Policyholder Pulse
Even if an insurance company attempts to deny its coverage obligations, there are still processes that a policyholder can explore, short of litigation, that could resolve a coverage dispute. Appraisal is an alternative dispute resolution process designed to efficiently resolve measurement disputes between policyholders and their insurers. Appraisal can streamline a coverage lawsuit and narrow the disputed issues—it may even limit the need for expert reports and depositions. There is a strong public policy favoring appraisals throughout the country, not only because they may provide a less expensive alternative to litigation, but also because appraisal rulings are enforceable and strictly applied in court. Some states even require that form standard insurance policies include an appraisal clause requiring either party to, on demand, submit a dispute over the amount of a loss to an appraisal panel. (See Virginia Code § 38.2-2105; Cal. Ins. Code § 2071; McKinney’s Ins. Law§ 3404; N.J.S.A. § 17:36-5.20.) That panel typically consists of two appraisers, who select an umpire.
As coverage counsel, we see the situation arise time and again: facing down substantial potential liability in a pending lawsuit, a policyholder engages in good-faith settlement discussions with the plaintiff. After animated negotiations between the parties, the plaintiff finally makes a reasonable offer, only for the policyholder’s insurance carrier to throw up a roadblock by refusing to fund or consent to the settlement. But policyholders need not always resign themselves to continuing costly and time-consuming litigation—a “covenant not to execute” may be the switch to put the settlement back on track.
