Many homeowners and business owners disagree with the insurance company’s assessment of their insurance claims. Most people don’t know that they can challenge the findings of their insurance company through the insurance appraisal process. They won’t change despite the fact that you (the policyholder) have submitted a contractor’s estimate and receipts for repair or material materials.
Many policyholders don’t know how to resolve disputes with their insurance company. This is why policyholders have the right to make a decision and exercise their rights under their policy. This is The Appraisal Clause, also known as The Appraisal Provision. Don’t let this put you off. This may sound like a complicated clause that requires a law degree. It’s actually the insurance industry’s version or arbitration. Despite being similar, the Appraisal Process does not constitute arbitration or mediation. The umpire is neither an arbitrator, mediator or judge. Insurance appraisal, mediation, and arbitration are distinct things.
Shortly, Arbitration is a dispute between two parties for any reason. Insurance Appraisal doesn’t require attorneys or a process. Arbitration can be a dispute between any two parties, whereas Insurance Appraisal is a dispute over the “value” or cost of repairing or replacing property. This includes automobiles, planes, trains, couches, houses, and commercial buildings.
The Appraisal Clause is a feature of most policies.
You can check your policy to see if the Appraisal Clause is included if you feel that you are at an impasse with your insurance company. The provision will be found under either the “What to Do After a Loss” or “Conditions” sections of most policies. Below is a sample Insurance Appraisal Clause that you might find in most policies. Remember that policies are different in every state. To find out if the clause is in your policy, it’s a good idea to read it. You will find something similar in your policy:
“APPRAISAL” – If we cannot agree on the loss amount, one of us can demand that an appraisal be done. Each person must make a written request for an appraisal. Within 20 days after receiving the written demand, each shall notify the other about the identity of the appraiser. The two appraisers will then choose a competent and impartial umpire. If they are unable or unwilling to agree on an umpire within fifteen days, we or you can ask the judge of the court of record in that state to choose an umpire. The loss amount shall be determined by the appraisers. The umpire may reject any disagreements between the appraisers if they fail to reach an agreement within a reasonable time. The loss amount shall be determined by written agreement between any two appraisers.
Okay, but how does the insurance appraisal process work?
The Appraisal Process permits the policyholder (you), to hire an independent appraiser in order to calculate the damage. The insurance company will then hire an independent appraiser. After the meeting, both appraisers will select an umpire. The umpire, also known as the judge or arbitrator, is the person who decides the outcome of a dispute between the appraisers. The umpire will decide if there is a dispute between the appraisers.
Okay, so far so good. The basics of the insurance appraisal process have begun to make sense. An independent appraiser is available for policyholders. An independent appraiser is available for the insurance company. The Umpire is the final member of the team. These three people are called The Appraisal Panel. The Appraisal Panel’s purpose is to determine or set The Amount Of Loss. The Amount Of Loss is the amount of money required to restore the property to its original condition by repair or replacement.
After the Appraisal Panel has been established, the chosen appraiser for the policyholder and the appraiser of the insurance company will review the documents and compare the estimates and any differences. Both independent appraisers will attempt to resolve differences in cost and damage. The insurance company might decide that a brick on a house does not need replacing. The contractor or appraiser of the policyholder may say that the brick must be replaced. Both appraisers will discuss the reasons behind their positions and attempt to reach an agreement. First, the brick should be repaired or replaced. Second, the cost of returning the brick to its original condition before it was lost.
The Insurance Appraisal Process has one advantage: the two independent appraisers are not subject to any bickering or anger between policyholders and insurance companies. It’s the hope of cooler heads. The only thing the appraisers have is the extent of the damage and the difference in the estimates. They don’t have any anger or baggage from the past that could have led to the Appraisal. This process was created so that the two parties, who are not interested in the outcome of the Appraisal, could talk about a settlement based upon the facts.
Sometimes, issues arise where the independent appraisers cannot agree on certain items. The two appraisers will then submit their disagreements to the chosen umpire. They will then discuss the issues and attempt to come to an agreement on the differences. The final amount, or settlement, is known as the Amount of Loss. The Appraisal Award is the final amount. The individuals who agree to The Amount Of Loss sign the Award. Only TWO of the three appraisers must agree to sign the Award. The agreement between the appraisers or the umpire, or any appraiser. Once TWO appraisers sign the award, the dispute is resolved! The insurance company pays the policyholder the amount of the Award.
How can I use an insurance attorney to dispute my claim?
To reduce the number of lawsuits against insurance companies, the Appraisal Clause was created. Many lawsuits were filed against insurance companies when the cost of replacing or repairing damaged property was being disputed. Many cases were resolved by professional engineers and contractors. To bring these people together, the Appraisal Process was established. This helps keep disputes out of court. Let’s say you have an estimate for repair of your property worth $100,000 from an expert contractor. Your insurance company has provided a $30,000. There would be clear disagreement between the damage estimates. This is precisely the reason why the Appraisal Clause was created.
