What Is Insurance Appraisal?

Appraisal is a dispute resolution process built into most property insurance policies for resolving disagreements about the value of a covered loss. It is not about whether something is covered - that is a coverage dispute. Appraisal is only about how much a covered loss is worth.

Think of it as a mini-arbitration focused solely on dollar amounts. Each side selects an appraiser, and the two appraisers select an umpire. Any two of the three can make a binding decision on the amount of loss.

When Appraisal Is Appropriate

  • Your insurer admits coverage but disputes the amount
  • You received a settlement offer you believe is too low
  • You and the insurer disagree on repair costs
  • There is a dispute about the scope of damage
  • You disagree about depreciation calculations
Appraisal Does NOT Resolve Coverage Disputes

If your insurer is denying coverage entirely - saying the loss is not covered or is excluded - appraisal will not help. You need to resolve the coverage question first, either through negotiation, litigation, or regulatory complaint. Only after coverage is established can appraisal determine the amount.

How the Appraisal Process Works

The appraisal clause in your policy spells out the specific procedure, but most follow a similar pattern. Here is the typical process:

1

Demand Appraisal in Writing

Either you or the insurer can invoke appraisal. Send a written demand citing the appraisal clause in your policy. Be specific about what you are asking to be appraised. Send it certified mail with return receipt so you can prove delivery.

Example: "Pursuant to the appraisal clause in Policy No. [number], I hereby demand appraisal to determine the amount of loss for the [date] water damage to my property at [address]."

2

Select Your Appraiser

Within 20 days (or as specified in your policy), each side must select a "competent and impartial" appraiser. This is one of the most important decisions in the process. Your appraiser is your advocate - choose someone experienced with your type of loss.

Good choices include: licensed public adjusters, contractors experienced with insurance claims, or professional appraisers who regularly handle insurance disputes.

3

Appraisers Select an Umpire

The two appraisers must agree on an umpire - a neutral third party who will break any deadlock. If they cannot agree, either party can ask a court to appoint one. The umpire is typically a retired judge, experienced appraiser, or construction expert.

4

Appraisers Evaluate the Loss

Both appraisers independently inspect the property and prepare their own estimates of the loss. They may hire experts, review documentation, and gather evidence to support their valuations.

5

Appraisers Attempt Agreement

The appraisers meet (in person or virtually) to compare their findings and try to reach agreement. If they agree on the amount, they sign an award and the process is complete. The insurer must pay the agreed amount.

6

Umpire Resolves Differences

If the appraisers cannot agree, the umpire reviews both positions and makes a decision. Any combination of two (your appraiser + their appraiser, your appraiser + umpire, or their appraiser + umpire) can make a binding award.

California California Note

California courts generally enforce appraisal clauses and have held that appraisers can consider causation issues when determining the scope of covered damage. This means your appraiser can argue about what damage was caused by the covered event versus pre-existing conditions.

However, if your insurer waived its right to appraisal by conducting itself inconsistently with that right (such as denying coverage entirely and later trying to invoke appraisal), you may be able to avoid appraisal and proceed to litigation.

Selecting the Right Appraiser

Your choice of appraiser can make or break your appraisal. The insurer will hire someone experienced at minimizing claims. You need someone equally skilled at maximizing them.

Qualities to Look For

  • Experience with your loss type: A fire damage expert for fire claims, a water damage specialist for water claims.
  • Insurance claims experience: They should understand how insurance policies work and what documentation insurers require.
  • Appraisal experience: Someone who has served as an appraiser before and understands the process.
  • Strong communication skills: They need to persuade the other appraiser and potentially the umpire.
  • Willingness to advocate: While technically "impartial," your appraiser should fight for the highest supportable value.

Where to Find Appraisers

  • Licensed public adjusters (they often serve as appraisers)
  • Contractors who specialize in insurance restoration work
  • Professional appraiser organizations
  • Referrals from insurance attorneys
  • Local contractor associations
Avoid Conflicts of Interest

Your appraiser should have no relationship with your insurer or the insurer's appraiser. Insurers sometimes challenge appraisers for bias. Make sure your appraiser can withstand scrutiny and has no connections that could be used against you.

Costs and Who Pays

Appraisal is not free, but it is typically much cheaper than litigation:

  • Your appraiser: You pay your own appraiser. Fees typically range from $1,500 to $5,000 depending on the complexity of the loss.
  • Umpire fees: Split equally between you and the insurer. Umpire fees range from $300 to $500 per hour, or a flat fee for simple cases.
  • Expert costs: If your appraiser needs to hire engineers, forensic accountants, or other experts, you typically bear those costs.

Total costs for most residential appraisals run $3,000 to $10,000. For complex commercial claims, costs can be significantly higher but are still typically a fraction of litigation costs.

When Appraisal Makes Financial Sense
  • The amount in dispute is significantly more than appraisal costs
  • You have strong evidence supporting your valuation
  • Coverage is not disputed (only the amount)
  • You want a faster resolution than litigation
  • The insurer's offer is unreasonably low

The Appraisal Award

When two of the three participants agree, they sign an "award" stating the amount of loss. This award is binding on both parties for the issues it addresses.

What the Award Covers

The award should specify the actual cash value (ACV) of the loss and, if your policy provides replacement cost coverage, the replacement cost value (RCV). It should also itemize different categories of loss if applicable (structure, contents, additional living expenses, etc.).

Challenging the Award

Appraisal awards are very difficult to overturn. Courts will only vacate an award for:

  • Fraud, corruption, or misconduct by the appraisers or umpire
  • Evident partiality by the umpire
  • The appraisers exceeding their authority (deciding coverage issues)
  • Mathematical errors or mistakes apparent on the face of the award

Simply disagreeing with the result is not grounds to challenge the award.

Strategic Considerations

Before demanding appraisal, consider these strategic factors:

Advantages of Appraisal

  • Faster than litigation (typically 2-4 months)
  • Less expensive than a lawsuit
  • More predictable outcome than jury trial
  • Binding result ends the dispute
  • Less adversarial than litigation

Disadvantages of Appraisal

  • Cannot resolve coverage disputes
  • Cannot recover bad faith damages
  • Cannot recover attorney fees (even if you win)
  • May waive some litigation rights
  • Umpire selection can be unpredictable
Preserving Bad Faith Claims

Appraisal only determines the amount of loss - it does not resolve bad faith claims. If your insurer acted unreasonably in handling your claim, you may still be able to pursue a bad faith lawsuit after appraisal. Consult an attorney before invoking appraisal to ensure you preserve all your rights.

Common Appraisal Issues

Scope of Damage Disputes

One frequent dispute is whether certain damage was caused by the covered event or existed before. Most courts allow appraisers to consider causation when determining the amount of covered damage. Your appraiser should document everything and be prepared to argue that damage was caused by the covered event.

Code Upgrade Costs

If repairs trigger building code requirements (new electrical, updated plumbing, etc.), these costs are typically covered under ordinance or law coverage if you have it. Make sure your appraiser includes these costs in the estimate.

Depreciation Disputes

Insurers often apply excessive depreciation to reduce ACV payments. Your appraiser should challenge unreasonable depreciation and provide documentation supporting longer useful lives for your property.

After the Award

Once the appraisal award is signed, the insurer must pay the awarded amount promptly. If they delay unreasonably, this may constitute bad faith. The award resolves the valuation dispute, but you may still have other claims against the insurer.

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