Insurance Claim Dispute Resolution

Insurance Appraisal as an Insurance Claim Dispute Resolution Tool

Eugene Peterson
April 9, 2012

Over the past few months, I have been amazed, even surprised to learn that many legal professionals are totally unaware of an alternative method of dispute resolution for insurance property claims, when the adjuster and the insured cannot come to agreement. We all know of arbitrations, mediations and civil law suits, yet few are aware that there is yet another option available.  It is referred to as an “Insurance Appraisal.”

It is used when agreement cannot be reached in the settlement of a property claim dispute.  It has the potential of resolving the dispute outside of the standard court system, thus saving time and expense associated with a standard judge/jury law suit. 

The process in many ways is similar to arbitration as it has most of the same advantages and disadvantages, but differs from arbitration in the number of people that set the value of the loss.  In arbitration, a single individual, the Arbitrator, rule on, or judges the dispute.  In this insurance dispute resolution process, three individuals, referred to as the panel, are charged with the responsibility to set the value of loss. 

Of note, not all property insurance policies have the Insurance Appraisal provision written in them. So it is important to check the policy first before thinking about using this tool.

In the Insurance Appraisal process, the insurance company and the insured each are responsible for the selection and payment of fees and expenses of their representative.  This person is referred to as an “Appraiser.”  Do not confuse this type of appraiser with that of a real estate appraiser who creates an appraisal document that establishes value of real property for purpose of buying or selling.

The two “Appraisers” then mutually agree upon and select an independent third person referred to as an “Umpire.”  The fee for the services of the Umpire is split equally amongst the two parties.  If the two “Appraisers” cannot agree upon an “Umpire,” then either of the parties petitions the court that then makes the appointment.

This three member panel is charged with the responsibility to set the value of the loss. It is expected that the two “Appraisers” will come to agreement on as many issues as possible, before presenting the contested and disputed items to the “Umpire.”  When there is disagreement or an impasse, the “Umpire” then becomes involved and theoretically, like in baseball, sides with one or the other of the parties.  However, from practical experience, the “Umpire” often works to negotiate a compromise if both positions seem unreasonable. 

In this process, any two of the three panel members can set the final value of the loss.  The panel is expected to set an “ACV” value (actual cash value – the value of the property based upon wear and tear, age, etc.) and an “RCV” value (replacement cost value – cost to replace the property today.)

The panel is not empowered to adjust the property; they simply set the value of the loss.  The property in this process is usually a damaged building or real property, or it can also be personal property (clothing, furniture, etc.).   Occasionally the panel might be asked to set a reasonable period of time for repair or determine the period of time needed for Additional Living Expenses.

The upside of the Insurance Appraisal process is that it is flexible, informal, and removes emotional decision making from insured and adjuster.  It sets the value of the loss quickly and saves time and money normally expended for the process of discovery and litigation. 

The insurance policy, along with individual state law will determine if the Insurance Appraisal is binding or non-binding. 

The downside is going into battle with someone who is biased and truly not independent, and is seasoned and experienced with the process to the point that they manipulate an unseasoned “Umpire,” as well as the other unschooled “Appraiser.”

If a construction insurance claim dispute needs resolution and the insurance company and the insured cannot come to agreement, then a quick way to resolve the problem and set the value of the loss is via an Insurance Appraisal.  It is simply another tool, deemed useful in insurance dispute resolution.

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