Policyholders Can Win in Appraisal
The term “appraisal” means something very different in the insurance world than it does in the real estate world. In the insurance world, an appraisal is a process that is supposed to efficiently resolve conflicts over the cost of repairing or replacing damaged or destroyed property. There is often a wide gap between cost estimates prepared by contractors selected by property owners versus estimates prepared by insurance company-selected contractors. The gap can be closed through negotiation, litigation, mediation or appraisal.
“When conducted fairly and efficiently and in the right claim scenario, appraisals can save time and money. But because the appraisal process is well understood by insurers and little understood by insureds, it can
compound claim problems and result in costly delays.
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Standard form property insurance policies have long contained a section that allows either the insured or the insurer to call for an appraisal when a dispute arises over the amount of the loss. Generally, insurance appraisals are conducted by a panel consisting of a “party appraiser” picked by each side and a neutral umpire to break any deadlock in their findings. The panel examines evidence (estimates, plans, and sometimes testimony) and produces a written appraisal “award” that sets the amount the insurer owes for the repairs. The award is either accepted or challenged by the parties.
Few claimants know about the process or how it works unless they receive a “demand for appraisal” from their insurance company or its attorney. Where the insurer is using an attorney to handle an appraisal, the claimant generally should too, which means the insured has to pay attorney fees on top of their party appraiser fees and half the umpire’s fees. Appraisals can get very expensive and time-consuming. Some states have taken legislative action in recent years to make appraisals optional and informal.
UP has helped enact legislation in California to keep insurance appraisals fair, fast and economical, and continues to monitor the process and serve as an information resource for policyholders.