Tex. bill mandates appraisal clause, has chance for customer, insurer to recoup appraiser fees

A new Texas bill would require auto insurance policies to not only carry appraisal clauses but make the process more cost-effective for consumers trying to use RTA to treat a short-pay.

If the right-to-appraisal process produces a total loss or repair cost valuation $1 greater than the insurer’s last offer, the insurer must pay the customer’s appraiser fees and expenses. If the insurer’s last offer was deemed “just” House Bill 2534 would have the client pay the insurer’s appraiser fees and expenses.

The umpire’s fees and expenses would still be split equally between each side.

The appraisal clause process itself under HB 2534 is a reasonably standard description of the concept.

If the insurer and customer can’t agree on the total amount the carrier owes in a loss — the value of a totaled vehicle or the appropriate amount to fix a repairable vehicle — either party can invoke their to appraisal within the first 3 months after a claim’s filing.

Both sides need to employ a “competent appraiser” within 15 times of the appraisal clause being exercised, and people appraisers must “determine the quantity of loss.”

If the two appraisers can agree on $ 1 value, that amount is going to be binding. When they can’t agree, then the appraisers interact to choose an “umpire.” If they can’t agree with an umpire within 15 days, the insurer or policyholder “may request that a court within the county where the named insured resides choose the umpire.”

The umpire also “shall determine the quantity of loss.” If either appraiser will follow the umpire, then that quantity is binding.

Pretty straightforward, and other alike to the Texas Department of Insurance’s generic description of the process. However, the reimbursement rules HB 2534 would enact appear to be a a bit more unique:

This language resolves a problem with the appraisal process: The truth that a person must pay for his or her own appraiser, and maybe 1 / 2 of an umpire, disincentivizes consumers by using the process on certain claims, or perhaps whatsoever. The automotive repair lender DigniFi recently argued that many Americans don’t come with an extra $500-$600 for unexpected expenses.

A Washington state legislative hearing recently raised this problem. Mike Harber, a licensed professional appraiser who represented the Professional Automotive Repair Alliance, told a House committee he represented 87 insureds in disputes with their carrier in 2021.

“We won every one of these claims,” he said. But clients have to pay for his help, and also the average consumer couldn't pay the cost of exercising their auto policy appraisal clause, he said.

During a November Collision Hub broadcast, Vehicle Collision Experts CEO and professional appraiser Mark Olson pointed out how exercising an appraisal clause could cause a pyrrhic victory for the customer.

As Olson put it: Suppose the appraisal clause process costs the client $1,000 and finds the customer's appraisal $3,000 above the insurer's. The umpire “splits the baby” and produces an appraisal $1,500 greater than the insurer's.

“You spent a grand to chase $1,500,” Olson said. Small-claims court makes more sense, according to Olson.

Collision Hub CEO Kristen Felder, another professional appraiser, said the process could involve an appraiser's fee of $495-$600 and half of an umpire's $600-$750 bill. She said she advises it's not worth pursuing an RTA without a minimum of a $3,000 difference between the shop and insurer estimates.

Oregon has for any decade addressed this issue with ORS 742.466. That law only allows the consumer to recoup “reasonable appraisal costs” when the insurer’s last offer was find to become lower than the amount awarded in the appraisal process. The state’s auto premiums remain lower than the national average, based on NAIC data.

As noted above, the Texas bill would even grant the insurer exactly the same capability when the RTA process proved their last offer was “just.”

Auto Body Association of Texas V . p . Eric McKenzie on Thursday said he’s “not ever” seen an incident in which the appraisal clause process didn’t award a greater amount than the insurer’s last offer.

“We’ve had very good success” while using process for OEM parts and following OEM procedures, he said of his customers. He said they sometimes don’t bother until the disputed amount significantly exceeds $1,000, and most customers don’t pursue it until at least the $2,000 mark.

HB 2534 would still leave the consumer paying 1 / 2 of the umpire costs. But McKenzie said it’s rare that an umpire is required. In his customers’ experience, the insurer and customer’s appraisers can agree with a sum by themselves.

McKenzie’s organization props up bill.

“We’re hoping that one can be an easy rubber-stamp” McKenzie said Thursday. There’s “little for them” to argue about, he said.

“There’s very little fluff,” Executive Director Jill Tuggle said Thursday.

McKenzie said ABAT’s lobbyist has told the business that insurers several years ago “fought hard” to add appraisal clauses, desiring the appraisal process as a “stopgap” instead of having disputes end up in court. Therefore it would be “interesting” if any insurers objected to a requirement they provide appraisal clauses, McKenzie said.

“We’re really playing off of that,” Tuggle said.

HB 2534 is sponsored by Rep. Travis Clardy, R-Nacogdoches. McKenzie said the bill doesn’t have a Senate sponsor yet, but automotive dealership trade groups offer the bill, which industry includes a senator in your mind. A dual-chambered bill must have a much better shot in a session which is likely to be consumed with issues like redistricting and the recent Texas cold weather and ensuing outages.

“There’s not a good deal there to argue against,” McKenzie said.

Most insurers contain appraisal clauses in their policies, and also the Texas Department of Insurance advises consumers to consider them for disputes resolution.

“We really aren’t requesting anything new here,” Tuggle said.

However, a minumum of one carrier — Texas’ No. 1 auto insurer State Farm — has removed language permitting a right to appraisal on repairable vehicles.