When to Invoke the Appraisal Clause During an Insurance Dispute

The appraisal clause allows either party – you or your insurer – to request an independent evaluation of an insurance claim during a disagreement.

If a contractor quotes you $30,000 to rebuild your kitchen cabinets after a fire but your insurer is estimating $10,000 for repairs, then it may be time to invoke the appraisal clause.

Today, we’re explaining what the appraisal clause is and when the right time is to invoke the clause.

What is the Appraisal Clause?

A standard homeowners or commercial insurance policy contains a provision called the appraisal clause.

This clause allows either party to the contract – you or your insurer – to request an independent evaluation of the claim when there’s a disagreement about the value of the loss.

The clause specifically refers to disagreements about the value of the claim – not whether or not the claim is covered.

If your insurer believes your home sustained $5,000 worth of damage from the latest storm, for example, but multiple contractors have given you quotes of $15,000 to $25,000 to repair that damage, then you have a disputed value. It may be time to invoke the appraisal clause.

When Can You Invoke It?

You can invoke the appraisal clause any time you and your insurer disagree on how much the damage to your home is worth.

Typically, homeowners or business owners invoke the appraisal clause after the insurer won’t budge during negotiation.

If you’ve submitted estimates, photos, videos, and documentation during the negotiation, for example, and your insurer won’t come down, then it may be time to invoke the appraisal clause.

Some of the situations when you may want to invoke the appraisal clause include:

• When the insurer’s estimate is thousands of dollars below the estimates of one or more contractors.
• When the insurer refuses to cover certain repairs that your contractor or adjuster claims are necessary.
• When you suspect your insurer is undervaluing damage or overlooking all or part of the damages.
• When negotiations have stalled and your insurer refuses to budge even after submitting documentation to substantiate the claim.

How the Appraisal Clause Works

The appraisal clause works a little differently for each claim.

However, here’s the basic process that takes place when you invoke the appraisal clause:

1. You choose an independent appraiser to represent you, and your insurer chooses its own appraiser.
2. Both appraisers meet to choose an umpire. The umpire is a neutral third party with no connection to either side.
3. The two appraisers analyze the damages and the insurance contract, then estimate the value of the loss.
4. The two appraisers meet in an attempt to reach an agreement on the value of the loss.
5. If the appraisers can’t agree on a specific value, they meet with the umpire. After the umpire hears both sides of the argument, the umpire makes the final call.
6. Once two out of three parties (the umpire and one of the appraisers) agree on the value of a loss, that decision is legally binding. The insurer pays the covered amount, and the claim is closed.

When Would the Insurer Invoke the Appraisal Clause?

The appraisal clause allows both parties to the contract – the insurer and policyholder – to request an independent appraiser.

Typically, the homeowner invokes the appraisal clause.

There are situations, however, when the insurer could invoke the appraisal clause for similar reasons to the policyholder.

If the insurer believes the cost of repairing the property is much less than the appraised amount, for example, then the insurer may invoke the appraisal clause.

Insurers can and do invoke the appraisal clause to help resolve a claim. Some of the situations where they might invoke the appraisal clause include:

• When negotiations stall with the homeowner over the amount of the loss. Insurers may get tired of negotiating back and forth and simply invoke the appraisal clause to close the issue.
• When the insurer wants to expedite and close a claim without the cost and time of a lawsuit.
• When the insurer wants to lock in a binding result. Because appraisal decisions are binding, the amount typically stands.
• When the claim involves subjective valuations or judgment calls – say, with roofing, water intrusion, custom interiors, or other damages difficult to objectively assess.
• When the insurer suspects the homeowner is inflating the claim or overestimating damages. The appraisal clause allows the insurer to formally challenge the value of the claim without completely denying it.

When Not to Invoke the Appraisal Clause

Sometimes, it’s in the homeowner’s best interests to invoke the appraisal clause. In other cases, it’s not.

Some of the situations when you may not want to invoke the appraisal clause include:

• When the insurer has denied your claim outright. If the insurer claims damage isn’t covered at all, then the appraisal clause won’t help; the appraisal clause is for disputed values – not outright denials.
• When you’re fighting over policy language and exclusions. Again, the appraisal clause is for differences in valuation – not disagreements over how policy language is applied.
• When you don’t have enough evidence to support your claim. The appraisal clause lets you present your evidence to support your valuation. If you haven’t gathered enough evidence – say, from contractor estimates – then you may not have an accurate idea of the cost of repairing the damage.

3 Questions to Ask Before Invoking the Appraisal Clause

Before invoking the appraisal clause, ask yourself the following three questions:

1. Am I confident the loss is covered?
2. Do I believe the insurer’s payout amount is incorrect?
3. Have I hit a wall with my insurer but want to resolve things without going to court?

If you answer yes to all three questions, then it may be time to invoke the appraisal clause.

Do I Need a Professional to Invoke the Appraisal Clause?

You don’t need a public adjuster or lawyer to invoke the appraisal clause, but it can certainly help, especially with large or complex claims.

In many cases, homeowners invoke the appraisal clause simply because they’re disappointed with the payout offer, only to find the insurer applied coverage and assessed the claim accurately.

With a public adjuster on your side, you can discover exactly what should be covered, then receive the full amount rightfully owed to you based on your policy.

Find a Public Adjuster

For help with any aspect of the insurance claim – from the initial filing to the invocation of the appraisal clause – contact ClaimsMate today and get a free consultation.

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.