Senate Bill Report — SB 5721

Summary

A Senate Bill Report on SB 5721, an act relating to enhancing consumer protections for automobile insurance coverage, as of February 17, 2025, prepared by non-partisan legislative staff for the Senate Committee on Business, Financial Services & Trade. The report states that the bill requires automobile insurance policies with first-party coverage for physical damage issued or renewed on or after January 1, 2026 to include a right to an appraisal of disputed losses. It describes the procedures for demanding an appraisal, selecting competent and disinterested appraisers, and appointing an umpire, with the Office of the Insurance Commissioner registering umpires. Each party bears its own appraisal costs, but the insurer must reimburse the policyholder if the appraised loss exceeds its prior adjustment by $500 or more. Background covers appraisal clauses and fee-shifting statutes.

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                             SENATE BILL REPORT
                                   SB 5721

                                      As of February 17, 2025

Title: An act relating to enhancing consumer protections for automobile insurance coverage.

Brief Description: Enhancing consumer protections for automobile insurance coverage.

Sponsors: Senators Stanford, Valdez, Hasegawa, Riccelli, Alvarado, Nobles, Orwall, Slatter,
    Trudeau and Wellman.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 2/19/25.


                                      Brief Summary of Bill
           • Creates a right to an appraisal in automobile insurance policies with first-
             party coverage for physical damage, which are issued or renewed on or
             after January 1, 2026.
           • Specifies requirements and procedures for appraisal, including
             timeframes for invoking appraisal, selecting appraisers, and appointing
             umpires, and determining the amount of loss.
           • Specifies the bearing of appraisal costs, but requires an insurer to
             reimburse the policyholder for appraisal costs under certain
             circumstances.
           • Requires the Office of the Insurance Commissioner to register competent
             and disinterested umpires.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: John Kim (786-7453)

     Background: Appraisal Clauses in Motor Vehicle Insurance Policies. According to the




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

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     Washington Motor Vehicle Accident Insurance Deskbook published by the Washington
     State Bar Association, most collision and comprehensive coverages in motor vehicle
     insurance policies provide for appraisal in the event that the insurer and the insured cannot
     agree on the value of a loss in first-party insurance coverage claims for automobile damage.

     Washington courts have generally held appraisal provisions in insurance contracts to be
     valid and enforceable, and have found appraisal awards to be conclusive as to the amount of
     loss except in cases of bias, prejudice, or lack of disinterestedness on the part of either an
     appraiser or the umpire. For example, Montler v. Belfor USA Grp., Inc. (2023), citing
     Goldstein v. Nat'l Fire Ins. Co. of Hartford, Conn. (1919); Bainter v. United Pac. Ins. Co.
     (1988).

     Current state law does not require or prohibit the use of, or specify requirements for,
     appraisal provisions in motor vehicle insurance policies. A rule adopted in 2009 by the
     Office of the Insurance Commissioner (OIC) specifies methods and standards of practice for
     the settlement of total loss vehicle claims, but does not require, prohibit, or specify
     requirements for appraisal.

     According to the OIC, it is experiencing a historic rise of complaints relating to auto
     insurance, with 88 percent of auto insurance complaints relating to valuation disputes and
     claims handling disagreements.

     Fee Shifting Statutes. According to the American Bar Association, the general rule in the
     United States is that each party must bear its own attorney fees in litigation absent a
     statutory or contractual exception. Fee-shifting provisions are an exception to this rule.

     A unilateral or one-way fee shifting statute provides that only one party can recover their
     legal fees, which is usually the prevailing plaintiff or claimant. One example of a one-way
     fee shifting statute in the Washington Insurance Code relates to the unreasonable denial of a
     claim for coverage or payment of benefits, which allows a claimant to recover attorney fees
     and litigation costs from an insurer, among other remedies.

     Summary of Bill: Right to Appraisal in Automobile Insurance Policies with First-Party
     Coverage for Physical Damage. The bill requires every automobile insurance policy that
     includes first-party coverage for physical damage issued or renewed effective on or after
     January 1, 2026, to include a provision for the right to an appraisal to resolve disputes
     between the insurer and the insured regarding the actual cash value and amount of loss on
     the damaged automobile.

     The bill specifies language to be included in the appraisal clause, but authorizes
     corresponding language that, in the OIC's opinion, is at least as favorable to the insured.

     Timeframes for Invoking Appraisal and Requirements for Selecting Appraisers. The bill
     provides that neither party may demand an appraisal until ten days after the insurer receives


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     notification of the claim.

     If the insurer and the policyholder are unable to agree as to the amount of loss, either party
     may make a written demand for an appraisal, and within ten days, each party must select a
     competent and disinterested appraiser and notify the other party of its selection.

     The bill defines the following:
        • the term appraiser means a person selected by the insurer or the insured to place a
           value on or estimate the amount of loss under an appraisal clause in an insurance
           contract;
        • the term competent means the person has subject matter expertise, relevant training,
           and experience to make decisions and valuations relating to the amount of loss; and
        • the term disinterested means the person does not have a direct financial interest in the
           outcome of the appraisal process.

     Appointment of an Umpire. An umpire is defined as a person selected by the appraisers
     representing the insurer and the insured, or, if the appraisers cannot agree, by the OIC, who
     is charged with resolving issues that the appraisers are unable to agree upon during the
     course of an appraisal.

     The selected appraisers must appoint a competent and disinterested umpire. If the appraisers
     do not appoint a competent and disinterested umpire within ten days, either appraiser may
     notify the OIC, which must identify a registered competent and disinterested umpire that
     will be used according to the process that the OIC specifies by rule.

     Appraisals and Agreement. After an umpire is appointed, the appraisers must then each
     appraise the loss, make separate findings regarding the amount of loss for each element of
     loss, and exchange their completed appraisals. If the appraisers are unable to agree on the
     losses, they must submit their differences to the umpire.

     The amount of loss must be determined either by agreement of the appraisers or by
     agreement of one appraiser and the umpire.

     Bearing of Appraisal Costs and One-Way Cost-Shifting Provision. Each party is responsible
     for their appraisal expenses, and each party is equally responsible for the cost of the umpire.

     If the amount of loss determined through the appraisal process is greater than the amount of
     loss the insurer adjusted before the appraisal process was invoked by an amount of $500 or
     more, the insurer must reimburse the policyholder for the costs incurred for the appraisal
     process.

     The appraisal process costs include reasonable appraiser professional charges, reasonable
     attorney fees, and other necessary actual costs.



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     Rulemaking. The OIC may adopt implementing rules.

     Appropriation: None.

     Fiscal Note: Requested on February 14, 2025.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.




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