What You Need to Know About the Insurance Appraisal Process

            Appraisal – most people don’t know that there is a provision in your property insurance policy that provides for you (or the carrier) to invoke appraisal on a property damage insurance claim when not satisfied with the estimated damages on the claim.  What is appraisal?  When you hear the word appraisal most think of the appraisal that is associated with the value of a property.  Appraisal as it relates to an insurance claim is the appraised value of the damages covered by a property damage claim.

            When I first started in this first party claims business five years ago, appraisal was rarely invoked on a residential claim.  Most claims were satisfactorily settled without appraisal and we used it only as a last resort or if an insured was not comfortable seeking legal counsel to pursue the claim.  Now a days, appraisal is invoked on a regular basis because most insurance carriers are currently refusing to pay a claim fairly without it.  My opinion, this is just another delay tactic on the part of the insurance companies in hopes the insured will give up.

Appraisal is a scary word to the insured because most do not know what it means and because of the costs associated with the process.  But the word attorney is an even more scary word for lots of property owners because of the believed costs (even though first party claim attorneys work on a contingency fee).  We believe the process is worth the additional cost to the insured to successfully get the claim paid for correctly. 

Sometimes appraisal is necessary because the carrier wants to make a repair instead of a replacement (estimate low or below deductible).  Keep in mind that the property owner is entitled to an insurance settlement that will return the property to pre loss condition and a repair rather than replacement rarely accomplishes this.  Other times appraisal will be necessary because the carrier has agreed to a replacement and to cover other collateral damages but is still refusing to pay overhead and profit (O&P) which is necessary for a general contractor when multiple trades are needed to make all the covered repairs. 

When appraisal is invoked by either party, each party is obligated to hire and pay out of pocket for their own appraiser.  (These costs vary from claim to claim depending on the size and scope of the damages.)  When the insured is the party who invokes appraisal by notifying the carrier and naming their appraiser, the carrier then usually has 20 days to appoint their own appraiser and notify the insured.  The carrier generally takes every day of the 20 days allowed.  This is literally the only deadline imposed in the appraisal process.

Once appraisers are both appointed by each party, the two appraisers must agree on an umpire in case agreement cannot be reached concerning the damages.  The umpire and both appraisers are to be unbiased third parties and therefore should come forth with a fair and just estimate of the damages associated with the claim.  If the two appraisers are unable to agree and the claim reaches an umpire, then both the insured and insurer must split the additional cost of the umpire fee.  Sometimes an attorney will oversee the appraisal process and in these instances the attorney may seek a court appointed umpire rather than the appraisers agreeing on one.  This tactic is used to ensure that an unbiased umpire is named since some policies include language that when appraisal is invoked you must use an umpire from the carrier’s approved list.  (This is perceived as not being an unbiased party if it is someone approved only by the carrier.)  Carriers do not like this race to the courthouse to get a court appointed umpire, but it is at times necessary depending on the language in the insurance policy.

Once an umpire is agreed upon (or court appointed), the two appraisers review the claim damages together in an effort to reach an agreement on the property damage estimate.  If they are able to reach an agreement, then the appraisal award is submitted to the carrier for review to make sure that the policy coverages were properly applied and, if so, they pay the settlement award to the insured.  If the appraisers are not able to reach agreement, then the previously selected umpire reviews the estimates and damage analysis of both appraisers and the umpire makes the final decision on the award.

People need to understand that the appraisal process result is a final decision and cannot be appealed.  This is one reason why public adjusters working on a large loss will recommend that the insured seek legal counsel so an attorney can advise on how best to pursue the claim.

Although the appraisal process is an expense to the insured, we believe it is necessary and worth the expense to force the carrier to adjust the claim fairly.  Yes, the insured should not have to be out of pocket these kinds of additional expenses, but unfortunately it may be the only way to get the claim scope of damages fully included and pricing paid correctly.

Let us know if you have any questions about the appraisal process or if you need help with a property damage insurance claim.