What is an Appraisal Clause, and When Should You Use It?

When your home or business suffers significant damage you understandably have quite a bit on your mind. You have contacted your insurance company and begun the claims process, but maybe their settlement offer doesn’t quite line up with the one you believe you deserve.

Do you have to simply accept their offer, or do you hire an attorney to move onto the next step, accumulating legal fees in the process? Fortunately for you, there is another option!

Almost every property insurance policy contains what is known as an “Appraisal Clause.” Some contain them as required by state statute and some are simply common insurance practice. And while the exact language of a given insurance company’s policy language regarding appraisal often differs from case to case, the typical one might read:

“If we and you disagree on the value of the property or the amount of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection of an umpire be made by a judge of a court having jurisdiction. The appraisers will separately state the value of the property and the amount of the loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed by any two will be binding.

Each party will:

  1. Pay its chosen appraiser; and
  2. Bear the other expenses of the appraisal and umpire equally.

If there is an appraisal, we still retain our right to deny the claim.”

Thus, an appraisal is:

  1. A contractual remedy provided by policy language;
  2. Binding on both parties; and
  3. A mechanism that either of the parties — the insured or the insurer-can demand if there is a bona fide dispute as to the value of the damages.

How Does One Start the Appraisal Process?

As stated above, either party can demand appraisal in writing when there is a disagreement regarding the amount of the loss. Each party will then select its own appraiser, with the determination of who may be selected by each party found in the language of appraisal clause. That said, most appraisal clauses require an appraiser be competent, impartial, or disinterested.

Once selected, the parties should ensure the appraisers are given clear instructions concerning what is expected of them, specifically what they are supposed to be ruling, as it is common for appraisal to be involving a portion of a claim. It could be the Actual Cash Value (ACV) of the building or the Replacement Cost (RC) of the contents, or anything else in between. But, without appropriate and specific direction, the panel is likely to extend its ruling into areas that are not in dispute or have already been resolved.

What if the Two Appraisers Cannot Come to an Agreement?

This is a very common occurrence in the appraisal process, which is why it is stated in the appraisal clause that the two appraisers should convene to select an umpire. The selected umpire must be totally unbiased, impartial and disinterested. If the two parties cannot agree upon an umpire, then either party may petition any court to appoint one.

Many courts have compared an umpire in an appraisal to an arbitrator in an arbitration. Umpires have the obligation to be unbiased and further to disclose any dealings that might create an impression of possible bias. Each appraiser then submits its report to the umpire with any evidence and materials. The umpire then should remain focused on the differences between the parties and rule accordingly. Finally, an agreement by any two of the three, umpire and two arbitrators constitutes the ruling.

An Appraisal Award Has Been Agreed Upon; What’s Next?

The Award is put in writing and signed by at least two of three participants (umpire and at least one of the two arbitrators), shared with the parties (the insured and insurer), filed with the insurance company and the insurance company should immediately pay upon the award, taking care not to delay beyond the shortest period provided for in the policy, by regulation, or by statute.

A question often arises by insureds who consider the appraisal remedy set forth in the policy: Is appraisal binding? Generally speaking, an appraisal is binding upon the parties as long as there has been no fraud or mistake. Courts throughout the country have argued about the issue, but most have handed out rulings holding true to this statement.

If you have been offered a settlement from your insurance company that you believe to be unfair, call the professionals at Gavnat and Associates to assist you in the appraisal process today, and we’ll get you the settlement you are entitled to!