In property insurance settlements, when the insured and the insurance carrier can’t agree on the value of a loss, the case might go to a mediation process known as Reference. This is unique to Massachusetts – as codified in Mass. General Law Chapter 175 Section 99 et seq – but similar to the Appraisal process used in other states.
Reference requires the insured and the insurance carrier to present information to a panel made up of three independent professionals. Throughout his career, Bill DePiano has served on more than 100 Reference panels, making him one of the most experienced experts on Reference in the Northeast.
If your insurance claim is heading to a Reference panel, the Q & A below will help you prepare.
What can insureds do better when they take a claim to Reference?
Get an expert. The biggest weakness I see for insureds is in their representation. In the old days, you could hire your personal lawyer for a Reference and probably be fine, but nowadays you need an attorney who is a property insurance expert. All too often, the insured’s attorney isn’t familiar with the Reference process and the result is a lot of wasted time – which greatly increases costs to the insured. While the process is quasi-judicial, the rules of evidence and testimony are a lot more relaxed in the Reference setting. Attorneys who don’t understand this seldom prepare the witnesses accordingly. Sometimes the panel can help in getting the relevant information, but sometimes we’re limited in how much we can find out without the right presentation.
How can insureds get the most out of their witnesses?
The preparation is really important, so they should spend time making sure each witness is ready to tell the facts. Some witnesses are just not that good, but you can get the most out of them through good preparation. Presenters may try to frame a testimony – but the truth is always the best answer. Help them understand that the truth will never hurt them.
What should we know about the insurance company’s attorneys?
Understand that they’re very experienced in this type of forum. They’re probably going to be very good at the presentation – after all, they do it all the time. The insurance carriers usually take the time to prepare their witnesses, which results in a better presentation overall. That’s why I stress the importance of insureds hiring the right representation – they need to do that if they’re going to compete.
Over your 45-year career, how many of your claims have gone to Reference?
Not that many. 30-40.
Any one in particular that you will never forget?
I had one in the late 90’s – a mill building in Lowell that had a fire which caused millions of dollars in damages. The policy was appropriate. Then the insurance company applied the broad evidence rule to try and demonstrate that the building value was $0. This was based on a narrow appraisal approach that valued only the land. Because the mill building was old and in disrepair, they claimed the structure was worthless. My client’s high-powered legal team was nervous about going to Reference. I told them that the insurer’s formula for calculating the broad evidence rule was incorrect. From there, we got 100% of the actual cash value by convincing the panel that the carrier was wrong.
In taking your own clients’ claims to Reference, what have you learned?
It’s still the last resort. Whenever possible, you want to get the claim settled before it gets to that point. I was always taught that “the best claim is a settled claim”. I advise people to keep negotiating and have as many meetings as it takes to settle before it gets to Reference.
Why do claims usually end up in Reference?
It’s usually because people are stubborn, communication breaks down or they don’t follow the advice of their experts. Personalities can take over and sometimes people lose sight of what the issues really are.
What are your thoughts on Appraisal versus Reference?
Appraisal is the quick and economical way to resolve the amount of loss and value. But that’s it. Each side puts up their appraiser; there’s no selection – they nominate that person. If the appraisers come to an issue on which they cannot reach an agreement, they will present their positions to the umpire. Appraisals are all over the board, depending on what’s involved and the size of the loss. The appraisers attempt to agree on as much as they can, and should put to the umpire only what they can’t agree on. A Reference panel, meanwhile, is 3 people working as one. The majority does rule – you only need two signatures to have it be a binding award. But that is a rare occurrence.
Is it expensive to go to Reference?
Reference is very expensive for the policyholder. This is largely because some insurers will take advantage of the process and put on a mini trial to drive up the costs. It can run into tens of thousands for an insured – this is due to referee, witness and attorney fees. That’s the only downside of Reference, I believe, compared to Appraisal.