Resolving Insurance Claim Disputes With Appraisals, Mediation & Arbitration

While real estate appraisers determine the value of a home or business, insurance claim appraisers determine the value of a home or business insurance claim.

We get plenty of questions about insurance claim appraisals and disputes:

• How do home insurance appraisals work?
• What should I expect from the appraiser during an insurance dispute?
• What’s the difference between an insurance claim umpire, arbitrator, and appraiser?

Keep reading to discover the answers to all of these questions and find out everything you need to know about the role of an appraiser for insurance claims.

The Role of the Appraiser

An insurance claim appraiser has one primary goal:

• To resolve a dispute when the insurance policyholder and insurance company disagree over the value of the claim.

The appraiser is not used to determine coverage of a related peril. They don’t decide whether or not your roof damage was caused by a recent hailstorm or wear-and-tear, for example. Instead, they simply determine the cost of making repairs as approved by the insurance company.

Appraisers are brought in to resolve insurance disputes over the value of a claim.

If you and your insurer disagree over the value of a claim, then both parties may agree to hire an appraiser.

Let’s say you believe it costs $20,000 to repair your roof after a hailstorm but your insurer is offering you $8,000. In this case, you hire an appraiser and your insurer hires its own appraisers. These appraisers assess the damage, then decide how much it costs to repair the damage.

What happens if the two appraisers disagree on the value of repairs? How do the parties agree to a specific value? This is where an umpire comes in.

An umpire is a neutral professional who decides which appraiser has made the proper assessment of the cost of repairing the damaged property. The umpire reviews each appraiser’s case, then sides with either the property owner’s appraiser or the insurer’s appraiser to complete the claim, or, they might come up with their own valuation of the repair costs.

As a the insured property owner, you’re responsible for hiring your own appraiser and paying for half the cost of the umpire out of your own pocket. That’s why you typically only hire an appraiser for higher-value claims or claims with large disputed amounts.

What is an Insurance Appraisal?

Most insurance policies have something called a “Mandatory Appraisal Clause.”

This clause requires you and the insurer to complete an appraisal before taking more drastic action – say, like filing a lawsuit against the insurer. Because of this, don’t automatically hire a lawyer without reading your policy first. This could result in the attorney fees on top of appraisal fees, and that is not always a necessary cost for you.

The goal of an insurance appraisal is simple: the insurance company wants to make sure they know what they’re paying for and that it’s necessary for all charges to be paid so you are fully indemnified for your loss.

Who Needs an Insurance Appraisal?

Insurance appraisals are typically requested by the insurance company – not the policyholder. But it is always your option to demand appraisal as well if you have been fighting over a claim for longer than a couple of months..

The insurance company may notify you that they aren’t going to pay the amount needed to repair or replace your damaged items. Before you receive any further payments, you must go through the appraisal process.

If you receive this notice, it’s important to act quickly. You have 20 days to hire an appraiser. Your appraiser also needs to submit their choice for umpire.

What is an Umpire?

In the insurance claim world, an umpire hears arguments from both appraisers, then decides which one is right, or makes their own decision and waits for one of the appraisers to agree with them.

The umpire serves as a decision maker between two sides. You hired your appraiser and your insurer hired its appraiser. These two appraisers created a report, and the umpire decides which report is more correct.

The umpire is a neutral third party hired in a joint decision between the two appraisers.

If the insurance company’s appraiser and policyholder‘s appraiser cannot agree on an umpire, a court may appoint an umpire. In some cases, for example, one party will petition the court to select an umpire – say, if one side believes the selected umpire to be biased.

Ideally, the umpire has experience with construction and code requirements, helping them make an accurate decision. Although some appraisers hire retired judges and similar professionals as umpires, these may not be the best people for the job, as they may not understand the details of repair and construction projects.

Ultimately, the umpire performs a role similar to a mediator: the umpire is a neutral third party who helps to resolve disputes between two appraisers who cannot agree on a loss.

Each Party Pays Its Own Appraiser

As the policyholder, you pay for your own appraiser. Your insurance company, meanwhile, pays for its appraiser.

The cost of the umpire is split equally between the two parties. All other associated costs are also equally split between the two parties.

