State Farm loses fight to invalidate insured's choice of appraiser
Steven and Gail White suffered a major home fire and experienced difficulty in negotiating a pay-off with their insurer, State Farm Fire & Casualty. They invoked the statutory arbitration agreement, and selected their appraiser to serve as their representative on the arbitration appraisal panel. State Farm filed a declaratory judgment action and attempted to remove the insureds' appraiser because he was to be paid on a contingent basis. State Farm wanted to apply to the parties' designees the same rules applicable to the umpire-appraiser.
The Court looked at the statutory language, prior similar decisions, and the nature of the appraisal business before concluding that working under a lawful ten percent contingent fee contract would not disqualify the insureds' appraiser from serving. It noted, in particular, prior decisions pointing to the economic power of insurers over many contracted-appraisers and agreed that these individuals were not disqualified, even though their economic interest might align with the insurer who selected them. The Court of Appeals agreed with this analysis and rejected State Farm's argument. Had State Farm won, many insureds would have been unable to participate in the arbitration process because of the requirement to pay their designated appraiser with cash up-front.