This clause allows both parties to an insurance policy to use this option to resolve their differences. Let’s face the facts, there are many lawsuits in the courts. The Insurance Appraisal Process allows the dispute to be resolved outside of court. Insurance Attorneys and lawsuits could tie up insurance claims in court for many years. These disputes can be resolved by the Appraisal Provision, which is less expensive and takes less time.
Bad faith claims are usually represented by insurance claim attorneys. Bad faith is another matter and can sometimes occur after the Appraisal Process has ended. Bad Faith suits against insurance companies can be much more serious if it is alleged they failed to act in good faith when selling a policy to the policyholder. Essentially, disputes over the amount of damage and repair will be resolved by the Appraisal Process. Before entering into the legal system. Many insurance attorneys will advise policyholders to participate in the Appraisal Process, before any lawsuits can begin.
How can I determine if an Insurance Appraisal Process is a good option for my Claim?
It is always possible to have the Appraisal Clause included in your policy. It is important to note that Appraisal is an option if there is a significant difference between the estimated amounts. Let’s take, for example, a fire that completely destroyed a house. The homeowner’s personal property inside the house (Know as Contents). $5,000 is the difference between what your insurance company will pay and what you want to receive. The Appraisal Process may not be the best option in this case. You may not be able to dispute the $5,000 after paying the appraisal fees.
If the fire damages the property, and the amount of the dispute between the policyholders and the insurance company exceeds $40,000, an appraisal should be considered. Now, the policyholder has the opportunity to recover significantly more than what was originally offered.
The Appraisal Clause only applies if there is a dispute arising from a covered loss. The dispute over the amount of repair is not one about the insurance company denying the claim. It’s a dispute about coverage. Floods are not covered by homeowners or business policies. Flood policies can be purchased separately. The Appraisal Process cannot be used if flood insurance does not cover.
The Insurance Appraisal Process determines the “amount loss” to property. The Appraisal Panel does not determine coverage, policy provisions or deductibles. It also doesn’t consider how much has been paid previously on a claim. Let’s suppose there was an appraisal of a grand piano which was damaged by a truck driver on the highway. The Appraisal Panel is not tasked with determining who is at fault, the policy limit, whether the truck was registered, or any other information than “How much is the piano worth.”
The Appraisal Process might not be the best option if an insurance company offers $10,000 to fix a roof, but the policyholder has bids from contractors for $15,000. The Appraisal Process could cost more than the $5,000 being disputed. The differences in repair and replacement costs are often much larger. If an insurance company gives a $75,000 estimate and the policyholder has received bids from several contractors for $200,000 or more it is time to invoke the appraisal clause.
The Appraisal Process
The Appraisal Process can be invoked by either party to the policy. This request must be submitted in writing. There will be a time limit on when such a request can be made under each policy. Even after a claim is closed for many years, one party can still dispute it and reopen the case for review. It is recommended that you send the request for appraisal via certified mail. After the request to invoke Appraisal Clause is initiated, both the policyholder and the insurance company will appoint an Independent Appraiser. You must send a letter to your insurer if you want to invoke the appraisal clause on your policy.
Choosing An Independent Appraiser
An Independent Appraiser who has dealt with claims involving damages that are disputed is important. An expert in insurance claims handling, with firsthand knowledge about the property and its replacement costs. A person who is knowledgeable about insurance claims and has a good understanding of the Appraisal Process but not much experience in the cost of replacing an antique grand piano might be a better choice. A good Appraiser can provide a detailed line-item estimate for repairing or replacing damaged property. They can also get multiple bids from trusted contractors. They are familiar with building codes and can explain unforeseen costs. A salvager might be required to do extensive research on historic features such as solid Adler doors, detailed moldings and custom cabinets. To determine the “amount of loss” and return the property in the same condition as before the loss, the Appraiser must have knowledge of building procedures, materials, and their costs. The policy covers the replacement of damaged property with similar quality and type. A qualified Independent Appraiser who is unfamiliar with or does not have the experience of contractors, engineers, and other experts, will not be able to advise you about mold, demolition, cost-related costs, and additional living expenses. It is important to choose an Independent Appraiser carefully. Interview someone who has experience with the type and extent of damage you are experiencing and with property damaged.
Many people mistakenly confuse Independent Appraiser and real estate appraiser. A real estate appraiser does not necessarily have the right qualifications to perform an Insurance Appraisal. An independent “Insurance” Appraiser can help you understand the costs and procedures of replacing or repairing damaged property. Next, we need to ask “Who will have such knowledge?” People have asked for assistance in the past if they can trust the following experts who have the following backgrounds.
- Structural Engineers While this person might be a structural engineer and can probably give a good estimate for a new building, what about the contents? (furniture or food) damage? Are they familiar with the insurance policy, the claims process and the software used to appraise the company?
