An insurance appraisal award will typically not be vacated unless it clearly appears that it was made without authority or was the result of fraud, mistake or misfeasance of the appraisers. An appraiser is expected to provide an independent and unbiased opinion on the value of a loss. The persons appointed as appraisers must be impartial or disinterested. The same goes for umpires in the appraisal process.

A recent Georgia case,1 involved a 17,200 square foot commercial building containing several doctor’s offices damaged in a hail storm. There was damage to the building’s contents and equipment, and mold damage to the building’s ceilings, walls and floors. Because of this damage, there were also resulting business interruption losses for the doctors and their offices. Because the insured and its carrier disputed the amount of the loss, the claim went to appraisal. The umpire originally retained was an independent adjuster.

During the appraisal process, the original umpire joined a firm that performed work for the insurance company involved in the case. At this point, the appraisal award for the structural damage had been agreed to by the two appraisers and the umpire. However, only the insurer’s appraiser and the umpire agreed to the award for the business interruption claim. The business interruption award was based on an estimate prepared by the insurance company’s appraiser. The insured requested that the original umpire step down from the appraisal process because of the conflict of working for the insurance company, and he agreed to do so.

The parties could not agree on the selection of a new umpire, so the trial court appointed a new umpire to oversee the appraisal process. The trial court ruled there was a question regarding the impartiality of the original umpire, and that the appraisal awards for both the structural damage and business interruption were not binding. The insurance company then filed an appeal.

The appellate court determined that the structural damage appraisal award was binding on the parties because “in addition to the original umpire, both parties’ chosen appraiser expressly agreed to the [award] in writing.”2

However, the appellate court determined that the business interruption appraisal award was not binding on the parties:3

The Superior Court found that the original umpire's possible impartiality was sufficient to set aside the Business Interruption Award. Since the Business Interruption Award was based on Zurich's estimate, was issued after the umpire joined a company that performed work for Zurich and was not agreed to by Omni's appraiser, we cannot say that the Superior Court abused its discretion in setting aside the Business Interruption Award. See Blumsupra, 242 Ga. at 719, 251 S.E.2d 246 (arbitrator's partiality is grounds for setting aside award); Bellsupra, 319 Ga.App. at 303, 734 S.E.2d 894 (appraisal award may be set aside for irregularity or unfairness). Accordingly, we affirm the Superior Court's ruling that the Business Interruption Award was not binding.

An umpire selected by the appraisers should be impartial and unbiased. If the umpire has any potential conflicts of interest, they should be declared up front. Here, the appellate court agreed that the umpire should have stepped down when he changed employment to a firm that did business with the insurance company because this created a conflict of interest.