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Coverage Outside the Policy Due to Insured’s ‘Reasonable Expectations’

As an adjuster, I don’t talk to judges but I do “measure and document” the valuation of insurance claims and present those claims to insurers. I was recently asked by an ttorney to present a claim that demanded coverage be applied outside of the policy.

We see demands all the time to “reform” the policy and sometimes we see insurers rolling over as well and paying those claims as well; although, this is not something that is common.

Sometimes insurers pay “reasonable expectation” claims that literally amaze me. After the Chediski Rodeo fire, I talked with many individuals who were under-insured and two asked me if I could get their policies “reformed.” Of these two, both were insured by State Farm. I declined, referring them to attorneys who might help them if their agent had “failed to place the proper coverage”, which would be an extra-contractual claim. Both insureds declined and pursued their claims on their own. One was paid. The other was not. It amused me that the one that was paid was a destroyed second home of a famous football player. The one that was not paid was the claim of a “commoner”.

Why some insurers so easily pay celebrity claims is beyond me but these insurers must want to take care of the famous or politically connected. You may recall that State Farm paid money to Paula Jones that laid her claim against Bill Clinton to rest. State Farm paid that claim under Bill Clinton’s Umbrella Policy despite State Farm’s own practice of denying claims where “a law may have been broken.”

Let’s face it, reasonable expectations can differ from individual-to-individual depending on that person’s sense of entitlement. However, some non-politically or famous insureds do have a causal base to pursue such “reasonable expectations” claims based upon many factors which include (1) the agents’ responsibility to place proper coverage (See Southwest Autobody v. Binson), (2) notices to the insured in policy renewal billings, (3) advertising brochures and other reasons which may create reasonable expectations.

The reasonable expectations doctrine applied in Arizona includes the theory that when insurance terms cannot be understood by the reasonably intelligent consumer, the court will interpret those terms in a manner that allows the benefit of those terms to inure to the consumer even when there is no coverage. (Hanks v. American Family Mutual, Gordinier v. Aetna Casualty).

I believe that the doctrine of reasonable expectations will gain momentum. For years, we have been involved in claims that involve “matching” issues only to see insurers hang onto their wallets and not pay such claims. However, things are changing and these claims are getting paid, even though I know that realistically, insurers cannot take the hit for all economic losses that an insured might encounter. As a consequence of this, insurers are responding with pointed language in their policies that no matching losses will be considered. We’ll see where this issue goes from here. But … in the meantime, insureds will continue to make such claims if it makes sense knowing that insurers won’t roll over easy, unless they are making payments to Bill Clinton or football stars.

The Use Of Hearings In Resolving Insurance Disputes


It is common knowledge that dispute valuations in insurance claims leads to “appraisal.” Appraisal is a somewhat of a buzz word for arbitration where arbitrators (appraisers) determine values. Simply put then, an appraiser is an arbitrator and appraisal is an arbitration. This isn’t totally a fair equation of words. After all, a brown trout is different from a rainbow trout. Arbitration is not an appraisal, but an appraisal can be an arbitration, especially when the courts have decided such a thing.

The appraisal provision in insurance policies was placed in these policies many years ago to prevent or foreclose upon litigation and provide both insureds and insurers a method in which to value a claim outside of a courtroom. A typical insurance policy will have an “appraisal” process which must be undertaken before an action can be brought on a policy.

The parties in the policy, the insured and the insurer, each appoint an appraiser who select a third appraiser as the umpire. The appraisal panel then works like a three judge appellate court where the parties will present their valuation positions before the panel and two of the three appraisers can sign an award that is binding upon all parties.

This week while serving as an appraiser, the insured wanted us to consider input from sources which the insured was vital to his case and subsequently requested a hearing. While the other appraiser was lukewarm over the idea due to his involvement in so many appraisals where there had not been a hearing, I agreed. However, the umpire we had selected would have nothing to do with a hearing. As a matter of fact, he insisted that no hearing could be held. Instead, he said the parties had to allow the appraisers to determine values without input from either. The umpire was wrong. I raised a complaint to that position and the umpire resigned.

In some respects, his resignation was a gift to the parties because by denying a hearing, any award could be challenged, but is a hearing really required?

