Puerto Rico Approves Appraisal Standards: Let’s Play Ball

At the start of the 2018 Atlantic Hurricane Season, we provided an overview of Puerto Rico’s codified prohibition against alternative dispute resolutions, such as arbitration and appraisal, in connection with insurance matters.  (See When It Comes to Insurance Disputes: No ADR in PR!). Subsequently on June 12, 2018, the Office of Commissioner of Insurance (OCI) for the Government of Puerto Rico issued Ruling Letter No. CN-2018-241-D, exercising its vested authority under 26 L.P.R.A. § 235(16), to formally establish the standards and procedures for the appraisal process as an alternative conflict resolution method in the insurance industry.

The Ruling Letter sets forth the requirements for appraisal, the professional qualifications required for a neutral umpire, the authority of the Commissioner of Insurance to appoint a neutral umpire, the general fee cap for serving as a neutral umpire, how to commence the appraisal process, how an appraisal is carried out, limitation of OCI personnel involvement, and the venue for performing appraisals.  The Ruling Letter also provides access to forms for the submission to appraisal and an application to serve as a neutral umpire.

These appraisal standards maintain the general proposition that the quantum of the claim, not coverage, is the matter to be resolved by appraisal.  (Section A.4).  However, there are some distinctions that make Puerto Rico’s new appraisal format particularly interesting.  A unique feature is the requirement that “no legal action has been brought in any court with regard to the claim.”  (Section A.6).  The notion that appraisal be a real alternative to litigation is one that is sometimes at odds with the practical application of the appraisal in jurisdictions such as Florida, where it is not uncommon to see coverage litigation and appraisal running as parallel proceedings.

Another unique distinction is the level of professional qualification for a neutral umpire.  (Section C(a)).  Although the Ruling Letter provides an exception to the professional requirements of potential neutral umpires, the requirement that the umpire possess knowledge of the subject appraised loss, such as a CPA if the loss involves business interruption, is a progressive concept.  (Section C(a)(5)).  Another critical component of the appraisal standards involves the time restrictions built into the appraisal process.  Parties have five “working days” to respond to a request for appraisal. (Section E.2).  Requests for reservation of meeting facilities at the OCI offices are to be undertaken at least five days prior to the appraisal meeting.  (Section G).  The entirety of the appraisal process is to take 30 days, except when good cause requires an extension or shortening of the time to conclude the appraisal.  (Section F.10).

Finally, the standards reiterate that the appraisal process is not binding, unless the parties explicitly agree to ratify the terms of the decision after the appraisal is completed.  The parties’ written agreement ratifying the appraisal award then becomes a binding and enforceable contract.  (Section F.9). Beyond the recognition of being an enforceable document, the Ruling Letter does not provide additional guidance with regard to enforcement of an appraisal award.

It will be interesting to see how these newly established appraisal standards are put into practice.  The aftermath of a tumultuous 2017 Atlantic Hurricane Season cleared the field for the establishment of appraisal standards as a form of insurance alternative dispute resolution in Puerto Rico, now allowing parties to invoke appraisal, pick an umpire and play ball.

Posted by Anaysa Gallardo Stutzman