What is an Appraisal Clause in Homeowners Insurance?

Many homeowners insurance policies have an Appraisal clause.

The Appraisal clause defines a formal method for solving insurance disputes over the cost to repair or rebuild and fully recover after a covered loss.

Keep reading to find out everything you need to know about Appraisals for settling disputes over home insurance claims.

Two Appraisers and Umpire Discussing Commercial Claim

What is an Appraisal Clause?

An Appraisal clause outlines a system for resolving insurance disputes. If you and your insurer can’t agree on the amount of loss for your insurance claim, then you might invoke the Appraisal clause in your insurance contract.

The Appraisal clause states that both you and the policyholder are allowed to hire an appraiser to assess the dollar amount of the claim. Then, if the two appraisers can’t agree on the amount of the loss an umpire can rule on the results of the appraisals and only one of the appraisers must agree with the umpire.

What Does the Appraisal Do?

An Appraiser is a competent, disinterested, impartial professional responsible for ruling on an insurance dispute. They can’t decide “what” is a covered damage or overturn a denial, but they can decide on the dollar amount it takes to repair the approved damages. Each side chooses an appraiser and the two appraisers agree on an umpire, in case they can’t agree on the amount of the loss.

The umpire would then analyze the two appraisals, then make a decision on the future of the insurance claim and settlement. The umpire reviews all documentation related to the claim, including the reports from the two appraisers and all accompanying information.

The umpire and two appraisers form something called the appraisal panel. The goal of the panel is to reach a fair settlement for the claim, ensuring the property owner receives every penny owed to them to ensure they can restore their property to pre-loss condition.

Here’s how the Appraisal fits into your insurance claim:

  • If you have an insurance dispute over the claim settlement amount, then you might agree to an appraisal.
  • You can hire an appraiser of your choosing and your insurance party can hire an appraiser of their choosing.
  • The two appraisers, meanwhile, get together to select an umpire. The umpire serves as an arbitrator, analyzing the cases of the two appraisers to reach a fair settlement, if the appraisers can’t agree.
  • Together, the two appraisers and umpire create the appraisal panel. Their goal is to reach a fair settlement to the insurance claim.
  • If the two appraisers are unable to agree to the dollar amount of the settlement, then the umpire reviews all documentation related to the claim, and makes a decision. The umpire might agree with either of the appraisers. However, only two of the three members of the appraisal panel need to agree to resolve the insurance dispute.

Who Hires the Umpire?

The two appraisers get together to choose an umpire, even if his or her services are not needed.

During an insurance dispute, your insurer will hire an appraiser of their choosing, and you’ll hire an appraiser of your choosing.

After both parties hire appraisers, the appraisers come together to name an umpire. You and the insurance company would then split the fee for the umpire if one is needed.

As Merlin Law Group explains, there’s a big debate in the insurance industry of what defines an Appraisal and what the ideal umpire looks like. However, the ideal umpire (and appraiser) is competent, fair, efficient, and trustworthy while having no bias to either party, creating the highest possible chance of a fair outcome to the insurance dispute.

How Does the Appraisal Panel Resolve Insurance Claims?

The appraisal panel resolves insurance claims through a defined process.

The goal is to ensure the policyholder’s property is returned to pre-loss condition, and that the policyholder receives every penny owed to them by the insurance company without violating the terms of the insurance contract.

Here’s how the appraisal panel – including the two appraisers and umpire – work together to resolve insurance claims:

  1. The two appraisers analyze the claim. They inspect the damages, determine the estimated value of repairing or replacing damaged property, and create a formal report of their findings.
  2. The appraisers discuss their findings with each other. They discuss any disagreements and attempt to resolve their differences. If they are unable to resolve the claim, then all documentation is turned over to the umpire.
  3. The umpire hears each appraiser’s case. The umpire will then review all documents and inspect the property in question.
  4. The umpire may agree with one or both of the appraiser’s cases.
  5. The appraisal panel does not need to reach a unanimous verdict; instead, only two of the three individuals on the panel need to agree.
  6. If disagreements between appraisers cannot be resolved, then the umpire makes a decision and one of the appraisers should then sign the award.

The appraisal panel concludes when two of the three individuals come to an agreement. At this point, the insurance dispute has been resolved, and the policyholder receives the agreed amount.

Who Invokes the Appraisal Clause?

Typically, both the policyholder and insurer agree to invoke the Appraisal clause.

However, the Appraisal clause can be invoked by either party on their own.

If there’s a large disputed amount over your insurance claim, then you and your insurer may agree to invoke the Appraisal clause.

If your house burns down and your insurer is offering you $100,000, for example, but you believe your house is worth $200,000, then you may invoke the Appraisal clause. You have a large disputed amount, and neither side is backing down from their position.

Typically, you would not invoke the Appraisal clause for smaller disputes – say, under $1,000. There are costs involved with hiring appraisers and creating an appraisal panel.

If there’s a large disputed amount, however, then it may be worth invoking the Appraisal clause and reaching a formal resolution to your insurance claim.

What’s the Difference Between an Umpire and an Appraiser?

Umpires and appraisers both play an important role in insurance disputes, and both form the appraisal panel. However, they perform different roles:

  • Appraisers are unbiased individuals hired by both the insurance company and the policyholder to review an insurance claim and create a report that shows how much the repairs will cost.
  • An umpire is a single, unbiased individual selected by the two appraisers to resolve the insurance dispute if they can’t agree amongst themselves. The umpire hears from both appraisers, reviews all documents, makes an inspection and then makes a final decision. Their decision is final and resolves the insurance dispute.
  • The two appraisers and the umpire create the appraisal panel. In some cases, the umpire is not needed and this cost is not incurred by the insured. This three-person panel resolves insurance disputes.
Who Pays for the Appraisal?

The appraisal panel consists of three individuals, including two appraisers and an umpire:

  • The policyholder pays for the appraiser they hired.
  • The insurance company pays for the appraiser they hired.
  • Both you and the insurance company split the cost of hiring the umpire.
Hire a Public Adjuster for Insurance Claim Disputes

Many homeowners hire a public adjuster for insurance claim disputes.

A public adjuster is an insurance industry professional who represents your best interests in the insurance claim. The adjuster reviews your claim, assesses the damage, and negotiates with the insurer on your behalf to reach an optimal settlement.

Depending on the case, the public adjuster may recommend invoking the appraisal clause. A good public adjuster will know beforehand and not sign a contract with you, but request that you invoke Appraisal and then act as your appraiser. Public adjusters cannot serve as appraisers once they have signed a contract with you because they’re not impartial anymore. They have a vested interest in the outcome of the claim if they are working on a contingency basis; however, they can walk you through the entire process.

Contact ClaimsMate today for a free consultation with a trusted public adjuster – and obtain an optimal resolution to your insurance dispute.

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