A California Court of Appeal recently upheld an order denying an insured’s petition to vacate an appraisal award, finding that umpires are permitted to use independent judgment at all times, including disregarding the appraisers’ estimates. The court issued its ruling in accordance with a 2006 holding that appraisals are a form of arbitration. However, an appraiser’s authority is more limited than an arbitrator’s. An appraiser’s function is to determine the amount of loss, not to resolve issues of coverage, which, in California, includes issues of causation.
The recent ruling stems from a fire loss where the insured demanded appraisal, then both parties’ appraisers provided estimates. On appeal, the insured argued that the umpire made an improper determination by assigning zero value to items that were included in both appraisers’ estimates. The court found that a mere valuation of zero falls within an umpire’s authority if it is not based on an issue of coverage or causation. Further, an umpire is not obliged to assign a value or explain the valuation even when both appraisers include the item in their estimates. When appraisers disagree, it is proper for the umpire to “disregard their estimates, if, in his honest opinion there was no loss.”