Based on the sheer volume of TV ads by personal injury and property damage attorneys, you might think there is only one way to resolve a claim dispute – “Hire me and I’ll get you millions! (And please overlook the fact that I’m more interested in those millions that will end up in my pocket!)” 

Unfortunately, because most consumers—and even more sadly—some agents don’t read the policies they buy or that we sell, we (the insurers) all buy into that principle. In addition, many agents have cozy relationships with attorneys or public adjusters who have an adversarial mindset toward the true goal of insurance. It is easy to see a recipe for disaster. 

When you receive a call from a long-time client who is experiencing their first-property damage claim, and they complain of problems with the claim process or the policy terms and conditions, the first reflex is to (1) step in and try to be an advocate for your client, or (2) pop out your contact list and consult your sub-list of insurance attorneys or public adjusters and pass along their number. 

Guess what? The policy itself already has a built-in alternative dispute resolution process in the contract’s terms and conditions. It is the “appraisal clause,” … and saves much money and time for everyone! 

But first, let’s backtrack to that first call from an irate client. Before anything else, provide your insured—and the carrier—with great service by laying the groundwork for them to fully present their claim.  

What triggered that call was the confusion they experienced when they got a computerized estimate (e.g., Xactimate, etc.) prepared by an adjuster and a check in the mail. Their reflex reaction is invariably—“That’s all I’m getting???” They are not factoring in their deductible or depreciation applied to the repair costs, plus they remember those attorney ads promising millions! 

Have everyone take a deep breath and relax. That first check is just a downpayment on the total costs of repairs—based on an estimate from someone who will NOT be doing the repairs themselves. The loss settlement provisions of any property policy do not say that the recovery is based on an “estimated cost.” 

The best advice: have them take the following steps: 

If the two parties still cannot resolve the issues, it may be time to move on to the next step, which might involve invoking the policy’s appraisal language. 

There are multiple variations of the language used in policies on the appraisal process, and many carriers have gone to a very elaborate endorsement, which can get complex. Because of those differences, I will use the language found in the original “New York 165 Lines” policy … but always go to the specific policy itself for all details. Look at the “dec page” for a specific endorsement. If you find no endorsement, the appraisal language is generally located under Section I – Conditions of the policy itself. And remember that an endorsement always changes the original policy language.  

Here is typical appraisal language. (Underlines added below for emphasis.) 

“Appraisal. In case the insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and dis-interested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.” 

Why Involve a Contractor Early? 

There is a specific reason for my suggestion that the insured get a contractor involved in proving the costs involved in the repairs. Most U.S. jurisdictions require an “actual dispute” in the claims settlement before the insured can invoke the appraisal process. The insured cannot simply say, “I don’t agree with the numbers in the estimate!” and go with that. 

It also establishes the “bookends” of the dispute and is a starting point for resolving differences. It also becomes a “risk analysis” for the carrier to consider in settlement decisions. If the potential expenses of the appraisal that carriers would have to pay, atop any award approaching what the demand is, they may settle the claim on that amount without going through the appraisal itself. Expenses aren’t assigned to loss ratios, while claim payments are. 

Why the Appraisal Process May Limit the Hiring of an Attorney or Public Adjuster 

Additional valid reasons exist for considering the appraisal process before hiring a lawyer. The biggest one is that when a carrier receives that outrageous demand from that lawyer, they may demand appraisal first as a response. Many jurisdictions will “abate” any legal actions until the completion of the appraisal, as that award will set the damages in stone and prevent outlandish demands from getting in front of a jury. Insureds still have to pay appraisal expenses. Still, by invoking the appraisal themselves, the insured won’t have to give 30% to 40% of their recovery to their attorney, even before the attorney removes the expenses. Common practice with plaintiff attorneys is to take their contingency percentage out of the total recovery first, then subtract the expenses incurred, leaving the insured/client with even less.  

Some jurisdictions have held that when carriers pay an appraisal award, it negates any bad faith or extra-contractual claims that spawn outlandish jury awards. They may only be liable for any statutory interest that would apply to late claim payments.  

Steps in the Appraisal Process 

Now that the rationale for using appraisal as the best dispute resolution path is clear, let’s consider the mechanics of what will happen. It is important to keep written records of everything that happens when communicating with the carrier. 

Including an umpire creates a scenario that resembles an “arbitration” or a “mediation.” For the most part, the “damage” and the cost to repair it under market pricing should be straightforward. That is why it is important to rely on hard evidence, obtaining the information directly from a contractor who will be doing the repairs themselves. 

In the real world, any umpire appointed by a judge will most likely act like a “mediator” and “split the baby” on the award unless the evidence is overwhelming. Umpires agreed to by mutual acceptance of the appraisers may have more experience in the appraisal process and be more inclined to follow the facts. 

Appointing an umpire by the requisite judge is a “ministerial” or “administrative” matter and does not require filing a lawsuit … in most jurisdictions! While the language of the clause gave the option to request the appointment to either the insured or the carrier, some clauses give that authority to either appraiser. Those individuals receiving appointments by the Court are usually retired judges or attorneys who have contributed to the appointing judge’s campaign for office. (A word of advice here—sometimes the mere hassle of going through all this on the part of the carrier may result in them being receptive to settling the claim with the information provided by the insured.) 

In summary, these bullet points are the important items to consider in informing insureds about resolving property claim disputes: 

This really can work to everyone’s advantage! Best of luck.  

​About the Author 

Kevin Hromas is a nationally and internationally recognized expert in the appraisal process. He has presented extensively on the subject in industry seminars, to carriers, and at the Lloyds Library in London. He is also a retained expert in litigation. He can be reached at KH@KevinHromas.com. 

​Originally Published: January 24, 2025 ​

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