In my previous blog, I discussed the proper grounds by which an appraisal award can be vacated in California. This week, I am going deeper in the appraisal process. In particular, can a disagreement or dispute over the scope of loss be resolved by appraisal?
I've heard of instances where an insurance company would reject appraisal when invoked by the insured citing a dispute over the scope of loss as the reason. First, what is a scope of loss? United Policyholders, a non-profit organization that is a resource to consumers, offers the following helpful definition:
A scope of loss is a document or a set of documents and measurements that describe the amount and type of damage that has been done to a structure, plus the quantity and quality of materials and the current cost of those materials and labor that will be needed to repair or rebuild that structure.1
Typically, if an insurance claim for property damage is adjusted properly, both the insurer and insured will agree to a scope of loss. In other words, the two sides are on the same page as far as identifying the damage, recognizing the full extent of the damage and determining the appropriate method or means of repair. However, we do not live in a perfect world and disputes occur during the adjustment of a claim and often over the scope of loss. For example, a water loss floods the kitchen. Can the flooring be repaired or does it need to be replaced? Can the kitchen cabinets be saved or is the homeowner entitled to new cabinets? These types of issues arise and are often a point of contention.
Well, is it proper for appraisal to be rejected if there is no agreement on the scope of loss? The recent case of Lee v. California Capital Insurance Company,2 tells us that disputed items in a scope of loss is not a reason to reject appraisal. The appellate court in Lee disagreed with the insurer's contention that an appraisal of disputed items is improper, holding:
It is simply not the case that an appraisal is limited to items of loss that the parties agree are covered under the policy.
. . . .
[A]n appraisal panel may assign a value to items as to which coverage is disputed with the disclaimer that the award does not establish coverage or the insurer's liability to pay. The issue of whether the loss is covered under the policy is a separate, legal issue that must be resolved outside the appraisal process.3
Therefore, if an insurer declines to enter the appraisal process contending that the scope of loss is disputed, the policyholder can seek court intervention and obtain an order compelling appraisal. If you are a policyholder with questions about the appraisal process, please contact an insurance professional. While it is one way by which a claim might be resolved, it is not the only means to recover policy benefits that are owed.