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The Cart Before the Horse

This insurance claim came from an insured in a metropolitan city. A construction company installing a new sidewalk accidentally (is it ever any other way?) hit the limb of a 17-inch-diameter tree growing in the cutout of the sidewalk. The limb tore and broke off. The guardian angel for trees in the city inspected the damage and declared it to be irreparable. This angel/arborist then went on to complete a formula that established the value of the subject tree. The math clearly demonstrated that the tree was worth $85,000.

The insurance agent and the guys upstairs didn’t know what to do with this number or the claim. They knew they needed a forensic arborist, so they asked me to have a look.

Formulas are always an intriguing venue for establishing value. Most formulas, if not all formulas, that place a value on something are fraught with subjectivity. There is also a strong mixture of necessary research to establish value in a formula metrics. Subjectivity and required research are always a recipe for disaster. This assignment was no different.

To create the cornerstone of a formula for value, there is a necessary first step. In the world of trees, it is reduced to one of two categories: replacement cost for the damaged trees, whose size and species can be replicated in the marketplace, and those damaged or casualty trees too large to be found growing in the marketplace.

As to the latter, the arborist seeks the largest, most commonly grown tree in the marketplace. That value and trunk diameter size are the cornerstone of the formula requirements. Willing buyer; willing seller. The amount of money a person willing but not obligated to pay to a person willing but not obligated to sell: therein lies the peace of our financial being.

But there are rules in the marketplace that must be strictly followed before a declaration of value can be made. I have yet to meet the arborist who knows the rules of the marketplace. There are four of these rules subject to collecting comparable pricing. Comparable pricing is the ultimate test of value. But the declaration of that comparable price must be obtained through the rules of the marketplace. Otherwise, the opinion of value is without merit.

In this instance, the arborist did not go into the marketplace to determine his value assessment. Instead, he relied upon past pricing experience in his municipality. Error! You can do that if you’d like, but it won’t stand the test at bar. After all is said and done, your experience of costs may be different than those found in the marketplace. Perhaps you’re wasting time and therefore money in any of the numerous facets of tree replacement. There is no reason whatsoever that an insurance company should pay for those mistakes. Perhaps your costs are right on the money. You wasted no time and did everything in an acceptable manner. However, that must be proven in a juxtaposition to the marketplace.

Then, on to the subjectivity of his appraisal. Typically, when valuing a tree larger than can be found in the marketplace (tree farms or nurseries), a diminution in value is applied to the casualty tree for the species of the tree (just like the make and model of a car), its health (just like the mileage on a car), its structure (has the car ever been in a wreck?), its placement in the landscape, and its contribution to the value of the landscape in which it is growing. These are all subjective components of a typical formula. Reasonable appraisers differ, and that’s okay. It’s expected. But you must be able to defend your position. And the best way of defending a position is common sense. Does your subjectivity pass the litmus test of reasonableness and common sense to the average person?

As an example, if a large tree surrounded by cement growing in a metropolitan streetscape is given an 80% location factor in your opinion, you may have a problem convincing the average person of that high rating and your justification for giving it.

And, of course, the greatest error of all lies in advocacy. How tempting. How alluring. Looking at the trees through the eyes of those who would benefit from the valuation. Easy enough to do at your desk. More difficult in front of a jury.

This matter settled finding both the insured and the insurance company satisfied with the outcome.


Original artwork courtesy of Delsin Scudamore

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