Impact on Appraisal Process!

The COVID-19 Pandemic and required social distancing has raised the need to consider and perhaps offer a different approach to alternative dispute resolution services (ADR) and the Appraisal process in accordance with s 128 of the Insurance Act of Ontario or similar Acts in other Common-law Provinces.
In the past, when demanded by either party that the amount of loss be determined by Appraisal, each party appointed an individual to act as their appraiser, the two appraisers selecting an umpire. A Proof of Loss must first be submitted. Timelines referenced in the Acts.

That has not changed!


s. 128 (3) of the Ontario Insurance Act states the appraisers “shall” determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.

    • To determine the matters in disagreement the insurer must first identify them.
    • The two appraisers see if they can resolve the differences,
    • Clearly identify matters in disagreement they cannot resolve for resolution with umpire.

That has not changed!


Step #1- “Meeting of appraisers”

Typically, the two appraisers meet to see what matters in dispute they may resolve, with or without witnesses, and if necessary, clearly identify matters for resolution before the umpire. In order to get to an eventual Award between themselves or before the umpire they must also agree to matters not in dispute and the amount of loss associated with them.

With social distancing, that has changed!


Step #2 – “Site Visit/Inspection”

If a site visit is requested by either appraiser, it may or may not be feasible. Each case to be based on location, accessibility and the ability of those attending to maintain social distancing.

With social distancing, that has changed!


Step #3 – “Exchange of briefs”

If the appraisers are unable to determine the amount of loss between themselves, briefs are prepared by each appraiser and exchanged, with copies provided to the umpire several days prior to appraisers along with their witnesses meeting with the umpire.
Briefs must now be delivered to the umpire, who, upon receipt of both sets will courier a set to the appraiser opposite, maintaining copies for himself to review.

With social distancing, that has changed!


Step #4 – “Appraisal Meeting”

Following the appraisers meeting with one another, perhaps a site meeting, followed by the submission and exchange of briefs, an informal meeting takes place at an agreed location where both appraisers supported by their invited witnesses present each other’s opinions before the umpire. If evidence presents itself, the appraisers may agree or come closer together in terms of their opinions as to the amount of loss by category and/or line item. When there is no more movement by appraisers the umpire will agree with one or the other, or, if requested by both appraisers offer his or her opinion.

With social distancing, that has changed!


Step #5 – “Written Award”

Once the tribunal with at least two of three agreeing, an Award will be drafted. If the Appraisal is completed by videoconferencing, a written draft award will be forwarded to each appraiser for their review and signatures within five business days of the appraisal meeting or earlier as agreed upon.

With social distancing, that has changed!


Videoconferencing maybe considered an alternative in some cases to face-to-face meetings, each case to be determined on its own merits with the approval of both parties and their appraisers.

STAT11 Inc. subscribes to “join me” a videoconferencing platform that allows, by invitation only, multiple participants and the shared viewing of documents.
Videoconferencing is not recommended for all alternative dispute resolutions involving an Appraisal under the Insurance Act. It should only be considered an alternative when both parties and their respective appraisers agree considering the impact and delay a traditional Appraisal may have during this pandemic.
Our standard rates apply, obvious charges for travel a savings for both parties but this maybe offset with additional time required to review and prepare.

The Appraisal Process

An Update… by Glenn Gibson, January 2020

This is the 14th iteration of this research paper. It was first published in 1996.

The Statutory Conditions form part of every property insurance policy that is sold in Canada. There is a mandatory statutory condition that triggers “Appraisal” in the event of a dispute on the amount of loss. This alternate dispute mechanism has been part of the policy conditions for decades however there are misunderstandings about how the process works.

The original legislators intended to have the Statutory Conditions guide both the insured and insurer through the claims process. Policyholders pay premiums for protection so that in the event of a loss they can be properly compensated in accordance with the terms of the contract. The Appraisal condition was contemplated to provide an inexpensive, effective way to resolve issues in dispute that relate to the amount of the loss.


The goals of this article are to:

    1. Demonstrate how the ‘Appraisal’ process works.
    2. Provide suggestions on how the process can work effectively.
    3. Highlight key legal judgments that help frame and direct the appraisal process.


George R, Milnes, CFE-Retired, CCFI-C


Indemnity means that the insurers agree to compensate in the event of loss such that the insured is left substantially in the same position financially after the loss as they were before it – the insured cannot profit from a loss!



