New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel has issued the following informal opinion on March 6, 2001, representing the position of the New York State Insurance Department.

Re.: Standard Fire Insurance Policy: Appraisal

Question Presented:

Can an insured be barred from obtaining an appraisal pursuant to the appraisal clause provisions of the standard fire insurance policy prescribed in New York under N.Y. Ins. Law § 3404 (McKinney 2000) with respect to the repair/replacement cost of a building loss based upon the fact that the insured and insurer have previously adjusted and reached an agreement on the repair/replacement cost amount and disagree only on the depreciation amount to be applied to the repair/replacement cost amount?

Conclusion:

No. The appraisal clause provisions of the standard fire insurance policy in New York contain no limitation on an insured’s or an insurer’s right to obtain an appraisal with respect to the amount of any component of the actual cash value or the amount of loss in the event there is a disagreement as to actual cash value or amount of loss. Therefore, an insured or insurer can obtain an appraisal with respect to the amount of any of the components of actual cash value or amount of loss any time where there has been a disagreement as to the total amount of actual cash value or total amount of loss, even if the insurer and insured have previously agreed as to the amount of one or more of the components of actual cash value or amount of loss.

Facts:

Attorney A represents Company B Fire Insurance Company ("Company B"), the insurer of a building owned by the insured, Mr. C. Mr. C’s building sustained a fire loss on August 17, 2000. Thereafter, Mr. C hired a public adjuster, and Company B utilized the services of an independent adjuster for the purpose of adjusting the loss. The independent adjuster prepared a detailed building loss estimate, showing separate columns for "RCV [Replacement Cost Value]," Depr [Depreciation]," and "ACV [Actual Cash Value]," with the "RCV" amount less the "Depr" amount equalling the "ACV" amount, and sent the estimate to the public adjuster.

On October 5, 2000, the public adjuster returned the written estimate to the independent adjuster, having accepted the total replacement cost figure calculated by the independent adjuster and having made changes only to certain entries under the "Depr" column. The public adjuster requested that the independent adjuster contact him in order to discuss the changes that the public adjuster had made in depreciation, and on October 10, 2000, the independent adjuster responded by opining that his initial calculations with respect to depreciation were "reasonable."

As the independent adjuster and public adjuster were not thereafter able to reach an agreement with respect to the amount of depreciation to be subtracted from the agreed replacement cost figure for the purpose of setting the recoverable actual cash value amount, the public adjuster, on November 1, 2000, sent a letter to the independent adjuster demanding an appraisal under the provisions of N.Y. Ins. Law § 3404 (McKinney 2000) of the insured’s entire building loss and enclosing a proposed "Agreement for Submission to Appraisers," which stated that Mr. C and Company B "agreed * * * that a disagreement exists as to the actual cash value, the amount of loss, or the cost of repair or replacement as a result of a fire loss on 08 17 2000 to the insured * * * Building[.]"

On November 20, 2000, Attorney A sent a letter on behalf of Company B to the public adjuster, asking him to confirm that only depreciation remained in dispute and needed to be determined in the appraisal process. The public adjuster has not responded to Attorney A’s letter.

It is Attorney A’s contention that the appraisal procedure set forth in the standard fire insurance policy of New York is intended to resolve only "bona fide" disagreements over actual cash value or amount of loss and that an appraisal of any component of actual cash value or amount of loss would be precluded where the parties had previously agreed as to the amount of that component.

Analysis:

The form of the standard fire insurance policy of the state of New York ("standard policy") is set forth in N.Y. Ins. Law § 3404(e) (McKinney 2000). The appraisal clause provisions of the standard policy, which are contained in lines 123 through 140 of the second page of the standard policy, state as follows:

Appraisal. In case the insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.

N.Y. Ins. Law § 3404(g) (McKinney 2000) provides that:

Notwithstanding any other provisions of law to the contrary, the provisions of the appraisal clause set out on the second page of the standard fire policy and the provisions of section three thousand four hundred eight of this chapter, including determinations as to the amount of loss or damage rendered thereunder, shall be binding on all parties to the contract of fire insurance evidenced by the policy.

N.Y. Ins. Law § 3408 (McKinney 2000) provides for the procedures for selection of an umpire whenever application is made for the selection of an umpire pursuant to the provisions relating to appraisals contained in the standard policy.

The appraisal clause provisions of the standard policy contain no limitation on an insured’s or an insurer’s right to obtain an appraisal with respect to the amount of any component of actual cash value or amount of loss in the event there is a disagreement as to actual cash value or amount of loss. Therefore, an insured or insurer can obtain an appraisal with respect to the amount of any of the components of actual cash value or amount of loss any time where there has been a disagreement as to the total amount of actual cash value or total amount of loss, even if the insurer and insured have previously agreed as to the amount of one or more of the components of actual cash value or amount of loss.

Of course, either or both of the appraisers may adopt as their finding during the appraisal the previously agreed-upon amount of any individual component of actual cash value or amount of loss. However, a single party cannot unilaterally bind the scope of the appraisers’ review under the provisions of the standard policy.

For further information regarding this opinion, you may contact its author, Senior Attorney Ethan G. Wolfe, at the New York City Office.