Section 128 of the Insurance Act provides a unique process to resolve disputes between insurers and policyholders as to the value of lost or damaged property under a property insurance policy. The process, which can be invoked by either party, requires both sides to appoint an appraiser to value the various disputed categories of loss. If the two do not reach agreement, they present their evidence to an "umpire" who plays the role of tie-breaker. The valuation accepted by the umpire in each category is then recorded in an award, and is binding on the parties.
The law is clear that umpires cannot determine legal questions such as whether there is coverage or whether the insured has committed fraud. The appraiser's jurisdiction is limited to matters of valuation.
But what happens where there is a dispute as to the quantity of insured property, say, for example, how many items were in a home before a fire? Is that a question of valuation properly within the umpire's jurisdiction? Or is it a factual determination that has to be made by a court, as does a finding of fraud?
The Divisional Court recently grappled with this question in Madhani v. Wawanesa Mutual Insurance Company, 2018 ONSC 4282. In that case, the insured had requested an appraisal after his home and its contents were damaged by fire. The parties went to appraisal but the insured was dissatisfied with certain of the umpire's findings, and so brought an application for judicial review to the Divisional Court.
The main issue on the application centred on the umpire's finding as to the replacement cost value of the home's contents. The insured's appraiser asserted that the contents' value was $239,000, and provided a list of the contents alleged to be present in the home and various supporting evidence from the insured. The insurer's appraiser disputed not just the value but the extent of the contents in the home, and asserted that the contents present were worth only $100,000.
The umpire found that the insured had overstated the extent of contents, noting "The extent of the contents items claimed to be present in the premises [by the insured] is not accepted." The umpire wrote that he was not identifying which specific items did not exist, but agreed with the insurer's appraisal that the value of items present during the fire was $100,000.
The insured argued on the judicial review application that the umpire had exceeded his jurisdiction because his only power was to make a determination of value – not to make a factual finding of which items were or were not present in the home.
The Divisional Court rejected the insured's argument and dismissed the application, but did so for reasons that are, respectfully, flawed. The court disagreed that the umpire had made a factual determination, stating that "The Appraisal Findings expressly state that the majority has not made findings about items that did not exist." This observation was incorrect. While the umpire did not specify which items did not exist, his decision was clearly premised on having made a finding that the plaintiff had overstated the extent of contents.
The court further held that while the umpire was not allowed to determine legal questions, he was permitted to engage in property valuation. While not saying so expressly, the court seemed to suggest the umpire's approach was a permissible exercise of property valuation and not one of fact finding.
Confusingly, the court went on to say that "No determination of entitlement was made. That issue remains to be determined in the pending civil action." This statement left it unclear whether the insured would have the ability at trial to argue that the extent (and thus value) of the contents exceeded that found by the umpire.
The author respectfully suggests that the application was wrongly decided. The umpire's reasons clearly indicate he had made a finding of fact in arriving at the contents valuation, and the court should not have permitted such a factual determination to stand. Such determinations should be left to the courts, who unlike the umpire do have expertise in fact finding, and where unlike the appraisal process the rules of civil procedure and rules of evidence provide appropriate procedural safeguards. As the court itself noted in an unrelated section of its reasons, "the [appraisal] process is not adjudicative in nature."
In fairness to the umpire in this case, he was placed in a difficult position as the parties had seemingly invited him to make a decision on quantity. To avoid such situations, the parties to an appraisal might instead ask the umpire to make a decision on valuation assuming the insured's position on quantity is correct, and a separate decision assuming the insurer's position is right. That way the factual determination of quantity can then be left where it belongs, with the trier of fact.
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