Insurance Dispute Umpire Selection
Umpire Selection--Can a Neutral Umpire Really Be Selected?
Chip Merlin
April 8, 2013
I was in Dallas last Thursday on a hearing to select a "neutral umpire." My opposing counsel is Kristin Cummings. In my preparation for the hearing, I noted that she co-authored a paper, "The Devolution Of Appraisal In Insurance Disputes," regarding current topics on the selection of umpires.
She noted in part:
"Historically, appraisal provided a method for an insured and insurer to efficiently resolve a dispute over the amount of a covered loss when both parties agreed about the existence of coverage. It was generally a quick, inexpensive and amicable process.
Unfortunately, that’s no longer the case. The appraisal process has devolved into a nonjudicial dispute resolution process rife with abuse and manipulation by individuals — other than the insured — with a monetary incentive to engage in and prolong the process.
...Most policies require that each appraiser be “impartial” (sometimes “disinterested”). While appointed appraisers will always attest to their impartiality, the practical reality of appraisals today is that seldom does an appraiser disagree with the position of the party who appointed him.
Not surprisingly, the insured’s appraiser almost always agrees with the insured’s position. Likewise, the insurer’s appraiser almost always agrees with the insurer’s position. Does this mean that the appraisers are not impartial? Not necessarily.
However, it does indicate that appraisers — though perhaps still “impartial” as defined by the policy — are now essentially advocates for their client’s positions in a prelitigation dispute resolution process.
With almost no appraisals resolved by the appraisers themselves, the appointment of an umpire is a virtual certainty. Most policies specify that if the appraisers cannot agree on the amount of loss, they are to work together to agree on an umpire. Historically, there had been a good faith effort by the two appraisers to reach agreement on a neutral umpire. Or, if such agreement couldn’t be reached, they would jointly ask a judge in a local court to appoint an umpire of its choosing.
That has also changed. Now, it’s a race to the courthouse to get a favorable umpire appointed, often unilaterally and without proper notice to the other party. It is not uncommon for a party to file a motion to appoint an umpire without notifying the other side that it intends to do so. In many jurisdictions, a court can grant such a motion before the other side even has had a chance to respond.
As a result, an umpire in a specific dispute is increasingly not a person agreed to by the appraisers but rather the name submitted by one side in its unilateral motion to appoint an umpire. While this appointed umpire might also be “impartial” as defined by the policy, it should not be surprising that the umpire eventually sides with the party who won the race to the courthouse and obtained their appointment." (emphasis added)
I found this paper refreshingly honest; insurance defense attorneys stated their opinion in public rather than for insurance company representatives alone. I have also recently noted appraisal problems in Regulating the Appraisal Industry---Is it Time?, The Current State of Appraisal, and How Mutual Terms Can Prevent Appraisal and Ethics of Appraisers---Just Wishful Thinking?
Is any umpire truly neutral? I am certain that many umpires answer this question with an emphatic "yes."
Yet, this question is asked frequently by attorneys and public adjusters when they ask, "what is so and so like as an umpire?" or "who would you suggest as an umpire in this case?" I usually ask about the case and, especially, the appraisers already selected before answering the question. Then, I do what I expect everybody else does but is afraid to admit, I determine who may be a favorable umpire, weed out those that will probably favor the insurance company, and finally note those who appear neutral. But my answer is always speculation.
Some umpires are notorious fifty-fifty referees. That is not neutral. That is cowardly.
Some umpires are very knowledgeable about a given area of construction or type of damage. But preconceived bias and opinions are sometimes wrong. It is hard to get a person who knows he is right to admit when he is wrong or that someone else may understand the issue a little better. It is hard to teach humility during appraisal debate.
How did the Dallas judge select the umpire during the hearing? She did the smart thing by not selecting an umpire nominated by either party. Obviously, a party might suggest a panelist with an outcome oriented agenda. By picking one of those nominated, the other side would naturally believe the matter is already lost. The judge appointed a retired judge with experience in appraisals and mediations.
Any randomly selected umpire will have some bias. That is why it is important for parties to have a dialogue before the selection by a court. As the old adage teaches, it is sometimes better to stay with the devil you know.
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