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 Court docket.”
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 all 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 at the moment. It may be an answer with out the courtroom drama. However in follow? Generally it seems extra like a kangaroo court docket than a courtroom as a result of there aren’t any written guidelines, as I’ve lengthy written about on this weblog.
In case you are within the historical past of the appraisal clause, I recommend 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 at the moment says appraisers can decide causation to set the quantity of loss, however insurers hold the proper to later problem protection, together with that very same causation. Courts have drawn the road this fashion, despite the fact that it means we frequently find yourself with delay, uncertainty, and generally litigation after the appraisal is over. For these wishing to review that matter in larger element, I recommend studying Texas Appraisal Regulation Replace, Texas Appraisal Permits Dedication of Causation and Upholds Zero Award, and The Scope of Appraisal Panel’s Authority in Texas.
The Division of Insurance coverage might take a distinct 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 last. My view? Let the appraisal panel do its job. The individuals in the perfect place to find out what injury got here from hail versus wear-and-tear are those really trying on the roof, and you don’t want a choose and jury three years later making that very same willpower.
Ashley Harris wrote a legislation assessment 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 Court docket Concerning Causation Points in Appraisal Proceedings. It must be famous that the pattern is to permit events to find out causation in appraisal. I imagine the Division of Insurance coverage has regulatory authority based mostly on its statutory authority to find out this, opposite to the Texas Supreme Court docket ruling.
I’m not holding my breath that this can occur. Good ole Steve Badger and the remainder of the insurance coverage trade foyer will in all probability be in opposition to such a 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 proscribing appraisers and umpires to particular classes, resembling contractors, engineers, or adjusters. That sounds neat in idea, 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 outfitted to worth.
The higher rule? Preserve it easy. Anybody could be an appraiser, as long as they aren’t conflicted, aren’t engaged on a contingency price, 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 injury declare. The draft guidelines set inflexible timelines, however there’s a hazard they’ll be too one-size-fits-all.
My suggestion: comply with 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 shortly on small issues whereas recognizing that complicated 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 trade 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 ceaselessly maintain your peace as a result of as soon as these guidelines are set, they’ll govern each appraisal clause in each house and auto coverage in Texas.
In case you have 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 possibly can e-mail David Muckerheide at David.Muckerheide@tdi.texas.gov.
Thought For The Day
“Democracy will not be a spectator sport.”
– Marian Wright Edelman
