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

George E. Pataki
Governor

Howard Mills
Acting Superintendent

The Office of General Counsel issued the following opinion on April 29, 2005, representing the position of the New York State Insurance Department.

RE: Appraisal Clause

Question Presented:

In choosing an appraiser pursuant to N.Y. Ins. Law § 3404, may the insured or the insurer reject the other’s choice of appraiser?

Conclusion:

N.Y. Ins. Law § 3404 does not specifically permit an insured or insurer to reject the other’s choice of appraiser.

Whether an appraiser appointed by either of the parties is competent and disinterested (or "independent") is a question of fact for a jury and is outside the determination of this Department.

Facts:

An inquiry was based on the following wording that was contained in a homeowner’s insurance policy:

If "YOU" and "WE" fail to agree on the actual cash value, amount of loss or the cost of repair or replacement, either can make a written demand for appraisal. Each shall select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, "YOU" or "WE" may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers shall then set the amount of loss, stating separately the actual cash value and loss to each item. If "YOU" and "WE" request that they do so, the appraisers will also set: (A) the full replacement cost of the dwelling; (B) the full replacement cost of any other building upon which loss is claimed; (C) the full cost of repair or replacement of loss to such building, without deduction for depreciation. If the appraisers fail to agree, they will submit their differences to the umpire. An itemized decision agreed to by any two of these three and filed with us will set the amount of the loss. Such award shall be binding on "YOU" and "US." Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally.

Analysis:

N.Y. Ins. Law § 3404 (McKinney 2000) states in part relevant to your inquiry:

(a) The printed form of a policy of fire insurance, as set forth in subsection (e) hereof, shall be known and designated at the "standard fire insurance policy of the state of New York."

(b)(1) No policy of contract of fire insurance shall be made, issued or delivered by any insurer or by any agent or representative thereof, on any property in this state, unless it shall conform as to all provisions, stipulations, agreements and conditions with such form of policy….

* * * *

(e) The form of the standard fire insurance policy of the state of New York … shall be 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.

* * * *

(f)(1) Subject to the approval of the superintendent, a policy which insures solely against the peril of fire or which insures against the peril of fire in combination with other kinds of insurance either for a divisible or indivisible premium need not comply with the provisions of subsection (e) of this section, provided:

(A) the policy contains, with respect to the peril of fire, terms and provisions no less favorable to the insured than those contained in the standard fire policy.

Thus, the appraisal clause of a homeowner’s insurance policy, which includes coverage for the peril of fire, must, with respect to such coverage, be no less favorable to the insured than what is provided in N.Y. Ins. Law § 3404(e). As the language cited is not precisely the same as it is in § 3404(e), it is assumed that it was filed with and approved by the Department in accordance with § 3404(f).

It was inquired as to whether the insured or the insurer may reject the choice of appraiser the other has chosen. N.Y. Ins. Law § 3404(e) does not specifically permit an insured or insurer to reject the other’s choice of appraiser. However, if one party does challenge the other’s choice of appraiser as being not competent or not disinterested, such determination would have to be made by a court of competent jurisdiction.

Whether an appraiser appointed by either of the parties is competent and disinterested (or "independent") is a question of fact for a jury and is outside the determination of this Department. See Kiernan v. Dutchess Co. Mut. Ins. Co., 150 N.Y. 190 (1896), Bradshaw v. Agricultural Ins. Co. of Watertown, 137 N.Y. 137 (1893), Pierce v. Sun Ins. Office, 86 Misc. 1, 147 N.Y.S. 947 (1st Dep’t 1914).

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.