Insurance policies provide a method of resolving valuation disputes outside of the courtroom – appraisal. A typical insurance policy will have an appraisal provision specifically outlining this procedure.
Before an action can be brought on a policy, all provisions of the policy must be honored, including submission of valuation issues to the appraisal panel.
This week, while serving as an appraiser, our umpire insisted no hearing could be held. Instead, he said, the parties had to allow the appraisers to determine values without input from the parties. The umpire was wrong. I raised a complaint and the umpire resigned. In some respects, his resignation was a gift to the parties because by denying a hearing, any award could have been challenged.
Arizona revised statutes, outlined below, contemplate that a hearing take place when requested. According to Hanson v.Commercial Union Ins. Co., 723 P.2d 101 (Ariz.Ct.App.1986),arbitration provisions in Arizona Statutes apply where not contradicted by the language of the insurance agreement. Specifically, in view of the similarity between arbitration and appraisal enforcement proceedings (Jefferson Ins. Co. v. Superior Court(1970) 3 Cal.3d 398, 401, 90 Cal. Rptr. 608, 475 P.2d 880), we apply to the appraisal proceeding at issue herein the general standard of review applicable to arbitration.
A.R.S. §12-1505. Hearing:
Unless otherwise provided by the agreement:
- The arbitrators shall appoint a time and place for the hearing and cause notification to the parties to be served personally or by registered mail not less than five days before the hearing. Appearance at the hearing waives such notice. The arbitrators may adjourn the hearing from time to time as necessary and, on request of a party and for good cause, or upon their own motion, may postpone the hearing to a time not later than the date fixed by the agreement for making the award unless the parties consent to a later date. The arbitrators may hear and determine the controversy upon the evidence produced notwithstanding the failure of a party duly notified to appear. The court on application may direct the arbitrators to proceed promptly with the hearing and determination of the controversy.
- The parties are entitled to be heard, to present evidence material to the controversy and to cross-examine witnesses appearing at the hearing.
- The hearing shall be conducted by all the arbitrators but a majority may determine any question and render a final award. If, during the course of the hearing, an arbitrator for any reason ceases to act, the remaining arbitrator or arbitrators appointed to act as neutrals may continue with the hearing and determination of the controversy.
A.R.S. §12-1512. Opposition to an award:
A. Upon filing of a pleading in opposition to an award, and upon an adequate showing in support thereof, the court shall decline to confirm and award and enter judgment thereon where:
- The award was procured by corruption, fraud or other undue means;
- There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;
- The arbitrators exceeded their powers;
- The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 12-1505, as to prejudice substantially the rights of a party; or
- There was no arbitration agreement and the issue was not adversely determined in proceedings under section 12-1502 and the adverse party did not participate in the arbitration hearing without raising the objection; but the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.
B. In declining to confirm an award on grounds other than stated in paragraph 5 of subsection A the court may order a rehearing before new arbitrators chosen as provided in the agreement, or in the absence thereof, by the court in accordance with section 12-1503, or if the court declines to confirm the award on grounds set forth in paragraphs 3 and 4 of subsection A the court may order a rehearing before the arbitrators who made the award or their successors appointed in accordance with section 12-1503. The time within which the agreement requires the award to be made is applicable to the rehearing and commences from the date of the order.
Appraisal is a wonderful method to resolve valuation disputes when operated properly, including offering a hearing to the parties. We need to follow proper procedures to prevent the appraisal award from being challenged.