Appraisal

If you and your insurance company are in a disagreement on the amount of loss or the scope of damages 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, there will likely 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 commercial business owners' policies (BOP). Here is how it might be 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 Process of Appraisal

An appraisal is typically 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 or the scope of damages. Either the policyholder or the insurance company may initiate the appraisal clause, which is usually done in writing. Disputes centering on coverage issues cannot be decided by appraisal.

Before an appraisal, you and your insurance company must have first made an honest attempt to come to a consensus as to the question of loss and damages. An 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 the amount of the loss. Each party (insurance company and policyholder) must pick its own impartial 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 the two appraisers fail to agree on the value of the property or the amount of a property loss. A qualified umpire is someone like a retired judge, 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 knowing 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, the insurance company will very likely have the advantage. If not properly executed, an appraisal can compound claim problems and result in costly delays.

Insurance Appraisal 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 include:

There are no guarantees in appraisal; once an award is signed, there are limited options in getting more money or changing the award, such as suing the insurer for breach of contract or acting in bad faith.
Appraisals can take longer since there is a least 1-2 months in waiting for the other side’s named appraiser and waiting to agree on an umpire.
Fewer experienced party appraisers are 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 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.