The Appraiser, the Umpire, and USPAP

Cathy Peters, ISA CAPP

If you appraise personal property long enough, you will come across an assignment for a damage claim that will require you to choose a mediator, also known as an umpire. It took me 17 years of appraising to come across this situation. When it did develop in my own appraisal practice, it seemed contrary to the conduct requirements in the Ethics Rule of USPAP. I would like to pass on a few thoughts to consider in navigating unfamiliar waters of these type of insurance claim settlements.

Some homeowner's insurance policies contain a clause that requires an umpire be employed when a homeowner and insurance provider disagree on the settlement for a damage claim. The umpire decides value loss and offers it to the homeowner as an alternative and prior to an owner filing a lawsuit against the insurance company. Before this step, however, an appraisal report from two appraisers is required: one from an appraiser the insurance company hired and the second from an appraiser hired by the property owner. If the two reports are not in agreement, the hired appraisers must meet to negotiate a mutually agreed upon sum. If an agreement cannot be reached, the appraisers have to agree to bring in a third appraiser to act as umpire. The umpire will look at both appraisal reports, talk to each appraiser as they feel necessary, and choose one of the value conclusions as the definitive value or, alternatively, develop their own value conclusion.

In my situation, the appraiser for the insurance company (I'll call him Joe) was not a USPAP compliant appraiser. In fact, he was not an appraiser at all, although at one time Joe had some appraisal training. His company primarily worked for insurance companies in exhibition transportation and adjusting, but Joe had the power to negotiate on his client's behalf. I, on the other hand, did not feel I could responsibly negotiate for my client. I felt it would require bias on my part and be contrary to USPAP. The conduct clause of the Ethics Rule specifically states that an appraiser must "not advocate the cause or interest of any party or issue." I did believe, however, that I could defend and stand by the value conclusions that I reached through research and due diligence. We met, the opposing appraiser felt my conclusions were too high (his were based on auction results), and we left in disagreement. Per the insurance clause, the next step was to bring in an umpire.

I provided Joe with three names of appraisers. Joe was to pick one or offer another candidate as an alternative. It was important to me that the people I submitted be experienced with the type of art that was the subject of contention, that they were appraisers who were known experts in appraisal methodology, and they wrote USPAP compliant reports. I sent Joe the résumés of the three I chose, and he agreed with one of them.

During the course of the next three months, I spoke to the umpire several times, submitted additional sales support of comparable property that had appeared since submitting my initial report, and repeatedly talked to dealers to answer questions that the umpire posed and had not been previously answered. I never spoke to Joe again. Although asked many times to take off my "appraiser hat" and put on my "negotiator" hat, I did not feel I could do so. First, my client was extremely knowledgeable about this particular genre of art and would not give me the power to act on his behalf. But more importantly, I felt that I could not keep my objectivity as an appraiser if I were to advocate for my client, even after I submitted my report. In the end, I stood on my value conclusions, the umpire reached their own conclusions that were slightly less than my estimated replacement costs but much higher than Joe's initial stated values. My client was satisfied and that was the end.

To this day, however, the clause bothers me. The situation is contrary to what I teach in USPAP. How can I negotiate a settlement with another appraiser and still remain unbiased, objective, and impartial? Being an umpire is not an issue. The job would be very similar to conducting an appraisal review, with perhaps conducting an independent appraisal assignment for value conclusions as well.

What about applying the Jurisdictional Exception Rule to act as an advocate for the client? That will not work because using an umpire is a policy choice of the company. It has nothing to do with laws or regulations that contradict sections of USPAP to which the Jurisdictional Exception Rule applies.

This year I came across a small footnote while teaching the 7 Hour 2018-2019 edition of USPAP. For those of you who have the student manual, it is on page 45. Under "Advocacy" in the chart entitled "Yes, I Can Accept That Assignment..." USPAP says that an appraiser can be an advocate and gives an example of representing one party in a court proceeding. However, there is a footnote. The footnote reads, "An individual may provide services as an advocate, or as an appraiser (one who expected to perform in a manner that is independent, impartial, and objective); however, one cannot act in both roles in the same assignment. When acting as an advocate, the individual must not misrepresent his or her role." (Conduct section of USPAP Ethics Rule and Advisory Opinion 21.)

In conclusion, remember that your role as an appraiser is to provide an unbiased opinion of value that is supported by facts. As an appraiser, you could be hired as an advocate, but USPAP states that you may not act as both an appraiser and an advocate in the same assignment.

Cathy Peters, ISA CAPP, has been a member of ISA since 1999. She specializes in appraisals of fine art and is based in Naperville, Illinois.