Appraisals, Water Damage Fraud Among ‘New Normals’ Discussed at PLRB

SAN ANTONIO, Texas — The use of appraisals to resolve insurance claims disputes is the new normal, even though insurers don’t trust the process to bring about a fair result, an attorney and a claims examiner said Monday during the Property Liability Resource Bureau’s annual conference.

Robert Horst, a partner with the Horst, Krekstein & Runyon law firm in Plymouth Meeting, Pennsylvania, said it is essential for insurers to give clear instructions to the appraiser they appoint.

“Do not let the appraisers do their own thing,” he said. “It must be in writing. If not, then it’s subject to interpretation. Why would you let something this important be subject to interpretation?”

Horst and Shawn D. Woodie, a claims examiner for Erie Insurance Group, took a survey of their audience at the start of their 90-minute presentation and learned that 73% of those who responded said appraisals are not an appropriate method of determining the amount of a loss. Horst said that shouldn’t be surprising given that many of the “disinterested” appraisers selected by insureds work on a contingency agreement.

Nonetheless, Woodie said appraisals are more commonly used than ever before. He said 10 or 15 years ago, he may have participated in five or six appraisals a year. Nowadays, he said, he may get five a day.

“The playing field is constantly changing and we have to adjust to that,” Woodie said.

Horst said many claims examiners are afraid to give instructions to the appraisers they appoint because they fear they will be accused of interfering with the appraisal process. But instructions can be essential in order to produce an appraisal that can be actually be used to reach a fair settlement, he said.

For example, Horst said, an appraiser may turn in a report that states the replacement value of the damage instead of the actual cash value, which is all an insurer must pay under most standard form policies. An appraiser also may include in the report the cost of damage that the insurer has already excluded from the claim through a partial denial. Clear instructions can ward off those kind of troubles, Horst said.

Woodie gave another example of where instructions can be crucial. He said he recently handled a claim that included damage to the interior of a building, despite policy language that excluded any interior damage unless there was a hole in the exterior that exposed the inside of the building to the elements.

Later in the day, a Michigan attorney and a field investigator discussed another new normal in the claims field: Claimants intentionally causing water damage to their properties hoping for an insurance payout.

Shelly Lee Griffin, an executive partner with Seacrest Wardle law firm in Troy, said arson is a more traditional method of defrauding insurers but it comes with inherent dangers. Arson attracts attention from bystanders and police. What’s more, the arsonist may injure himself if he isn’t careful with the accelerants he uses.

Water, on the other hand, can flow for days without anyone noticing. And water damages everything it touches, Griffin said. An undetected water leak on the top floor of a building can damage drywall, electrical wiring and flooring on all of the floors below, requiring an extensive restoration.

Griffin said fraudsters also have more control over who responds to a water leak. If a neighbor notices a house on fire, the fire department may respond before any substantial damage is done.

Sherry Bos, a field investigator for Auto-Owners Insurance Group in Lansing, gave several examples of fraudulent water damage claims she has investigated and how the use of experts prevented the attempted $800,000 scam from succeeding.

In one instance, a homeowner claimed that a fitting used to connect pipes, called a “Shark Bite,” had become loose. A careful examination revealed faint marks that showed the pipes had actually been pried apart.

In another case, a contractor claimed a pipe had burst becapuse of a freeze. He turned in a piece of copper pipe that showed tell-tale signs of freeze damage, but that piece didn’t fit the spot from where it had had purportedly been removed.

The PLRB Claims Conference & Insurance Services Expo, held at the Henry B. Gonzalez Convention Center in San Antonio, concludes Wednesday.