Scope of the Appraisal

All insurance claim appraisals have a defined “scope.” The “scope” of the appraisal defines exactly what is being appraised.

Typically, appraisal disputes involve a specific loss linked to a specific covered event – like a house fire or flood. Ideally, parties agree on the scope of the appraisal early.

Sometimes, one appraiser pushes for a broader scope while the other appraiser pushes for a narrower scope. The homeowner may argue smoke damage in an upstairs bedroom is within the scope of the appraisal, for example, while the insurer may argue otherwise.

Eventually, the two parties agree on the scope of the appraisal. Once the two parties agree on scope, they can sign a formal appraisal agreement.

If the two parties cannot agree on the scope of loss, then the umpire decides which side’s scope is closest to the actual cost of all necessary repairs.

What Does an Appraiser Check When Visiting Your Home or Commercial Property?

An insurance appraiser looks at several things during the insurance claim appraisal:

Actual Damage Caused by Covered Peril: Appraisers are there to determine the cost of the repairs for the covered cause of loss. This can include damages that are a result of the covered cause of loss, but they can’t add to the estimate for repairs of items that were damaged due to wear and tear or prior losses.

Ensuing Damage: Ensuing damage is damage that occurred as a direct result of the covered incident. A small crack in a pipe, for example, can lead to a bigger issue over time. The appraiser may check plumbing, electrical, and HVAC systems to see if there’s ensuing damage linked to the claim.

City & County Code Requirements: Many times when filing a claim, your home or business might have been built before new city/county code requirements were updated. When repairing or replacing a damaged item, the insurance company pays for like, kind and quality of what was existing at the time of damage. An issue may arise when you go and pull a permit from the city/county for the repairs. In some cases, if you repair or replace your items with like, kind and quality, your property will no longer be up to code for that area and it is no longer “grandfathered in”. Any repairs must be brought up to the new code and both appraisers should have knowledge of current code requirements to make changes to their estimates based on those code upgrades. Fortunately, most insurance policies have a provision for this, and your insurance company should cover the cost of bringing home or commercial property up to new codes and standards.

Hidden Damage: Sometimes, appraisers find damage that was not identified during the original claim. This “hidden damage” may not be visible until repairs begin. Most adjusters are forbidden to remove drywall or cause any permanent damage to your home. Your contractor must be present to remove drywall or access areas that are hidden when you suspect there is damage that has not been addressed previously. It is important to do this before the appraisal process so that the appraisers can take everything into account when they do their inspection.

How Do I Find an Appraiser?

Finding an insurance claim appraiser isn’t the same as finding a real estate appraiser.

When hiring an appraiser for a claim, you want to make sure the adjuster or appraiser specializes in insurance claims.

Public adjusters are a good source for appraisals. They’re licensed, experienced insurance industry professionals who specialize in assessing damages, considering city and code upgrades, and analyzing hidden damages. Most public adjusters regularly fill the role of appraisers for insureds when needing an appraisal.

Alternatively, you can check your state’s board for insurance adjusters or a local public adjuster association. Typically, these organizations require members to meet strict requirements and have specific skills. The Insurance Appraisal and Umpire Association directory provides lists of certified professionals by state. There is also a National Association of Public Adjusters that has a list of adjusters that are likely close to your home or business.

What is an Appraisal Dispute?

An appraisal dispute occurs when two appraisers cannot agree on the value of a covered loss.

The insurance company’s appraiser might argue that your home only has $10,000 in damage, for example, while your own appraiser argues that it was closer to $25,000 in damage.

In this case, you have a dispute that may need to be solved with an umpire and both appraisers.

Most insurance contracts have a formal process for resolving disputes. The terms of the appraisal dispute can be found in your insurance policy’s appraisal clause.

What is an Appraisal Clause?

Some insurance policies have something called an appraisal clause.

The appraisal clause explains how appraisers will resolve a dispute over an insurance claim. When this language is present in your policy, it is usually a mandatory step that must be taken before you’re able to sue your insurance company if you feel that you have been underpaid.

