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If a property insurer is going to object to an appraisal panel member’s fee arrangement, it must do so early in the process – not after the panel provides an unfavorable, multimillion-dollar appraisal award.
That was the word this week from the U.S. 11th Circuit Court of Appeals in a decision that could limit the options that Florida insurance carriers have on arbitration awards. A Florida plaintiffs’ attorney said the too-late objection to the appraiser is one of several tactics insurers have used in recent years to try and knock down awards after appraisal panels have finished their work.
“This trend is concerning as appraisal was created to be an independent process without influence by the parties and a process insureds were confident to rely on,” said Lake Worth attorney Gina Clausen Lozier, who once worked on the insurance side but now represents policyholders.
Insurers, who have long complained about the alleged bias of some public adjusters, won a major victory in February 2023 when the Florida Supreme Court found that public adjusters for homeowners cannot also work as appraisers if the policy requires them to be “disinterested.” Since that ruling, it is rare for appraisers to work for a percentage of the award if the policy demands that panel members have no financial interest in the outcome, Lozier noted.
The federal appeals court decision on Tuesday upheld a 2023 ruling by the U.S. District Court for South Florida, in favor of Biscayne Beach Club Condominium Association, representing a luxury condo in Miami. The association had sued its carrier, Westchester Surplus Lines Insurance Co., a Chubb company, in 2018 after a dispute over the amount of damage from storms. Unhappy with the amount tendered by the insurer, the condominium exercised its right to appraisal, as provided by the policy, the court explained.
Westchester initially objected to one appraiser on the three-member panel, a public adjuster chosen by the condo association, who was to be paid a 10% contingency fee, or 10% of the amount awarded. That type of fee would produce a skewed incentive for the appraiser – the higher the award, the higher his fee, the insurance company argued.
Biscayne Beach then retained another appraiser, Blake Pyka. The court noted that the exact nature of Pyka’s fee arrangement was in dispute, which may have led to some confusion in the case. But the court opinion also explained that an attorney for the condo association had made it clear to Pyka that he was to be paid $325 an hour, with no contingency fee.
Still, six months later, the panel met for final negotiations and Pyka then revealed that he thought he was still being paid on “small” contingency percentage basis by the condo association. But Westchester did not object to Pyka’s presence on the panel.
A month after that the appraisal panel landed on $14 million in losses to the condo site. Only then did Westchester object to Pyka. The insurer moved to reopen the matter and conduct additional discovery on Pyka’s pay.
The lower court denied Westchester’s motion and confirmed the $14 million award. Westchester had essentially waived its objections to Pyka’s partiality by failing to raise concerns earlier, when it had the chance, the courts said.
“The ‘general rule’ is that a party who knows of an arbitrator’s bias must object to his partiality before the award issues,” the three-judge panel wrote in the Aug. 6 opinion, citing several previous appeals court decisions.
“The party may not ‘sit idle,’ see whether the award is favorable, and then collaterally attack the proceedings on a ground that it declined to flag sooner,” Circuit Chief Judge William Pryor wrote in the opinion.
Westchester’s lawyers argue that previous court rulings give it grounds to object after the fact, but the appellate judges disagreed. The insurer never explained why it did not object earlier.
“We are sympathetic to the concern that ‘inequitable’ gamesmanship by one party should not force the other party to either stage an eleventh-hour holdup of the process or bite the bullet of potential bias,” the court opinion explains. “Yet Westchester had its chance to challenge Pyka’s partiality, chose to wait and see how the appraisal turned out, and now asks the court to restart the process—all while claiming that it would be wasteful to have objected any earlier.”
The legal move by Westchester is part of a troubling trend by some Florida insurers, Lozier told Insurance Journal.
“We have seen in our practice numerous cases of appraisers for the insurance company taking direction from in-house examiners, adjusters or lawyers on the form of the award, the umpire, the items to be addressed and the amounts to be awarded,” said Lozier, who is very familiar with the appraisal process in claims disputes: She is president-elect of the Windstorm Insurance Network, an organization that offers training and certification for appraisers and adjusters.
She argued that that the appraisal panel has full authority to determine the cause of the loss, but insurance companies continue to object when panels attempt to examine causal questions. Citizens Property Insurance Corp., the state-created safety-valve insurer that is the largest insurer in the state, has been particularly aggressive on this issue, she said.
In one recently filed lawsuit in Charlotte County Circuit Court involving another condominium association, Lozier’s firm argues that appraisers had reached a verbal agreement on the amount of loss to the condo. But then Citizens inappropriately interfered with the process, “forcing the Insurance Company’s appraiser to renege” on the agreement.
Later, after an appraisal panel’s umpire set the losses at $15 million, Citizens did not respond to request for payment, as required by the policy, the complaint contends. The insurer told the condo association that the appraisal award included a number of items that were “not eligible for appraisal,” including mitigation expenses and repairs that were not the association’s responsibility, the suit notes.
Citizens has not filed an answer to the July 18 complaint. A spokesperson for the corporation could not be reached Wednesday afternoon. An attorney representing Westchester Surplus Lines in the Biscayne Beach case could not be reached for comment Wednesday.
Photo: Biscayne Beach Club Condominiums and other buildings in Miami. (Adobe stock images)