If the settlement of the Claim results in the insured being in a better financial position than they were before the loss occurred, the extent of the improvement to their situation is known as ‘betterment.’ They would be expected to contribute towards the claims settlement.

In the event of a claim and where the structure or equipment reinstated improves the insured’s position, the principle of betterment applies. In that case, financial payment is required of the insured.

For example, following a fire, it may not be possible to replace a roof in the same dilapidated condition as the old one. Following the principle of indemnity, the insured is now in a better financial position with a new roof than before. Therefore, betterment applies, and the insured must pay something towards the cost of the replacement.



Insurance against fire and other causes of property damage is generally carried to make good the loss to the insured of what they possessed immediately before the occurrence of the loss. This involves either restoration in like kind and quality, or reimbursement only to the extent of the damage. It does not imply substitution or replacement of what is lost with what is to be desired in place of the damaged or destroyed property unless special provision has been made in the contract of insurance.

Full replacement cost is replacement cost new, in like kind and quality, un-depreciated.

Like-kind may be defined as referring to utility or use made of the building and its type of construction. It means the subject may have been a wood-frame-constructed bungalow on a full basement, a two-storey masonry constructed, walk-up, office/retail building with full basement, etc. The replacement improvement then must be similar in use and construction to the insured property, or structure destroyed.

Like-kind, then, replicates the utility and basic construction of the insurable building improvements in present terms with regard to current building regulations and standards as well as materials and workmanship.

Therefore, an appraiser called upon to estimate the value of building improvements for insurance purposes should consider the cost of replacing the existing improvement.

Like quality refers to the durability and performance characteristics of the particular component. This is especially true if the component is no longer produced, and a substitute is needed. However, a common error of appraisers who rely upon floor area building costs from manuals provided by building cost services, is that the model from the manual may be of average quality and simple design with average components, whereas the subject building improvement is of average quality but has luxury quality heating, ventilation, air conditioning systems and a top-of-the-line, state-of-the-art roof cover.



Of the various ways to quantify physical depreciation, there is none better than careful observation.

All physical depreciation is possible to cure; however, it may not be economically feasible to cure such items as a reconstruction of the building’s structural carcass. Other methods, such as reinforcing a structural floor or placing crossties to support sagging load-bearing walls, may retard such deterioration and extend the life of the building. These ‘cures’ are usually economically feasible, whereas rebuilding the walls or floors would probably not be.

In insurance claim disputes, a carefully documented physical condition survey of the insurable improvements along with fixed building service equipment will always be accepted over straight-line depreciation, mid-life theory or extended life theories, which tend to be frequently relied upon for insurance valuations by appraisers than the more time-consuming and more expensive observed condition surveys.



The inclusion of obsolescence, in estimating insurable value may be a matter of underwriting policy that requires objective judgment and thoughtful, unbiased consideration of both the insurer and the insured’s interests.

Economic obsolescence is a reduction in value as a result of external causes. In most cases, one could probably conclude that reduction in value caused by economic obsolescence will apply entirely to the land.

Functional obsolescence refers to outmoded features of layout or design, structural components, or fixed building service equipment, and maybe incurable or curable, depending upon economic or physical feasibility.

Governing authorities having jurisdiction over the construction of the replacement building will require that it be built in accordance with modern standards as specified in local bylaws, which may include regulations such as the National Building Code. Existing functional obsolescence will not be replicated, and the restoration may also result in betterments over what the insured previously owned, at least physically or from an occupier’s standpoint.

A question arises: If such windfall, cures to these apparent features of functional obsolescence do not result in realizable benefits by way of additional net revenues, has there been a betterment that should offset the insured’s indemnity?

It is this author’s opinion; physical depreciation should only apply to a building’s wearable surfaces and review of updates and maintenance be taken into consideration.

If a structure is still used for its original intended purpose no more than 50% depreciation should apply.

In the case of contents, life expentancies and physical condition will influence actual cash value.

Where policies include “market Value” to be considered when determining Actual Cash Value (ACV) this author believes overall Replacement Cost (RC) should first be determined then, on a case by case basis, market value be considered and weighed on a percentage basis of RC by line item or category. Except in rare circumstances, should market value be given any weight for contents losses.

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