THE ALTERNATIVE DISPUTE RESOLUTION PROCESS
A L.K.Q.S.S. COMPLIANCE & REGULATORY RULING
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THE ALTERNATIVE DISPUTE RESOLUTION PROCESS
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An ADR appraiser is an appraiser, as defined under Section 9 – Appraisals in the Insurance Act. This section of the Insurance Act is activated when a dispute arises as to the extent and/or value of the damage and the insurer and the insured cannot agree.?
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They are not, nor do they hold themselves out to be, lawyers or adjusters, but they should know and understand the insurance industry, and, as a result, should have had tremendous success in servicing their clients with our property loss management services and reports.
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In Canada and the United States recent insurance industry statistics suggest that one out of seven (7) BUILDING AND BUSINESS OWNERS will experience a property loss within the next year and 60% will not be satisfied with their claim settlement.
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The advocate service should be an attitude rather than a process unto itself. They should believe litigation should always be the option of last resort and should only be exercised when all other reasonable efforts, such as Alternative Dispute Resolution (ADR) have failed.
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By accessing their expert knowledge, experience and other resources, they are often able to re-adjust the focus of all parties in order to reach a mutually acceptable damage assessment.
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When they have been appointed as an appraiser in the very early stages of a loss, they can move forward to a claim settlement, which can be deemed as fair and reasonable for both the insurer(s), and the consumer.
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By involving them from day one, they can complete their own Damage Appraisal and Assessment of Restoration while the loss is still fresh and undisturbed by the restoration contractor. This way they can accurately determine the value of the loss that has been presented to the insurer in the form of a proof of loss statement with one party formally notifying the other party in writing of a disagreement in the value of the loss.?
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When there is a clear disagreement of the settlement of the claim between the insurer and the insured, and once the insured has delivered a proof of loss to the insurer, the following takes place.
An insurer must give notice to an insured of the availability of the appraisal process within 21 days after the insurer has become aware that there is a disagreement.
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Either the insurer or the insured must give the other party a written demand for the appraisal process.
Both the insurer and the insured must formally appoint an appraiser to represent them within 7 days of the written demand.?However, it is not uncommon for an appraiser to be appointed at inception of the loss. The Act states “clear days” however it seems that working days are acceptable.
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Both appraisers appointed meet to try to work out the differences as soon as possible after their appointments.
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If the appraisers fail to agree, then they must appoint an umpire with 15 days of their appointments. If they fail to do so, then the courts will appoint an umpire.
Once the umpire has been appointed, then both appraisers will submit their positions in writing to the umpire for review.
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Once the umpire has had a reasonable amount of time to review both presentations and research the loss, then the umpire will arrange a meeting at a neutral location with the appraisers. Here they will try to reach a settlement and, if any two of the three participants agree, the matter will be settled. No one else is allowed in the room except the two appraisers and the umpire during negotiations.
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If for any reason, an agreement cannot be reached, then the umpire has the option to ask the appraisers to resubmit to him additional information which the umpire will review.?The umpire will usually agree with one of the appraisers after addressing their concerns.
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If, for any reason, a Formal Appraiser or an Umpire cannot perform their duties, the courts will appoint a replacement.
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The cost of the ADR umpire is split fifty/fifty between the insurer and the insured. Acceptable fees are between $100 and $150 per hour for the umpire, plus traveling time and expenses. Any other expenses incurred such as a meeting room are usually at cost.?
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The cost of the appraiser is the responsibility of the party hiring that consultant. Acceptable fees are between $75 and $125 per hour for the appraiser, plus travelling time and expenses. Any other expenses incurred such as a Damage Report or Loss Report are extra.
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HOW THE PROCESS WORKS
Alternative Dispute Resolution (ADR) can be found in the Insurance Act under Section 9 Appraisals where it describes the protocol to follow once the insured and the insurer has reached a disagreement regarding the loss.?This Section of the Act reads as follows.
