Appraisal Clause
A property policy provision allowing either party to demand an independent appraisal to resolve disputes over the amount of a loss.
What It Is
The appraisal clause is a standard provision in most property insurance policies that provides a mechanism to resolve disagreements over the dollar amount of a loss without litigation. Either the insured or the carrier can invoke the appraisal clause by making a written demand. Once invoked, each party selects a competent, independent appraiser. The two appraisers attempt to agree on the amount of loss. If they cannot agree, they select an umpire, and any two of the three (two appraisers and the umpire) can make a binding determination of the loss amount.
The appraisal clause addresses only the amount of the loss, not coverage questions. If the carrier disputes whether the loss is covered at all, appraisal is not the appropriate mechanism. However, if coverage is acknowledged but the parties disagree on the value of the damage, appraisal provides a faster and less expensive resolution than litigation.
Each party pays its own appraiser's fees, and the umpire's fee is split equally. Appraiser fees typically range from $150-$400 per hour, and the umpire may charge similarly. For a $500,000 disputed claim, total appraisal costs might be $25,000-$50,000, compared to $100,000 or more for litigation. The appraisal process typically resolves within 60-120 days, compared to 1-3 years for litigation.
Why It Matters for Brokers
The appraisal clause is an underused tool that brokers should recommend when clients face legitimate disputes over claim amounts. It is faster and cheaper than litigation and produces a binding result. Brokers who understand when and how to invoke appraisal can help clients resolve stalled claims without the expense and delay of a lawsuit.
Real-World Example
A hotel suffers wind damage and the carrier's adjuster estimates repairs at $280,000. The hotel's contractor estimates $475,000, citing hidden damage behind walls and code-upgrade requirements. After three months of negotiation without resolution, the broker advises the insured to invoke the appraisal clause. The insured's appraiser and the carrier's appraiser ultimately agree on $410,000 with the umpire's guidance. The process takes 75 days and costs the insured $18,000 in appraiser fees, compared to an estimated $85,000 and 18 months for litigation.
Common Mistakes
- 1Not advising clients about the appraisal option when claim amount disputes stall, allowing frustration to escalate to litigation unnecessarily.
- 2Attempting to use the appraisal clause to resolve coverage disputes, which it is not designed to address.
How brokerageaudit.com Handles This
brokerageaudit.com flags property claims where the carrier's estimate and the insured's estimate diverge by more than 25%, prompting the broker to consider the appraisal clause as a resolution option. The system provides appraisal demand letter templates and tracks the appraisal timeline once invoked.