The appraisal clause plays an important role in insurance claim disputes. It’s designed to determine disputed values. If you and your insurance company disagree about a value on a particular claim, then the appraisal clause might come into effect.

You do not use an appraisal clause if the insurer has denied your claim completely. It’s only for determining the cost of the repairs – not if the repairs are covered under your policy.

Don’t Confuse Appraisals, Mediation and Arbitration

It’s easy to get confused with insurance disputes. Part of the problem is that few policyholders understand the key differences between appraisals, mediation and arbitration.

The appraisal clause determines disputed values. In an insurance dispute over the amount of a covered claim, you refer to the appraisal clause to determine how to proceed with the claim.

Some key points to know about the appraisal process, mediation and arbitration include:

• The appraisal clause is exclusively meant to determine disputed values. If your insurance company says your kitchen fire caused $10,000 in damage and it really caused $25,000 in damage, for example, then you might need an appraiser.
• The appraisal process cannot be used to determine what is covered; those disputes are for mediation, arbitration or a court of law to decide.
• If you have a dispute with your insurance company on whether or not something is covered, then you would not go through the appraisal process. You can hire a public adjuster to further your belief that the damages should be covered under your policy. Public adjusters are legally licensed by the state you live in to discuss policy language with your insurance carrier. If they are not able to further your case, you may want to use mediation, arbitration or file a lawsuit against your insurance company.
• The costs of the appraisal process, mediation, or arbitration are usually significantly lower than filing litigation in court, but the costs must be paid upfront and from your own funds with no guarantee of the outcome. The cost is usually determined by the hours it takes the appraiser to do the inspection and write the report or based on the square footage of the home or business.
• The fee that an appraiser charges you must be a set fee or an hourly rate. This means that the appraiser can’t charge you based on the amount of the estimate or the amount of the claim settlement. They must be an “uninterested” third party and their fee can’t be based on the outcome of the settlement.

Ultimately, the goal of the appraisal clause is to outline the process of resolving an insurance claim dispute over a claim settlement amount. In some insurance disputes, you’re required to undergo mediation or arbitration before filing a lawsuit.

Settling Insurance Disputes with Mediation

Mediation is the process of resolving an insurance dispute by reaching an agreement with the help of a third party mediator.

During mediation, both parties present their information to a mediator while still having input on the final decision. The goal is to reach an agreement or compromise with the mediator – even though the mediator does not have full authority to dictate a final decision.

A mediation session is confidential and the only record is that of a settlement agreement, if one is made. If an agreement is reached through mediation, a settlement agreement is signed and filed with a court of law becoming a binding agreement between the two parties.

Some courts may require an appraisal or mediation before hearing a case over an insurance dispute.

Insurance Claims Disputes and Arbitration

Arbitration is the process of settling a dispute through a legal proceeding without taking it to a court of law.

Some insurance policies contain an arbitration clause that details the terms or conditions of the arbitration process. In some policies, arbitration is required for certain types of disputes.

With arbitration, both parties attend a legal meeting with a neutral third party known as an arbitrator. Each party presents their information to the arbitrator and agrees to abide by the decision of the arbitrator, known as an award.

In most cases, an arbitrator’s decision is binding and cannot be appealed. Arbitration is commonly referred to as alternative dispute resolution and is typically less expensive than taking a dispute to court with a lawsuit.

Appraisals Play an Important Role in Insurance Issues

To resolve a claim settlement dispute, both the policyholder and insurance company may hire an appraiser.

If you and your insurer disagree about the cost of repairing damage from a house fire, for example, you might hire appraisers to assess the situation. These appraisers choose an umpire, a neutral third party who helps to resolve the disagreement.

Appraisers play a crucial role in insurance disputes. However, they don’t serve as arbitrators. Two of the most commonly misused and misunderstood terms in the insurance industry are “appraisal” and “arbitration”. The appraisal clause in your insurance contract is meant to determine disputed values, but it is not meant to resolve disputes over whether or not coverage applies under an insurance policy.

By educating yourself on the appraisal process, you can better protect your investment.

For help with any part of an insurance claim, insurance claim dispute, or insurance claim appraisal, contact ClaimsMate and get a free consultation with a qualified claim expert.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.