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“Appraisals
9 (1) This section applies to a contract that
(a) provides insurance against loss or damage
(i) by fire, lightning or explosion, or
(ii) from any of the other perils referred to in section?120,
(b) provides insurance against loss of rents or profits or loss from business interruption, resulting from a peril referred to in paragraph?(a), or
(c) contains a condition, statutory or otherwise, that requires that a disagreement in respect of specified matters be determined by appraisal.
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(2) An insurer must give notice to an insured of the availability of the appraisal process established by this Act within 21?days after the insurer becomes aware that,
(a) in respect of a contract referred to in subsection?(1)?(a) or?(b), there is a disagreement between the insurer and the insured as to the value of the property insured, the value of the property saved or the amount of the loss, or
(b) in respect of a contract referred to in subsection?(1)?(c), there is a disagreement between the insurer and the insured as to a matter for which an appraisal is required in the contract.
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(3) The value or amount in dispute in a disagreement referred to in subsection?(2)?(a) or the matter in respect of which there is a disagreement referred to in subsection?(2)?(b) must, unless the insurer and the insured are able to resolve their disagreement, be determined by an appraisal under this section.
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(4) An appraisal under this section must not be conducted until
(a) the insured has delivered to the insurer a proof of loss, and
(b) one of the parties to the disagreement has delivered to the other a written demand for an appraisal.
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(5) An appraisal must be conducted under this section
(a) before any recovery is made under the contract,
(b) independently of any other question, and
(c) whether or not the right to recover on the contract is disputed.
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(6) For an appraisal under this section, the insured and the insurer must each appoint an appraiser, and the 2 appraisers appointed must appoint an umpire.
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(7) The appraisers must determine the matters in disagreement and, if they fail to agree, they must submit their differences to the umpire, and the finding in writing of any 2 determines the matters.
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(8) Each party to the appraisal must pay the appraiser appointed by that party and must bear equally the expense of the appraisal and the umpire.
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(9) If
(a) a party fails to appoint an appraiser within 7 clear days after being served with written notice to do so,
(b) the appraisers fail to agree on an umpire within 15?days after their appointment, or
(c) an appraiser or umpire refuses to act or is incapable of acting or dies,
the Supreme Court may appoint an appraiser or umpire, as the case may be, on the application of the insured or of the insurer.”
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WHAT IS AN APPRAISAL AS DESCRIBED IN THE INSURANCE ACT?
First let us rule out what it is not.
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It is not an appraisal to determine value nor is it referring to the Income Approach to value.
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It is a pre litigation process to settle a portion of a claim that is in disagreement and is binding on all parties. It is designed to free up our court system.
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WHAT IS AN APPRAISER?
In this case, an appraiser is now commonly referred to as a Formal Appraiser because quite often a property appraisal is the instrument in question and the person valuating the property is called an appraiser. This will clarify any references in presentation to the Formal Appraisers or Umpire.
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A Formal Appraiser that is either appointed by the insured or the insurer and has the authority to act on behalf of their client with regards to the settlement of the dispute in question.
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WHAT IS AN UMPIRE?
An Umpire is appointed by the Formal Appraisers and his duty is to oversee the Appraisal process by reviewing each Formal Appraiser’s approach on the facts in question and by meeting with both Formal Appraisers in private in order to negotiate a settlement.
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WHAT IS THE PROCEDURE TO START AN APPRAISAL?
When there is a clear disagreement on part of the settlement of the claim between the insurer and the insured the following takes place.
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If for any reason, a Formal Appraiser or an Umpire cannot perform their duties, the courts will appoint a replacement.
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WHAT IS THE PROTOCOL SURROUNDING THIS PROCEDURE?
If for any reason, an agreement cannot be reached as outlined in 8 above, then the Umpire has the option to ask the Formal Appraisers to resubmit to him and he will review the submissions. The Umpire will usually go with one of the Formal Appraisers after negotiating his or her concerns.
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No one else is in the room except the two Formal Appraisers and the Umpire during negotiations.
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A note to the policyholder. It is imperative that a Formal Appraiser that represents you “the insured” have no attachments or loyalty to any insurance company, as this could be construed as a conflict of interest. As an insured your best bet is a lawyer with a proven track record who can negotiate their way through a building construction contract.
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