Property insurance appraisals are becoming increasingly common, but with this rise, the landscape surrounding them has also grown more complex. If you are dealing with a disputed claim and considering an appraisal, it’s important to understand what this process entails, what it does and doesn’t do, and how the rules vary by state. Keep in mind that this is general information—every state has its own jurisdictional nuances, and you should always consult an expert regarding your specific situation.
The Origins of Insurance Appraisal: The 165-Line Standard Fire Policy
The foundation for modern property insurance policies can be traced back to the 165-Line Standard Fire Policy, introduced in New York in 1943. This policy served as a model for many states, ensuring consistency in coverage and claims resolution. One of its key features was the Appraisal Clause, which provided a structured way to resolve disputes about the value of the loss without resorting to litigation.
The Appraisal Clause: A Mechanism for Dispute Resolution
The traditional Appraisal Clause generally states that:
If the insured and the insurer cannot agree on the value of the loss, either party may demand an appraisal.
Each party selects a competent and disinterested appraiser.
The appraisers then agree upon an impartial umpire.
If the appraisers cannot reach an agreement, the umpire makes the final determination.
The decision agreed upon by any two of the three (appraisers or umpire) becomes binding.
Each party bears the cost of its own appraiser, while the costs of the umpire are split equally.
While this original provision was a straightforward, single-paragraph process, today’s insurance policies often contain appraisal clauses that span multiple pages. These modern clauses include detailed conditions and procedural requirements, making the process significantly more complicated.
The Purpose of Insurance Appraisal
At its core, insurance appraisal is an alternative dispute resolution (ADR) process, designed to be faster and less expensive than litigation. However, many policyholders mistakenly believe that because it is an ADR process, legal counsel is unnecessary. While this may sometimes be the case, attorney involvement is often required, especially if the insurer imposes restrictive policy language or attempts to control the process.
Key Nuances and State-Specific Variations
Several factors affect the way an insurance appraisal is conducted, and these factors can vary significantly from state to state:
1. Is an Insurance Appraisal Binding?
In most jurisdictions, the appraisal award is binding on both parties regarding the amount of loss but not necessarily on policy coverage.
Some jurisdictions allow insurers to apply policy conditions to reduce the final payout.
In certain states, an appraisal is only binding on the party that invoked it, while others treat it as non-binding altogether.
2. Can an Appraisal Panel Determine Causation?
In many states, courts have ruled that appraisers must determine causation—whether a loss was caused by a covered peril—because they cannot properly assess damages without doing so.
In other states, appraisers are prohibited from making causation determinations, leaving this issue to be decided by the insurer or courts.
3. Matching, Uniformity, and Line of Sight
Many policies exclude coverage for matching undamaged items (e.g., replacing all roof shingles if only some are damaged), while others explicitly require uniformity.
Some states mandate matching and line-of-sight considerations as part of the loss calculation, while others do not.
In cases where matching is disputed, appraisal panels often break out these costs separately to allow insurers to apply policy conditions.
How the Insurance Appraisal Process Works
Despite its growing complexity, the basic structure of an insurance appraisal remains the same:
One party demands appraisal due to a dispute over the amount of loss (not policy coverage).
Each party selects an independent appraiser.
The two appraisers attempt to agree on the value of the loss.
If they cannot agree, they select a neutral umpire.
The umpire reviews the dispute and, along with at least one appraiser, finalizes the appraisal award.
The final decision determines the amount of loss but does not guarantee coverage under the policy.
While this process may sound simple, it is akin to describing chess as “capturing the opponent’s king.” In reality, insurance appraisal involves intricate legal and strategic considerations.
What to Consider Before Proceeding with an Appraisal
Before initiating an appraisal, policyholders should ask themselves:
How long do I have to recover depreciation?
Will the appraisal toll my claim, or could the statute of limitations expire during the process?
Which items in my claim are already covered, and which are still in dispute?
Do I have sufficient evidence to support my claim, such as expert reports confirming the cause and extent of damage?
Conclusion: The Evolving Landscape of Insurance Appraisal
Insurance appraisal was originally intended to be a straightforward and cost-effective alternative to litigation. However, as insurers modify policy language and courts issue new rulings, the process has become increasingly complex. Today, appraisal is filled with procedural hurdles, jurisdictional variations, and legal gray areas.
Because of these complexities, consulting with a qualified professional is highly recommended if you are considering an appraisal or if your insurer has demanded one. A public adjuster, attorney, or experienced claims professional can help navigate the process and protect your rights.
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