The Appraisal Process
The appraisal process is designed to be collaborative and not adjudicative, and the process, which does not require a hearing with evidence, contemplates that the appraisers and the umpire will arrive at a binding decision based on their own knowledge and expertise. The umpire is the ultimate impartial decision-maker that makes a binding determination that removes the quantification of the loss from the court. As for procedure, the umpire may permit viva voce testimony under oath and may receive affidavit evidence but he or she is not required to do so.
The court is empowered to appoint appraisers and the umpire. The court may order the appraisers to meet to begin the appraisal process about the valuation of the loss. The court may order that if a party refuses to appoint an appraiser that the umpire be authorized to proceed in the absence of that party. When the insured’s appraiser and the insurer’s appraiser cannot agree on an umpire, s. 128 (5) of the Insurance Act empowers the court to choose an umpire who would be best suited to be umpire by reviewing their resumes and the evidence on the application.
The court has inherent jurisdiction to make such procedural orders as are necessary to give effect to the statutory appraisal scheme in the Insurance Act and to prevent adjudication by ambush, to promote efficient and meaningful discovery as a means of reaching a just result, and to equip both sides as well as the umpire with the information needed to present a full answer and defence. If there is an appraisal process, the insurer does not lose its right to require the insured to be examined under oath, and the appraisal process does not negate the insured’s obligation to give details of the amount of loss claimed. Statutory Condition 6 applies in addition to Statutory Condition 11 (appraisal process).
For those of us involved in the appraisal process, the Superior Court Of Justice – Ontario: Northbridge General Insurance Corp. v Ashcroft Homes – Capital Hall Inc., 2021’s lengthy recent decision provides a much-appreciated insight into the appraisal process. It has been added to my website under the heading “articles”. Other recent articles are also posted for your review.
The court noted that the appraisal process does not fall under the Rules of Civil Procedure, while the Insurance Act specifies no procedure. This lack of a rigid structure is meant to ensure flexibility in the appraisal process, to offer an insurer and an insured an expeditious and easy way to settle an indemnity claim under the insurance policy and to remove a valuation issue from the court’s jurisdiction if either party has invoked the process. Every appraisal process differs and depends on the specific facts of the loss and on the umpire’s choice on how to handle the matter, said the court.
In another case I have also added to my website, Campbell v. Desjardins General Insurance Group, Justice M.E. Smith described the appraisal process and the roles of the appraisers and the umpire as follows:
Each appraisal process is different, dependent upon the complexities of the loss or the manner upon which the umpire chooses to proceed. There is no requirement for a hearing, nor is there a prohibition that one takes place. If oral evidence is presented, contractors and/or insureds can be called to testify, and cross-examinations can occur. Experts can also be asked to attend a hearing and provide his/her opinion. The hearing can last a few hours, one day or span over many days. The valuation can also be entirely based upon written documentation.
In sum, the appraisal is an informal valuation process, and it is run entirely by the umpire, as he/she sees fit.
The appraisal process envisioned by s. 128 of the Insurance Act has a sequence to it.
First, the appraisers are appointed. In Madhani v. Wawanesa Mutual Insurance Company, the insured had one appraiser for the building loss and a different appraiser for the contents loss and the insurer had one appraiser for both losses. Sometimes the insured acts as his or her own appraiser and sometimes an employee of the insurer acts as its appraiser. In Letts v. Aviva Canada lnc., there were concurrent court proceedings and an appraisal process, and the court appointed the articling student for the insured’s lawyers as an appraiser.
Second, the appraisers appoint an umpire. A properly appointed umpire must be impartial and much like an expert at trial might be an expert in the field at issue between the parties either from special training or experience.
Third, the appraisers determine the matters in disagreement.
Fourth, if the appraisers do not agree, then they submit their differences to the umpire, and the finding in writing of any two determines the matter. The decision of the two appointed appraisers and/or the umpire is determinative and is a binding valuation of the insured property that is damaged or lost.
In Madhani v. Wawanesa Mutual Insurance Company, the Divisional Court held that the appraisal decision had to be in writing, but there did not have to be written reasons for the decision.
There is no appraisal tribunal. What there is, is a process in which the ultimate decision-maker is not a tribunal but an umpire who decides between the partisan submissions of the appraisers and makes a legally binding decision. There is a possible judicial review of the umpire but that is not a judicial review of a tribunal.
Moving on to the selection process, appraisers for the insurer will often present a list of three or four candidates and request the appraiser for the insured do the same. The appraisers then meet or otherwise communicate to select an umpire from the candidates presented. Unfortunately, some appraisers will try to bully the appraiser opposite to accept one of their candidates, threatening to bring a Motion before the courts to have one appointed if one of their candidates is not accepted.
Insurers have deep financial pockets and are not threatened but the average policyholder does not want to or cannot afford the delay that comes with motions and related legal and court costs.
Before agreeing on the selection of an umpire, it is recommend the two appraisers meet or otherwise communicate without any outside influence.
While insurance policies recognize that appraisal is a means by which an award of “value” can be finalized, there is little or no additional guidance regarding the issues of how and what to appraise. Neither is it method by which the value(s) will be reported to the parties. In fact, there is likely no other practicable guidance about how to appraise a disputed loss in the policy of insurance. Thus, its left to the parties or, in litigated matters a court, to sort these issues out.
With respect to the timing of the umpire selection, it is important that this be the first order of business for the appraisers. Although there is a school of thought that suggests appraisers should first meet to determine their differences prior to selecting an umpire, this is impactable for several reasons. First, the best chance for the appraisers to agree on the identity of the umpire is prior to attempting to reach agreement on the amount of loss. Once they fail to agree on the disputed loss values, there will be little likelihood that they can agree on the umpire. Second, in large complex cases, it would create a hardship to attempt to bring an umpire “up to speed” after disputes have developed. Third, and perhaps the most compelling reason to select an umpire at the outset of appraisal, is that an experienced and effective umpire can help the appraisers negotiate their way through the process, steering them (and sometimes the parties) toward consensus on issues. This can often have the benefit of expediting the appraisal process, and indeed help bring finality to claims even when there are coverage disputes. Finally, the umpire can also be used to assist the parties in finalizing the protocol, which will govern the appraisal.
If George is selected to act as umpire he will only recognize “individuals” as appraisers, not law firms, not companies and not public or independent adjusting firms appointed individuals may be employed by or associated with. There can be only one decision-maker!
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