Policyholders often think the only way to settle the dispute is to hire a lawyer. Fortunately, this is not the case.  Appraisal is a method of Alternative Dispute Resolution often found in many homeowner and commercial insurance policies.

When there is a disagreement over the insurance company’s valuation of an insurance claim, requesting appraisal may be appropriate.

Appraisal is a Policy Provision found in the Loss Settlement section.  It is an Alternate Dispute Resolution, which can  resolve disagreement when the Carrier and Policyholder do not agree on the amount of loss.  It is an alternative to a lawsuit.  Appraisal does not address coverage issues, but can include or exclude items based on causation depending on the state.

The appraisal language in a HO3 policy typically reads as follows:

Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then select a competent, independent, appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will then set the amount of loss, stating separately the actual cash value and loss to each item.

The language will often, but not always, state that appraisal is mandatory when properly demanded by the insurer or insured. It is important to have a qualified Appraiser review your policy to determine your options.

When properly executed, appraisal is binding on the parties as to the amount of loss only. Appraisal does not determine coverage.

Once the Appraisal clause/provision is invoked, the insured’s appraiser and the insurance carrier’s appraiser will estimate the damage and try to come to an agreement on the amount of loss.

If the appraisers fail to agree, they will submit their differences to the umpire. An itemized decision agreed to by two of these three will set the amount of loss. Such award shall be binding. Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally.

If appraisal is not properly invoked, employed, and/or carried out the process may not be binding, so it is important to select a qualified appraiser and umpire.

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