Appraisal clauses

Definition

Appraisal clauses are provisions in insurance contracts that outline the process for resolving disputes regarding the value of insured property. These clauses allow both the insurer and the insured to appoint appraisers who will determine the amount of loss or damage in the event of a claim. The goal of an appraisal clause is to provide a fair and efficient method for settling disagreements over valuation, which can significantly streamline the claims process and reduce the need for litigation.

5 Must Know Facts For Your Next Test

1. The appraisal clause typically outlines how each party can select their appraiser and what happens if the appraisers disagree.
2. Appraisal clauses can often be found in property insurance policies, including homeowners, commercial property, and automobile insurance.
3. Once invoked, both parties must comply with the appraisal process and cannot pursue other legal actions until the appraisal is completed.
4. The outcome of an appraisal can result in a legally binding decision on the value of the loss, which both parties are obligated to accept.
5. The use of appraisal clauses helps to minimize disputes and can lead to faster settlements, benefiting both the insurer and the insured.

Review Questions

• How does the process outlined in an appraisal clause facilitate dispute resolution between insurers and insured parties?
  • The appraisal clause facilitates dispute resolution by establishing a clear process for valuing claims without resorting to litigation. It allows both parties to appoint their own appraisers who work together to determine the loss value. This structured approach minimizes conflicts and ensures that disputes over valuations are handled fairly and efficiently, leading to quicker settlements.
• Discuss the implications of invoking an appraisal clause on the relationship between an insurer and an insured.
  • Invoking an appraisal clause can have significant implications for the insurer-insured relationship. While it offers a pathway for resolving disputes over property value, it also introduces a formal process that may heighten tensions. Both parties are required to cooperate with the appraisal process, which can foster trust if handled well. However, if one party feels dissatisfied with the outcome or feels their interests weren't adequately represented, it could lead to a breakdown in that relationship.
• Evaluate how appraisal clauses compare to other methods of resolving insurance disputes, such as mediation or litigation, in terms of efficiency and effectiveness.
  • Appraisal clauses often provide a more efficient and cost-effective means of resolving insurance disputes compared to mediation or litigation. While mediation involves negotiation facilitated by a third party, it may not guarantee a binding resolution, which can prolong disputes. Litigation can be time-consuming and expensive due to court costs and legal fees. Appraisal clauses streamline the process by focusing specifically on valuation issues with predetermined methods for resolving disagreements. This can lead to faster settlements while reducing costs associated with legal battles, making it a favorable option for many policyholders.

Related terms

underinsurance: A situation where a property is insured for less than its actual value, potentially leading to inadequate compensation during a loss.

exclusions: Specific conditions or circumstances that are not covered by an insurance policy, which can impact the applicability of appraisal clauses.

mediation: A conflict resolution process where a neutral third party assists the involved parties in negotiating a settlement, often used as an alternative to appraisal clauses.