An important aspect of commercial property insurance that is often overlooked is the appraisal clause. Although it may seem complicated, business owners who have filed property damage or loss of business income claim with their insurance carriers need to understand New Jersey commercial property insurance and appraisal clauses.
Appraisal Clause Explained
New Jersey commercial property insurance policies can have an “appraisal” clause to streamline claims. This clause can be helpful for policyholders by expediting the resolution of a disputed claim.
Additionally, the cost of submitting a disputed claim to the appraisal process is usually cheaper and faster than litigating the dispute.
Generally, the appraisal provision of any insurance policy provides that in the event the parties cannot agree on the amount of the loss, either party may make a demand to have the amount of loss determined by appraisal. The appraisal provisions typically provide for the following;
- Either party (the insured or the carrier) may demand in writing the loss and value dispute be submitted to appraisal.
- Each party selects its independent appraiser. Once selected, the appraisers then agree on a third party to act as an umpire.
- If the appraisers cannot agree on the umpire, a court having jurisdiction over the matter selects the umpire.
- The appraisers present their positions and attempt to agree on the amount of the covered loss.
- If the appraisers can’t agree, each appraiser will submit their respective positions to the umpire for a decision.
- An award in writing is required and considered final when at least two of the three parties (that is, the two appraisers and the umpire) agree to the final appraisal.
- The parties pay their own appraiser fees and share equally in the umpire’s cost and any other costs of the appraisal.
Coverage vs. Loss Amount
It’s important to distinguish between disputes over coverage and disputes over the amount of loss. The appraisal process mainly resolves disputes over the value of a covered claim, more specifically the extent of the property loss or loss of business income.
The New Jersey District Court recently confirmed that ongoing issues on insurance coverage should not prevent an appraisal from going forward as per an appraisal clause in the insurance policy. In DC Plastic Products Corp. v. Westchester Surplus Lines Insurance Co. Case No. 17-13092 (D.N.J. May 19, 2021), the District Court of New Jersey directed the parties to proceed with the appraisal process as set forth in the insurance policy, even though the defendant-insurer argued the appraisal was improper under New Jersey law, because unresolved coverage issues exist.
In addition, the Court in DC Plastic pointed out that New Jersey law makes it clear that appraisers (and umpires) cannot make legal determinations and may only determine a disputed amount of loss, not a party’s liability, citing Rastelli Bros., Inc. v. Netherlands Ins. Co., 68 F. Supp. 2d 448, 449 (D.N.J. 1999); Elberon Bathing Co. v. Ambassador Ins. Co., 77 N.J. 1, 15 (N.J. 1978).
Consequently, disputes involving coverage issues are not subject to the policy’s appraisal provision.
Consider Your Options
As a policyholder, it’s essential to review your policy, including any appraisal clause carefully. Evaluating the circumstances of your claim and the potential benefits of the appraisal process can help you make an informed and cost-efficient decision..
Another aspect to be aware of is the selection of appraisers. In some cases, disagreements may arise over the choice of appraisers. It’s important to ensure that selected appraisers are competent and impartial, as they play a pivotal role in the appraisal process.
The appraisal clause in commercial property insurance policies is a valuable tool that can expedite the resolution of claims. It’s crucial to understand that this process primarily addresses disputes related to the value of property or the extent of the loss, rather than disputes over coverage details. Policyholders should carefully assess their appraisal clauses and consider whether enforcing them aligns with their goals for prompt claim resolution. Additionally, selecting qualified and impartial appraisers is essential for a fair appraisal process.
Experienced New Jersey Insurance Defense Lawyers
Schiller, Pittenger & Galvin, P.C. routinely help commercial businesses resolve insurance disputes with their carriers. Contact the insurance lawyers in Scotch Plains if you feel like your insurance company is not handling your property damage claim properly, contact the firm’s New Jersey insurance lawyers in their Scotch Plains office at 908 490 0444 or email them here.