What is an Appraisal Clause in Your Insurance Policy?

You have likely heard the term “appraisal” used when talking about a home or personal property’s value. For example, real estate is typically appraised when a property goes on the market, or you can have a piece of jewelry appraised to assess its current value. This is one way the term “appraisal” is used.

When used in the context of insurance, however, the term “appraisal” refers to something different. An appraisal clause in an insurance policy is a provision that allows policyholders and insurance companies to resolve disputes about the value of property damage or the amount of a loss. 

If you as a Colorado property owner and your insurance company disagree about the scope of damage or the amount of a loss, you may invoke the appraisal clause. 

Understanding the Appraisal Clause

The appraisal clause is found in most property insurance policies. It is an alternative dispute resolution (ADR) mechanism designed to provide a fair and efficient way to determine the value of a claim when the insured and the insurer disagree. As an ADR method, it can also help keep these disputes out of court. Worth noting, disputes related to coverage issues cannot be decided by appraisal.

How the Appraisal Clause Works in Colorado

The appraisal clause is invoked when there is a disagreement between the policyholder and the insurance company regarding the value of property damage or the amount of loss. Before invoking the appraisal clause, both parties must have made good efforts to resolve the question of loss and damages. If you received an underpaid claim, for example, this may include obtaining a competing estimate to share with your insurer.

Either the insured or the insurer can make the request to invoke the appraisal clause. In Colorado, once one party demands it, then the other party is typically required to agree.

Once the appraisal clause has been invoked, each party selects an impartial appraiser to represent their interests. These appraisers should be professionals with expertise in valuing property and assessing damages. Our attorneys at KK&P Law Firm can also act as appraisers and umpires, or we can vet and suggest qualified appraisers to do so on your behalf. The two appraisers will then work together to determine the value of the loss. 

During the appraisal process, both appraisers examine the property and review relevant documents, such as repair estimates, photographs, and policy details.

They will also consider other factors, such as depreciation, market value, and the cost of repairs or replacements.

If the two appraisers reach an agreement on the value of the loss, their decision is binding for both parties. If they cannot agree, they select an impartial umpire who ultimately makes the final settlement decision. The umpire’s decision is also binding.

Who Pays for the Appraisal Process?

The cost of the appraisal process, including fees for the appraisers and umpire, is usually split between the insured and the insurer.

Contact Us at KK&P Law Firm for Help

If you do not agree with your insurance company about the property damage or loss amounts incurred, invoking an appraisal may be one path to pursue. It can be an effective arbitration method and may make litigation less likely. Before doing so, we advise you to speak with a Colorado insurance law attorney to discuss your options. Contact our team at Kandell, Kandell & Petrie to speak to one of our Colorado claims advisors.