Appraisal Is A Needed Condition

Appraisal

The insurance company and the insured may occasionally disagree on the value of property or on the actual amount of loss. The appraisal condition is designed to resolve these disagreements without a court intervention. In the first step, one party decides it has reached an impasse with the other party and makes a written request for an appraisal. Each party then hires an independent appraiser. Each appraiser must be both competent and impartial.

The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court that has jurisdiction select one. Once all parties are selected and are in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the amount of loss is settled. Only disputed amounts are submitted to the umpire. Any decision made by any two of the three is binding on both the insurance company and the insured.

The expenses associated with this process fall outside the category of expenses the coverage form pays. The insured pays the following costs or expenses. The insurance company does not reimburse it for them:

• Its appraiser
• Its equal share of the cost of the umpire
• Its equal share of any other appraisal expenses

The insurance company pays the following costs and expenses. None of these expenses reduce the limit of insurance:

• Its appraiser
• Its equal share of the cost of the umpire
• Its equal share of any other appraisal expenses

Example: A tornado seriously damages Baron’s Furniture Store. Furniture is strewn over many city blocks. Sheila is the owner and believes the value of the loss is $560,000, based on her inventory records. The Cheapskate Mutual claims representative visits the store, views both damaged and undamaged merchandise and determines the loss to be $350,000. Each side presents its case to the other, but the impasse cannot be resolved. Sheila needs to restore the inventory to get back in business. She sends a letter to Cheapskate and requests an appraisal. Each party selects a qualified and impartial appraiser but cannot agree on an impartial umpire. They ask a local judge to select one, and he does so. Sheila’s appraiser determines the loss to be valued at $625,000, but Cheapskate’s appraiser determines a value of the loss of $450,000. The umpire reviews their figures and agrees with the insured on some items and with Cheapskate on others. The final settlement is $510,000. Each party bears its own expenses for the appraisers and umpire, but the agreed value of the loss is $510,000.