Texas is about to place some formal guidelines round a course of that has lengthy operated just like the Wild West or “kangaroo courts” of insurance coverage dispute resolutions, as I famous in “Can Appraisal Flip Into A Kangaroo Courtroom.”
For many who don’t spend their mornings studying appraisal awards over espresso, right here’s the brief model. Appraisal is the method the place both sides hires an appraiser, these two choose an umpire, and the panel decides how a lot the policyholder’s loss is value. It was clearly designed to be a way to resolve disputes with out litigation. It was first in place earlier than civil litigation was as pervasive as it’s as we speak. It may be an answer with out the courtroom drama. However in observe? Typically it seems to be extra like a kangaroo court docket than a courtroom as a result of there are not any written guidelines, as I’ve lengthy written about on this weblog.
If you’re within the historical past of the appraisal clause, I counsel studying Appraisal Clause in 1761 Maritime Coverage and Reflections on Quick Decision of Controversies.
The Causation Elephant within the Room
Right here’s the place it will get difficult. Texas legislation presently says appraisers can decide causation to set the quantity of loss, however insurers hold the appropriate to later problem protection, together with that very same causation. Courts have drawn the road this manner, regardless that it means we regularly find yourself with delay, uncertainty, and generally litigation after the appraisal is over. For these wishing to check that matter in larger element, I counsel studying Texas Appraisal Regulation Replace, Texas Appraisal Permits Willpower of Causation and Upholds Zero Award, and The Scope of Appraisal Panel’s Authority in Texas.
The Division of Insurance coverage may take a unique tack. If the regulation is written in order that the panel is allowed to resolve causation as soon as and for all, the ultimate decision of the dispute would grow to be sooner, cleaner, and extra ultimate. My view? Let the appraisal panel do its job. The individuals in the very best place to find out what harm got here from hail versus wear-and-tear are those really trying on the roof, and you do not want a decide and jury three years later making that very same dedication.
Ashley Harris wrote a legislation evaluation on this matter, which has been cited by courts and events the place the causation situation has arisen, as famous in Ashley Harris Cited by Iowa Supreme Courtroom Concerning Causation Points in Appraisal Proceedings. It must be famous that the pattern is to permit events to find out causation in appraisal. I consider the Division of Insurance coverage has regulatory authority primarily based on its statutory authority to find out this, opposite to the Texas Supreme Courtroom ruling.
I’m not holding my breath that this may occur. Good ole Steve Badger and the remainder of the insurance coverage business foyer will most likely be in opposition to one of these decision of the causation situation by way of appraisal, which is frequent in lots of different states.
Who Will get to Be an Appraiser?
The draft guidelines suggest limiting appraisers and umpires to particular classes, corresponding to contractors, engineers, or adjusters. That sounds neat in principle, however in actual life, losses are available in all sizes and shapes. Some value determinations contain wine collections, jewellery, or enterprise revenue loss—issues for which neither a roofer nor an adjuster is essentially geared up to worth.
The higher rule? Hold it easy. Anybody may be an appraiser, as long as they aren’t conflicted, aren’t engaged on a contingency charge, and haven’t already touched the declare. That’s the usual that insurance coverage insurance policies have at all times contemplated. Let the events choose the particular person they belief most to worth their loss with out extra limitation.
How Quick Ought to It Go?
Appraisal is meant to be fast. However “fast” in a $30 million industrial loss doesn’t imply the identical factor as “fast” in a $15,000 water harm declare. The draft guidelines set inflexible timelines, however there’s a hazard they’ll be too one-size-fits-all.
My suggestion: observe the lead of teams just like the Insurance coverage Appraisal and Umpire Affiliation (IAUA) and the Property Loss Appraisal Community (PLAN). Require immediate decision, however let the umpire set the calendar. Give the panel flexibility to maneuver rapidly on small issues whereas recognizing that advanced losses take extra time.
Why You Ought to Converse Up
TDI has invited public remark till October 6, 2025. That is a type of uncommon moments when business professionals, policyholders, attorneys, and adjusters can form the way forward for appraisal in Texas.
Do we wish appraisal to stay the “kangaroo court docket” it has been? Or ought to it evolve into one thing nearer to arbitration, with finality, equity, and procedures everybody can depend on?
No matter your reply, now could be the time to share it. Converse now or endlessly maintain your peace as a result of as soon as these guidelines are set, they may govern each appraisal clause in each residence and auto coverage in Texas.
When you’ve got ideas, please learn the request and the draft regulation. Ship your feedback to the Texas Division of Insurance coverage earlier than the October 6 deadline. You’ll be able to e mail David Muckerheide at David.Muckerheide@tdi.texas.gov.
Thought For The Day
“Democracy isn’t a spectator sport.”
– Marian Wright Edelman
