When disputes arise between policyholders and insurance companies over the value of a property loss, the appraisal clause becomes an important tool for resolution. An appraisal clause is a provision included in many insurance policies that allows both parties to settle disagreements about the amount of damage or loss without going through lengthy legal proceedings. Instead of escalating the issue to court, each side appoints an independent appraiser, and together they determine a fair valuation. In this blog, we will explain what an appraisal clause is, how it works, and why it plays a crucial role in insurance claims.
Appraisal Clause Explained
An appraisal clause is a provision found in most property and auto insurance policies that acts as a tie-breaker for disputes over the value of loss. It allows the policyholder and insurance company to demand a formal, independent assessment of the property loss. An appraisal clause is used when the insurance policyholder cannot agree on the actual dollar amount of a claim.
How Does the Appraisal Clause Work?
Whenever the appraisal clause is invoked, a structured process begins to determine a fair settlement without going to court. The process can be lengthy, but we explain it in 5 simple steps.
Formally Demand Appraisal
First, one party sends a written request to the other to trigger the clause.
Appoint an Appraiser
Then, each party selects a competent and impartial appraiser, such as a contractor or engineer.
Appraisers Attempt to Agree
Both appraisers independently assess the property damage and attempt to reach a mutual agreement on the loss amount.
Involvement of a Umpire
If the appraisers cannot reach a mutual agreement, they select a neutral third-party umpire. If they can’t agree on an umpire, they may go to court.
Binding Award
When any two of the three parties (the two appraisers and the umpire) agree upon a decision, that becomes the final, legally binding appraisal award.
What the Clause Covers and What it Doesn’t
It is critical to distinguish between valuation and coverage.
Included (Valuation)
Disagreements over the cost of auto repairs, the ACV (actual cash value) of a totaled vehicle, or the price of materials are covered under the appraisal clause.
Excluded (Coverage)
Disagreement over whether an item is covered under the policy or who was at fault for the car damage are not covered under the appraisal clause.
Typical Costs of the Process
The expenses of the appraisal process are generally paid by both parties. Keep reading with us for a better understanding.
Your Appraiser
You pay the fees of your hired appraiser.
Insurer’s Appraiser
The insurance company pays for its own appraiser.
The Umpire
You and the insurance company split the cost of the umpire 50/50.
At its core, the appraisal clause is a provision used to resolve disputes over loss of value. You have learned all about it by now. If you are invoking this clause to schedule an auto appraisal, let us help you with the entire process. We are ADR-Claims; from filing a claim to receiving a fair settlement, we will guide you throughout the process. Contact us to book your appraisal.
