The Dangers of Appraisal Awards and Money Judgments

William Hoang

William Hoang

When a policyholder and insurer disagree as to the amount of loss or damage suffered by the policyholder, property insurance policies typically include appraisal provisions wherein a party can request an appraisal. In California, appraisal is a form of arbitration. However, appraisals are generally less formal and appraisers have more limited powers than arbitrators.

“The function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions in the policy.” (Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, 1166, citing Jefferson Ins. Co. v. Superior Court (1970) 3 Cal.3d 398, 403.) Likewise, appraisers should not determine the cause of loss, or whether there is coverage. For these reasons, if a policyholder and appraiser proceed to an appraisal, it is very important that the parties clearly delineate in the award/decision ultimately issued what exactly the appraisal panel adjudicated.

Since the scope of an insurance appraisal is limited to determinations of “value” and “the amount of loss,” an appraisal award generally will not determine all issues affecting an insurer’s liability for a claim. However, if there is ambiguity in the award ultimately issued, either the policyholder or insurer may face an unfavorable, unintended result as California Civil Code section 1287.4 provides that if an award is confirmed, “judgment shall be entered in conformity therewith.” Therefore, if the parties to an appraisal only intend to determine the “value” or “amount of loss” for a claim, they should delineate such intent through a clearly drafted appraisal award form before the conclusion of the appraisal.

For example, the award form could state that the award is “made without consideration of any deductible amount or any coverage or other provision of the … policy which might affect the amount of the insurer’s liability there-under.” California courts have held that when such a provision is included in an award, the trial court may not enter a money judgment pursuant to the award, but rather the trial court should merely enter a judgment that the values and amounts of loss are what the appraisers calculated them to be. (Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498.)