Arizona revised statutes contemplate that a hearing take place where requested. Nothing in the insurance agreement says that the appraisal will be decided without a hearing. There is nothing in the policy contradicting the right to a hearing. However, we must first look at our Arizona case law. According to Hanson v. Commercial Union Ins. Co., 723 P.2d 101 (Ariz. Ct. App. 1986), arbitrations provisions in our 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), the court applied the standard of arbitration set forth in A.R.S. 12-1505 and A.R.S 12-1512 to the appraisal proceeding and created the general standard of review applicable to arbitration. If appraisals are controlled by the arbitration statutes, hearings, if requested, are necessary.

A.R.S. §12-1505 provides various reasons for which an award might be opposed. A.R.S 12-1512, A, 4 stands tall where it clearly sets forth that an appraisal award can be challenged when, “the arbitrators refused to postpone the hearing upon sufficient cause being shown therefore or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 12-1505…”

The court may order an appraisal 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. It is unfortunate that so many people, including the umpire we had selected as our third appraiser, lack knowledge of this simple procedure. The appraisal must commence in an appropriate manner, which includes offering a hearing to the parties. Following proper procedures will prevent the appraisal award from being challenged.

Letter to Kim (Suicide is not the Answer)

To my client as well and my friend, Kim Dieska,

I never criticized you Kim. And you know I could have. After your house fire, you signed that stupid contract with that restoration contractor that gave ALL of your insurance proceeds to him and left you nothing. Many people make that mistake signing agreements with contractors after their fire and when they are under duress. But you also got yourself in trouble with the I.R.S., violating your own rules as a certified financial planer with a good education. I never criticized that either.

When your insurance claim went down hill, you came to me. I went outside that awful contractor’s agreement to get you money from your insurer. Thank God that your contractor hadn’t duped you into signing a release which would prevent me from getting you more money. We found coverage for things in your policy that had fallen through the cracks or for what the contractor did not know existed.

It is outrageous that the contractor you retained would get you to pay a fee to prepare an inventory when Brown – O’Haver would do that as part of our services, for half the price. My wife, Rae Beth and my assistant, Kelly worked hard on your personal property claim and there are two checks in the office for you right now. I know these checks are not enough to pay off that credit card debt you accumulated trying to keep your life together after your fire and I lament what would have happened if only I could have been involved in your claim earlier. I could have helped so much.

Our relationship was much than one of public adjuster helping an insured with an insurance claim. When the contractor did not pay one of his sub contractors and they came after you, I wrote a dozen letters to the insurer with a theory as to why they should pay even after the contractor took your policy limits. Your insurance company eventually coughed up more money and I was joyful but you were not because there was still a balance the contractor wanted paid.

I lined up an attorney to sue your insurer because your insurance company had given the power of adjustment to your contractor. I lined up a second contractor to prepare a checklist of what your contractor did not finish so as to help your attorney make your case. Unfortunately your case won’t go forward now. It can’t.

I know, trauma from your fire never goes away completely. It aligns itself to other trauma in your life. I tried to help in those areas, too. While working on your claim, I helped you with someone to assist you with your taxes. I lined up a mechanic to fix your car and eventually offered you an older car that I own for you to drive.

You told me that I was the best friend you had. You praised me because, unlike others you said, I never tried to take advantage of you. We spent hours on the phone and you told me secrets that a person would only share with a trusted friend. We talked about my orchard. We talked about your ex-marriage. We talked about Christmas. We talked about your health and how you were losing weight and the reasons why. Some of the secrets you shared with me were very personal and touched my heart. I felt a kinship with you. But there were troubling things you told me as well like giving me the power to your liquidate your estate which prompted me to contact mental health authorities. Two of my daughters helped you with this. In all, I honored our friendship and respected you.

Its been three days since your brother’s widow called me to tell me that you had taken your own life. I am still upset. I have had difficulty sleeping. Its true I never criticized you and yet, maybe criticizing you now will make the pain go away. Instead of criticizing you I have been criticizing myself. Could I have been a better friend? Could I have done more? What does it feel like to want to die? I saw value in your life, why couldn’t I share that value with you? How am I going to finish your claim without you?

Your suicide made your pain go away but what about me? Why did you do this? I wish everyone who has made suicide an option would consider how devastated those left behind feel.

I miss you, Kim. May God be with you. May you find the peace that you were searching for. May you find people in heaven you can trust. May you be comforted. May you realize how you have touched others.

Dave Young,
Your Public Adjuster and Friend