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Pennsylvania Superior Court provides detailed road map for first-party property appraisals – and gets it both right and wrong

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The case, The Mews at Byers Station Condominium Ass’n v. Greater New York Mut. Ins. Co., 2019 WL 1748780 (Pa. Super. 2019), did not arrive to much fanfare and went largely unnoticed by much of the legal and insurance communities. Even though the court marked its opinion “non-precedential,” with history as a guide we know that some of the most significant decisions emanate from “non-precedential” opinions. The opinion is significant for several reasons: (1) appraisers are not obligated to disclosure their reports or estimates to each other prior to the umpire’s involvement; (2) the umpire is given significant latitude to consider information and evidence beyond the actual estimates prepared by the appraisers; and (3) the Superior Court muddied the waters on the authority given to appraisers with its notation that they are the final judges of both the law and the facts.

The underlying situation in The Mews is all too familiar to first-party property professional. The Mews reportedly sustained property damage to a number of condominium units as a result of a hail storm. The Mews submitted an insurance claim for $1.7 million, which included the replacement of all of the properties’ roofs. Greater New York (“GNY”) valued the covered damage (including cosmetic damage) at $423,775, which it paid subject to the policy’s deductible. Unsatisfied with that amount, The Mews demanded appraisal and each party identified their appraiser. Before naming an umpire, the two appraisers inspected a sample of roofs on the various buildings. The appraiser for The Mews believed all the roofs required replacement and prepared a report reflecting the same. GNY’s appraiser believed the roof damage could be repaired, but did not prepare or provide a report to The Mews’ appraiser. Given their disagreement, the parties named an umpire. The umpire provided both appraisers with a proposal outlining his role, which both appraisers signed. The proposal stated the umpire, “would review the reports and estimates from both appraisers, perform a visual inspection, and prepare an appraisal report, including photos, recommendations, [and] budget pricing based on previous similar projects.”

The three performed a joint inspection, after which GNY’s appraiser prepared and provided his report, which valued the damage at $486,883.69. The Mews objected to the report since GNY’s appraiser did not prepare and provide the report beforehand and demanded another inspection. The umpire declined that request, and proposed a joint conference call. The Mews’ appraiser did not respond to the umpire’s offer to hold a conference call. The umpire’s ultimate award mirrored the valuation of GNY’s appraiser. After GNY’s appraiser and the umpire signed the award, GNY paid the balance. The Mews filed a lawsuit for breach of contract and bad faith. It also filed a separate petition to set aside the appraisal award.

The case made its way to Pennsylvania’s Superior Court. In its opinion, the court spent a considerable amount of time discussing the actual appraisal process and upholding the appraisal’s outcome. The first issue it addressed concerned The Mews complaint that GNY’s appraiser did not prepare and submit his report and estimate prior to the inspection with the umpire. The appellate court concluded the policy’s appraisal provision did not require such a disclosure. Equally important, the appellate concluded that failure to provide a report before the umpire’s inspection did not constitute an irregularity in the process that led to any unjust, inequitable or unconscionable award since the parties were well aware of the issues and had the opportunity to submit their own documentation in support of their respective positions. On this point, the court appeared to give significant deference to the independent work of the umpire on the matter, which included speaking with the local code enforcement officer about The Mews’ alleged code upgrade and third-parties regarding their valuation of the damages.

There is, however, one component of the court’s opinion that will undoubtedly spawn additional future litigation. In discussing the scope of authority granted to appraisers, the Superior Court noted that the unless they are restricted by the terms of the submission, appraisers are the final judges of both law and fact and an award will not be set aside for a mistake in either. This is perhaps the most significant part of the opinion. It is also the one in which the appellate court provided no elaboration. Is the court’s reference to the “terms of the submission” a reference to the policy? If so, then this would represent a significant deviation from prior court precedent that coverage and legal issues were not within the scope of appraisal.

The Superior Court’s decision in this case, when viewed in connection with Pennsylvania’s upcoming revisions to the Uniform Arbitration Act, is prophetic as the appraisal process in The Mews more closely mirrored a civil litigation trial than a traditional appraisal. It also highlights the importance of fully developing a record that supports the appraiser’s position for the umpire’s consideration. This includes the role that contractors, builders, and code enforcement officers will play in supporting a damage calculation.