The collaborative appraiser does not need to be independent

Insurance law – Homeowner’s insurance – Statutory provisions – Interpretation – Bad faith – Appraisals – Appraiser – Practice – Leave to appeal

Campbell v. Desjardins General Insurance Group, [2022] O.J. No. 719, 2022 ONCA 128, Ontario Court of Appeal, February 15, 2022, M.L. Benotto, D.M. Brown and A.L. Harvison Young JJ.A.

The insurer appealed the decision of the application judge to not remove the insured’s appraiser pursuant to the appraisal mechanism under section 128 of the Insurance Act, R.S.O 1990, c. I.8 for lack of independence.

The insured’s home was deemed a total loss after it was damaged by a tornado. The insurer assigned an employee adjuster to adjust the loss. The insured requested an appraisal and appointed her legal counsel as her appraiser. The insurer appointed its adjuster as its appraiser. The appraisers appointed an umpire by agreement.

At the first case conference, the insured’s appraiser advised that he may be bringing a bad faith claim on behalf of the insured as a result of the adjustment of her file. Several days later, the insured’s appraiser was retained to represent the insured and two other homeowners in an action for punitive damages against the insurer and others. The umpire expressed his concern with proceeding with the appraisal given the bad faith claim and unilaterally suspended the appraisal pending direction from the Ontario Superior Court of Justice as to:

• whether the insured’s appraiser can reasonably function as an appraiser while acting as the insured’s counsel in the lawsuit, and if not, who his replacement should be; and
• whether the insurer’s appraiser can reasonably function as an appraiser while remaining a party in the lawsuit, and if not, who his replacement should be.

The insurer subsequently substituted its appraiser with another employee adjuster who had not previously been involved in the matter. The insurer brought an application to remove the insured’s legal counsel as an appraiser and asserted that the appraisal process is an administrative tribunal and the two appraisers and umpire must be impartial.

The application judge found the appraisal process is an administrative tribunal created to establish the value of the loss. However, the Insurance Act does not restrict who can act as an appraiser and choice of an appraiser belongs to the party. The application judge found that selection of an advocate as an appraiser ensures that the party’s positions are properly advanced before the umpire, in the best interest of the client. On this basis, the application judge declined to remove the insured’s appraiser.

The Court of Appeal rejected the insurer’s submission that appraisers must be impartial. The Court of Appeal disagreed with the application judge’s finding that appraisers are advocates. The Court noted that an appraiser must attempt in good faith to reach a compromise with their fellow appraiser. While this may involve some advocacy, the appraiser’s overall role is more collaborative and less adversarial. The Court held that if the bad faith claim and the appraisal process became intertwined at a later point, the potential conflict of interest can be resolved by removal of the insured’s appraiser as counsel of record in the bad faith claim.

This case was digested by Dominic Wan, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dominic Wan at [email protected].

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