- Construction Attorney: Most likely, a Construction Attorney has knowledge about construction contracts and issues that builders have. Are they familiar with the insurance policy, claims process, software used by insurance companies and the appraisal process? What about contents damaged? (NOTE: An Appraiser hired by an attorney will not be protected because they are being employed as an Appraiser and not as an attorney.
- General Contractor or Construction Superintendent: This is a great choice for creating a structural estimate. However, they are not likely to be familiar with insurance claims…and even more, the Insurance Appraisal Process.
- Lawyer for Insurance Claim Attorneys / This process was created to avoid these types of disputes going to court. An attorney can be used as your appraiser, but the fees could exhaust your reward. The fees of an attorney can range from 30% to 40% of the amount collected. This will impact the final amount you receive. A qualified Insurance Attorney will have extensive knowledge about the policy. The Appraisal Provision clarifies that the policy’s provisions are not applicable. Are they familiar with the Appraisal Provision? Have they represented clients in numerous appraisals or mainly in court cases. What are their knowledge and skills in the Appraisal Process, building cost, construction practices, contents damaged, etc. Is the attorney familiar with the insurance company software? (NOTE: An Appraiser retains an attorney. The attorney is not being hired as an attorney.
- Independent insurance appraiser: Wouldn’t it be logical to hire someone who is knowledgeable about the process you are about to engage in? “Would your auto mechanic take you to a brain surgeon if you had to have brain surgery?” A qualified and experienced Insurance Appraiser is highly recommended. The professional will be familiar with the entire process of Insurance Appraisal. They will have qualified professionals (engineers and contractors, inspectors etc.) at their disposal. They will also have qualified professionals (engineers, contractors, inspectors etc.) to support their analysis.
An Independent Appraiser, regardless of their background, will need to communicate well and be able to agree with the position they defend. They need to be familiar with the insurance policy, claims process, software used by insurance companies and the Appraisal Process. It makes sense, right?
The Insurance Appraisal Process
The Insurance Appraisal Process has many benefits. Costs are the most obvious. The average insurance attorney will charge between 30% and 45% of the total award. An attorney’s fees for a $200,000 claim would range from 60 to 90 thousand dollars ($60,000 to $90,000. This can be a problem for policyholders trying to rebuild their lives. These disputes are not allowed to be resolved in court by the Insurance Appraisal Process.
Invoking appraisal is a way to have a non-legal or formal proceeding. A fee for an Independent Appraiser is usually between $125 and $200 per hour. The same example with a $200,000 award would show that if the dispute took between 25 and 50 hours, the cost of the appraisal would be anywhere from Five Thousand to Ten Thousand Dollars ($5,000 to $10,000). This can make a big difference.
Another benefit is the time. A courtroom can prolong an insurance claim dispute for many years. However, the Appraisal Process typically only takes a few weeks. It can take longer depending on how complex the claim is. The courtroom will be much longer. Both sides will feel less burdened if they have to spend less time and incur less expense.
The insurance company has between 30 and 60 days (depending on the state) to settle the award.
Do I need to invoke the Appraisal Clause for my Claim?
If the dispute is genuine and the damages are real, policyholders usually get a higher return on their appraisal. The Appraisal Process is easy if the claim of the policyholder is supported by an insurance claims expert, a building or repair contractor, or an engineer. If a contractor or Public Adjuster tries to increase the damage for their own gain, the policyholder will be the one that is paying dearly. To determine if invoking appraisal for your claim is worth the effort, you should consult an expert on insurance claims.
The Appraisal Award is binding and policyholders should make sure they are aware of it before they cause themselves unnecessary pain. Both parties must accept the outcome of the Appraisal Award if it is not what they expected. The Appraisal Award is binding for “both parties”.
There is no way to know what the outcome of any Appraisal will be. The outcome of an Appraisal is not guaranteed. If you have a dispute exceeding $20,000, you are more likely to get a result that you can live with. Make sure you do your research and find an independent appraiser who is knowledgeable and experienced in the types of damage that you have, the causes of the damage and the property damage. Remember that this is your property and insurance policy. The Insurance Appraisal Process will determine if your policy covers you.
The playing field remains level, and the process works fairly
Both Parties… Not just The Insurance Companies!
Copyright of Insurance Claims Group, Inc. and Joseph P. Brennan. Joe Brennan is the President and Owner/Operator of Insurance Claims Group, Inc., which is a national independent adjusting, appraisal, umpiring, and umpiring company. Joe has been in property loss for over 24-years. His experience in loss began as a contractor/builder. He also provided fire and water damage restoration services. Mr. Brennan has over 20 years of experience in insurance restoration repair and estimation. He is now a licensed independent adjuster. Joe is a certified IICRC adjuster in Fire and Water Restoration. He also has active licenses in 10 states. He has been involved in many multi-million-dollar losses both residential and commercial over his entire career. His combined experience and knowledge in new construction, damage repair, and insurance claims handling have made him a competent Appraiser/Dispute Umpire. He is well-versed in the appraisal process, and has served as an umpire and appraiser on numerous claims.