Appraisal Clause
A policy provision that provides a binding resolution process when the insured and insurer disagree on the value of a loss.
The appraisal clause is a dispute resolution mechanism built into most property insurance policies. When the insurer and policyholder agree that a loss is covered but disagree on the amount of the loss, either party can invoke appraisal. Each party selects a competent independent appraiser; the two appraisers then select an umpire. The appraisers independently estimate the loss, and any two of the three parties agreeing on an amount constitutes a binding award.
Appraisal is faster and cheaper than litigation and is designed specifically for valuation disputes (not coverage disputes—those go to litigation or mediation). Many policyholders invoke appraisal after receiving a lowball estimate from the insurer's adjuster. Public adjusters and attorneys who specialize in insurance claims routinely recommend appraisal for disputed large residential losses.
The cost of appraisal—each party pays their appraiser; they split the umpire's fee—is typically far less than what can be recovered in a disputed large claim. If your insurer's estimate for a major loss seems dramatically lower than contractor quotes, consult with a public adjuster about the appraisal process.
Real-World Example
The insurer offered $95,000 for the fire damage; the homeowner invoked the appraisal clause and the panel awarded $142,000—a $47,000 difference that more than covered appraisal costs.