To Appraise Or Not Appraise

When there is a disagreement with your homeowners insurer concerning your claim, there are many ways to resolve it — adjustment, mediation, arbitration, appraisal, or litigation. All have their good and bad points.  The focus of this article is to determine the issues concerning appraisal.  In other words, do we appraise or not appraise. Below are the appraisal process pros and cons.

The vast majority of homeowner insurance policies include an appraisal provision — an alternative dispute resolution process that resolves issues regarding the amount of loss.

How Does the Process Work?

If a policyholder and insurance company can’t agree on the value of the loss, usually either can demand that the damages be determined by appraisal. Here is how the process generally works:

  1. Both the policyholder and the insurer will hire an independent appraiser.
  2. Together, the two appraisers will choose an umpire, who acts like an arbitrator (essentially the judge). The umpire will resolve any disagreements that arise between the appraisers. The two independent appraisers and the umpire comprise the appraisal panel.
  3. The two appraisers will then examine the documents and estimations and try to reach an agreement on how much the repair or replacement should cost.
  4. If the appraisers can’t agree on specific items then they will submit their differences to the umpire.
  5. Once the panel comes to an agreement they will sign a binding appraisal award. The insurer will pay that amount to the policyholder.

Is the Dispute Eligible for Appraisal?

If your dispute concerns how much your property is worth, then yes, it is eligible for appraisal. But if it involves coverage issues, then no. The appraisal panel also will not resolve, among other issues:

  • Fault,
  • Coverage limit,
  • Scope of coverage,
  • Deductible questions, or
  • If anything has already been paid on the claim.

Danger of electing an Appraisal?

You should know that by electing that process, it can often be more harmful then helpful.  By electing appraisal, once an umpire rules on your matter, no matter how unfavorable or unjust their decision is, it is the final word in your matter.  However, if mediate or litigate your matter, you are provided greater negotiation opportunities as well as the opportunity to not accept an offer or even set aside a bad ruling.

So, unless you need to resolve your situation quickly, there are more risk to the homeowner than there is benefit in going down the path of appraisal – which is why insurance companies prefer the appraisal process, as it is typically more advantageous to their objectives then to the homeowner.