Understanding the Appraisal Clause in Your Insurance Policy

Nearly all insurance policies contain what is commonly called an “appraisal clause.” While the specific language differs from one policy to another, the idea is generally the same. This provision is designed to provide a mechanism to resolve disputes about insurance claims — but not all disputes are subject to being resolved by appraisal.

Typical language will say something like this:

“If you and we do not agree on the amount of the loss, including the amount of actual cash value or replacement cost, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand . . . . The appraisers shall then appraise the loss, stating separately the actual cash value or replacement cost of each item, and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two of these three, when filed with the company shall determine the amount of loss.”

If you read this language carefully, it is clear that only disputes about the amount of the loss are subject to appraisal. But sometimes that is not the dispute. Sometimes the dispute involves whether the policy actually provides coverage for the claimed loss, or some part of the claimed loss. Disputes about coverage are not appropriately resolved by the appraisal clause.

If you have suffered a loss and have a dispute with your insurance company, it is very important to understand the difference between disputes over the amount of loss versus disputes about coverage. And, sometimes, it is difficult to tell the difference. If your insurance company demands appraisal, or if you are considering doing so, you should always consult with a knowledgeable insurance coverage attorney before making the demand or responding to one. If the appraisal clause is invoked when it shouldn’t be, it can cause unnecessary delay and can even jeopardize your right to recover under your policy.