How property insurance appraisal works

Property insurance appraisal is a process written into most policies for settling a disagreement about the amount of a loss without a lawsuit. Each side names an appraiser, the appraisers choose an umpire, and a written agreement by any two of the three sets the amount of loss.

The appraisal clause

Many homeowners policies use wording along these lines: if the policyholder and the insurer fail to agree on the amount of loss, either may demand appraisal; each party chooses a competent and impartial appraiser within 20 days of the written request; the two appraisers choose an umpire, and if they cannot agree within 15 days, a court may be asked to choose; the appraisers set the amount of loss separately, submit their differences to the umpire, and a decision agreed to by any two sets the amount. Commercial and other policy forms vary, and some states set rules by statute or regulation. The wording in the actual policy controls.

Step by step

1. Disagreement on the amountBoth sides accept there was a loss but disagree on scope, pricing or value.
2. Written demandEither side demands appraisal in writing, as the clause requires.
3. Each side names an appraiserWithin the period the clause sets.
4. The appraisers choose an umpireOr a court chooses one if they cannot agree.
5. The appraisers value the lossOften item by item, stating actual cash value and replacement cost where the policy calls for both.
6. Differences go to the umpireThe umpire decides only what the appraisers could not agree on.
7. The awardA written award signed by any two of the three sets the amount of loss. Payment then follows the policy's terms.

What appraisal does not decide

In general, appraisal sets the amount of a loss. Whether the policy covers the loss, and legal questions about the policy, are generally for the parties and the courts. Where that line falls, especially for questions about what caused the damage, depends on the state and the policy.

Competent, impartial, disinterested, independent

Policies describe the required appraiser with different words, and courts read those words differently. An appraiser whose pay depends on the size of the award may be challenged under clauses that require impartiality or disinterest. Check the exact words in the policy before naming an appraiser.

Who pays

In many homeowners policies, each side pays its own appraiser and the two sides share the umpire's fee and the other costs of appraisal equally. Other policies say something different. Skyland's fees ›

Related

Umpire services · Appraisal glossary · Frequently asked questions