MAY 2014 BAD FAITH CASES: COURT REJECTS INSUREDS’ ATTACK ON THEIR OWN APPRAISER, AND DENIES MOTION TO SET ASIDE APPRAISAL AWARD (Philadelphia Federal)

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In Mitchell v. Safeco Insurance Company, a fire loss action, the appraisers for the insured and insurer agreed to the value of the loss, without the need to go to the umpire, and stipulated in writing to the appraisal award. The insureds, however, challenged the result on the basis that their own appraiser suffered some form of mental breakdown which rendered him incompetent to adequately advocate for them; and they brought breach of contract and bad faith claims against the carrier. To pursue these claims, they moved to have the court set aside the appraisal award.

The court observed that judicial review of an appraisal award is severely limited. In order to set aside an appraisal award, a plaintiff must clearly establish that they were denied a hearing, or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable, or unconscionable award. The court observed that it could determine whether appraisers exceed their authority.

The court assumed arguendo that challenging their own appraiser’s mental capacity was a proper basis to overturn the appraisal; however, the insureds introduced no evidence in this regard at the hearing. At most, the evidence demonstrated that the insureds’ appraiser was somewhat dilatory and non-responsive to the insureds, their public adjuster, and to the insurer’s appraiser.

However, the insureds’ appraiser inspected the property in question and had three meetings with the defendant’s appraiser. The two appraisers agreed that the insurer’s appraiser would prepare the first draft of the appraisal and forward it to the insured’s appraiser for his review and critique.

The court observed that this not an uncommon appraisal procedure; and that both appraisers do not always prepare their own initial appraisals. At their final meeting, based on a suggestion by the insureds’ appraiser, the actual cash value of the loss was increased by $13,000 in the original draft; and this sum was incorporated in the jointly signed appraisal award. There was neither actual evidence that the insureds’ appraiser had any mental breakdown; nor any evidence of fraud, misconduct, corruption or other irregularity in the appraisal process. Neither appraiser exceeded his authority. Accordingly, the petition to set aside the appraisal was denied.

Date of Decision: May 6, 2014

Mitchell v. Safeco Ins. Co., CIVIL ACTION NO. 14-625, 2014 U.S. Dist. LEXIS 62661 (E.D. Pa. May 6, 2014) (Bartle, J.)

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