Several summers ago, I was stuck in Myrtle Beach traffic when the car behind me failed to stop in time, and her bumper met my bumper. There was no question of liability because the other driver was clearly at fault. Fortunately, her insurance company did not dispute the amount of damage to my vehicle, but such agreement on damage is not always the case. When the claimant and the insurance company fail to agree as to the difference in the fair market value of the vehicle immediately before and after the accident, the appraisers get to work. However, sometimes even the appraisers cannot agree on the value, so a third appraiser is needed to serve as an umpire. When the appraisers are unable to select an umpire, a magistrate may then receive a request from either the claimant or the insurer for the appointment of an umpire pursuant to G.S. 20-279.21(d1). This post will explore how a magistrate handles such a request.
The Actors in the Process
An insurer is “any corporation, association, partnership, society, order, individual or aggregation of individuals engaging or proposing or attempting to engage as principals in any kind of insurance business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships and corporations.” G.S. 58-1-5(3). The Department of Insurance has authority to make rules and regulations to administer and enforce the statutes in Chapter 58 of the North Carolina General Statutes which governs insurance law in the state. These departmental rules are located in the NC Administrative Code (NCAC). According to the NCAC, an insurer includes “any person authorized by the insurer to represent the insurer with respect to a claim and who is acting within the scope of the person’s authority.” 11 NCAC 04 .0425(6).
A claimant can either be a first-party or third-party claimant. 11 NCAC 04 .0425(2). A first-party claimant is a person who is making a claim on an insurance policy in which they are the insured party. 11 NCAC 04.0425(5). A third-party claimant is a person who is making a claim on an insurance policy in which they are not the insured party. 11 NCAC 04 .0425(9).
A disinterested appraiser means “a motor vehicle damage appraiser who: (a) is not employed by either the claimant or the insurer; (b) has no financial interest in the outcome of the appraisal; and (c) did not participate in the original appraisal.” 11 NCAC 04 .0425(4). An umpire should be a disinterested appraiser.
A motor vehicle damage appraiser is a person who is licensed under the relevant statutes (G.S. 58-33-26; –30) as an adjuster or appraiser and who regularly advises on the nature and amount of motor vehicle damage and the fair market value of damaged and undamaged motor vehicles. G.S. 20-279.1(d1)(2). This definition applies to both the appraiser and the umpire.
The Measure of Damages to the Vehicle
The measure of damages to a motor vehicle after an accident is the difference between the market value of the vehicle before the injury and the market value immediately after the injury. U.S. Fidelity & Guaranty Co. v. P. & F. Motor Express, 220 N.C. 721 (1942). This difference is referred to as the “diminution in fair market value.” 11 NCAC 04 .0425(3). These values can be ascertained using motor vehicle pricing guides recognized in the motor vehicle industry, such as the National Automobile Dealers Association (NADA) Pricing Guide Book, the Kelley Blue Book, or other publications approved by the Commissioner of Insurance.
G.S. 20-279.21(d1) provides a mechanism to resolve disagreement between the motor vehicle liability insurance company and the motor vehicle insurance claimant on the diminution in value. If the claimant and the insurer cannot agree on the difference in the fair market value of the vehicle immediately before and after the accident, and the difference between each party’s estimate is greater than $2,000 or 25% of the fair market retail value of the vehicle prior to the accident (whichever is less), as determined by the NADA or some other approved guide, then one party can serve on the other party a written demand for further appraisals.
Each party has 20 days to select a competent and disinterested appraiser and notify the other party of their selection. These disinterested appraisers then appraise the loss. If the appraisers fail to agree on the loss, they can submit their differing appraisals to an umpire, a third disinterested appraiser.
Here is where the magistrate may come in. If the two disinterested appraisers cannot agree on an umpire within 15 days, either the claimant or the insurer may request that a magistrate in the county where the insured motor vehicle is registered or the county where the accident occurred selects the umpire. The statute is silent about the starting point for counting the 15 days, but it seems to be from the time the appraisers exchange appraisals and realize they do not agree on the loss.
The Appointment of the Umpire
Magistrates are granted the power by the legislature to appoint an umpire to determine motor vehicle liability policy diminution in value. G.S. 7A-292(16). The steps preceding the request for the appointment of an umpire are located in G.S. 20-279.21(d1), but the statute does not provide a lot of details about how the magistrate processes the request.
The process begins when the claimant or insurer files a written request for the magistrate to select an umpire. The request should be filed in the office of the clerk of court either where the vehicle is registered or where the accident occurred. The written request should contain (i) a certification that the parties have exhausted the steps outlined in G.S. 20-279.21(d1), (ii) a request for the appointment of an umpire by a magistrate, and (iii) contact information for all parties. The clerk will assign a “Registration” filing number and collect the document indexing fee in G.S. 7A-308(a)(11).
The statute is silent about how the magistrate selects the umpire. Ideally, the district will have a list of umpires who are adjusters or motor vehicle damage appraisers licensed by the NC Department of Insurance (DOI), and magistrates will select from that list on a rotating basis. If no such list exists in the district, the magistrate may seek the assistance of the chief district court judge, the DOI, the Chamber of Commerce, or disinterested insurance agents to identify potential umpires.
Once the umpire has been selected, the magistrate enters an order appointing the umpire. Pursuant to G.S. 20-279.21(d1)(2), the order should provide that the expenses of the appraisal and the umpire shall be paid by the parties equally. The magistrate’s order is filed in the clerk’s office and served on the parties and the umpire. At this point, the magistrate’s role in the process is complete.
The original appraisers submit their differences to the umpire. The umpire prepares a report determining the amount of the loss and files it with the insurer and the claimant. Either party has 15 days from the filing of the report to reject it and notify the other party of the rejection. If the report is not rejected within 15 days from filing, the report is binding on the parties. The statute does not require the umpire to file the report with the court or the party rejecting the report to file a notice of objection, but it may be wise to memorialize the rejection by filing it in the previously created Registration file. At this point, the parties are likely already engaged in civil litigation or will need to file a civil action or pursue alternative remedies, such as arbitration, to resolve the disagreement.
Example and Conclusion
Let’s return to my initial story, but this time, imagine there is not an agreement on the diminution in value (DIV) to my vehicle. I was driving a 2017 Honda HR-V with a fair market value (FMV) before the accident of $20,000 according to the NADA. My appraiser estimated the DIV was $6,800, and the insurer’s appraiser estimated the DIV was $3,300.
The statutory threshold for us to submit our difference to disinterested appraisers is a difference of $2,000 or 25% of the FMV before the accident, whichever is less. Twenty-five percent of my car’s FMV would be $5,000, so the difference would not meet the threshold using this measure. However, we take the lesser of $2,000 or 25%. The difference in DIV is $3,500, which exceeds the threshold of $2,000, so we would select disinterested and competent appraisers to appraise the loss.
If the two disinterested appraisers do not agree on the loss, they will pick an umpire to settle the dispute. If they cannot agree on an umpire, either I or the insurance company could request that a magistrate select the umpire. Although uncommon, it is important that magistrates understand that they have the power to appoint an umpire. Hopefully, none of your upcoming beach trips wind up in the magistrate’s office!