If you and your insurance company are in a disagreement on the amount of loss during a claim settlement, and the company refuses to negotiate, you have an option to settle the claim by invoking an appraisal clause in your insurance policy.
You may be familiar with the term “appraisal” as it relates to getting a professional opinion on the value of the real estate or personal property. However, most policyholders are not familiar with the insurance appraisal process. When the two parties are unable to agree on the amount of money an insurer should pay to settle a claim, it is likely that there will be a nonjudicial means of resolving disputes between insurers and insureds.
The process of invoking an appraisal clause and its description is located in the Conditions section of most homeowners or business owners policies (BOP). Here is how it’s described in an ISO insurance HO-3 form:
“If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the “residence premises” is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.”
The process of invoking an appraisal requires each party to:
1) pay its appointed appraiser; and
2) bear the other expenses of the appraisal and umpire equally.
When there is a pricing dispute, an appraisal may be a faster, lower-cost option available to settle a claim. Invoking an appraisal can be an effective way to settle claim disputes without having to take the time and expense of protracted litigation. The appraisers must be competent and disinterested. Appraisers cannot resolve issues relating to coverage or causation. An advance appraisal agreement and preparation of an appraisal award form is suggested in order to resolve as much as possible in the appraisal process.
The Process of an Appraisal Clause
An appraisal is a binding contractual process available to settle valuation disputes between policyholders and their insurance companies when they fail to agree on the amount of loss. Either the policyholder or the insurance company may initiate the appraisal clause, which is usually done in writing. Disputes centering on coverage or causation issues cannot be decided by appraisal. The process is generally governed by the Arbitration Act and can be formal or informal in nature.
Prior to an appraisal, you and your insurance company should first make a reasonable and honest attempt to come to a consensus as to the question of loss and damages. The appraisal is not appropriate based on an initial disagreement between the two parties without some effort to resolve the disagreement.
An insurance appraiser is a competent and disinterested professional who will evaluate the claim and value of the property or amount of the loss. Each party (insurance company and policyholder) must pick its own competent and disinterested appraiser when the insurance appraisal clause is invoked. An insurance appraiser can be an adjuster, contractor, engineer, or anyone else who is competent to value and determine the amount of loss. Once the appraisers are selected, they work together to select a competent, disinterested, and impartial individual to serve as umpire.
The umpire renders a binding decision when he/she agrees with one of the two appraisers when the two appraisers fail to agree on the value of a property or the amount of a property loss. A qualified umpire maybe someone like a retired judge, attorney, engineer, contractor, or anyone who can give an impartial valuation based on their expertise in the field.
Selecting the Right Appraiser is Crucial
The key to a successful appraisal is hiring an expert who knows the ins and outs of the process. Knowing who to choose as an umpire and how to agree to an impartial umpire is one of the most important factors for a successful appraisal. Also, it helps to know how to negotiate and come to an agreement quickly with the other appraiser and umpire.
When properly executed, insurance appraisal is a great tool for settling insurance claim disputes. Before invoking appraisal, you need to have an experienced expert on your side who understands the process, otherwise your insurance company will very likely have the advantage. If not properly executed, an appraisal can compound claim problems and result in costly delays. An advance appraisal agreement and preparation of an appraisal award form is suggested in order to resolve as much as possible in the appraisal process.
Insurance Appraisal Clause Pitfalls and Disadvantages
When is invoking an appraisal not appropriate to settle a claim dispute? For issues involving policy coverage, policy provisions, deductibles, or how much was previously paid on the claim, an appraisal is not recommended.
The difference in the amount disputed also needs to be substantial enough to make an appraisal worthwhile. For example, if you and your insurer are, say, $5,000 apart, fees alone could take up much of any proceeds should you be successful. But when an insurance company and policyholder are $50,000 worth of damage or more apart on the amount of loss, an appraisal may be more beneficial.
Other disadvantages of invoking appraisal clause include:
There are no guarantees in the appraisal. Once an award is signed, there are limited options in getting the award overturned as it is binding unless fraud, collusion, or similar issues can be demonstrated. If you receive more money you may want to consult counsel to see if further legal action against the insurer for breach of contract or acting in bad faith is appropriate.
Appraisals can take longer since there could be at least 1-2 months in waiting for the other side’s named appraiser and waiting to agree on an umpire. Then there is the time for appraisers to come to an agreement or for the umpire to break any log jams.
There are fewer experienced party appraisers willing to work for insureds, while those who work for insurance companies are plentiful.
Impartial umpires are also more difficult to find and be approved by the insurance carrier’s appraiser.
Invoking an appraisal clause could be your best option to resolve a significant claim value dispute with your insurance company. When done correctly, you can add significant value to your claim without the added time and expense of protracted litigation. It’s crucial to hire an expert well-versed in the process.