After a natural disaster or unforeseen event causes damage to commercial property, it can place significant undue stress on owners. While filing an insurance claim as soon as possible is key to recouping the costs associated with the losses sustained from property damage, it’s not guaranteed that policyholders will obtain a fraction of or any of the costs back. These instances can quickly lead to disputes between insurers and policyholders, which can prolong the claims process even further. When claims issues happen, it is often in the best interests of the insured to pursue an appraisal.
The Appraisal Clause and Commercial Property Insurance Disputes
When a business or a commercial property owner finds themself in a disagreement with their insurer over the amount of loss or scope of damages after an event damages their property, they may be able to invoke their policy’s appraisal clause. Invoking an appraisal clause effectively begins the process of getting the impartial opinion of a professional on the value of the damages sustained, in the hope of resolving the issue between each party.
Pursuing an appraisal is a binding contractual course of action to settle valuation disputes between insurers and policyholders. In the event a claims dispute arises, in most policies, either the policyholder or the insurance company can invoke an appraisal clause. Under most policies, both the insurer and the policyholder each appoint an appraiser of their choosing. The appraisers selected must be competent and disinterested professionals who will evaluate the claim and place a valuation on the amount of the loss. Appraisers can be adjusters, contractors, engineers, or another party that can adequately and impartially determine the loss sustained.
Once each party selects its appraiser, those appraisers then select an umpire to review both of their findings. The umpire will then agree with one of the appraiser’s dollar figures, and sign off on that amount. The umpire’s decision is binding on the parties as to the amount of the loss. This means no further action can be taken by the policyholder without pursuing legal action.
Why Selecting the Right Appraiser is Crucial
To ensure an appraisal is successful, policyholders must take great care in selecting an appraiser and umpire who understand the ins and outs of the process. Knowing how to negotiate and come to an agreement quickly is key in these situations.
When properly executed, insurance appraisal is a good tool for policyholders to settle claims disputes with their insurance company. However, before invoking an appraisal clause, it’s a good idea to have an experienced appraiser in mind, otherwise, the insurance provider will often have the upper hand. If not executed with care, an appraisal can worsen disputes between policyholders and insurers, resulting in costly delays.
The Advantages of Choosing to Pursue an Appraisal
Going through the process of an appraisal offers several benefits to policyholders. For instance, an appraiser can help accurately assess the value of the property before and after the damage, which ultimately helps to ensure the claimant can receive a fair settlement. An appraisal can also help to simplify the claims process and provide valuable evidence to the insurance provider about the nature of the damage and potential repair costs. Additionally, appraisals can help identify potential structural issues that may not be initially visible to the naked eye. Situations like this may increase the value of the claim for the policyholder and can be invaluable in preventing further damage to protect the long-term value of the property.
Selecting the right appraiser is essential and can result in a higher award than if the dispute was left to litigation. Additionally, the cost of pursuing an appraisal is often far less than the cost of taking legal action and the process typically resolves much faster than litigation.
The Disadvantages of Appraisal
While invoking an appraisal clause can be incredibly helpful in resolving insurance disputes, there are many situations where it is not appropriate or can be disadvantageous to the policyholder. But by far the greatest disadvantage of most appraisal provisions, from the policyholder’s perspective, is that the insurance company will almost always retain the right to deny the claim even after the appraisal award is entered. This scenario, unfortunately, unfolds all too often: the parties spend months or even more than a year going through appraisal, paying significant amounts of money to the appraisers and umpire, only for the insurance company to deny the claim on coverage grounds and refuse to pay the award. This gives the insurer two “bites at the apple”: if it does not like the appraisal award, it will simply deny the claim. This is immensely wasteful, and reflects the great imbalance of power between policyholder and insurer.
On a more basic level, one disadvantage to appraisal is that the difference in the amount disputed is simply too insignificant to be worth it.
Other potential drawbacks to invoking an appraisal clause include:
- Appraisal awards are binding: Once an award is signed, there are few possibilities for increasing the amount or altering the award other than suing the insurer for a contract violation or acting in bad faith.
- Appraisals can sometimes take longer than expected: Because each side needs to interview and select its own nominated appraiser, and potentially jointly agree on the selection of a neutral umpire, getting the appraisal process going could take several months upfront.
- It can be difficult to find an impartial appraiser: Experienced party appraisers willing to work for policyholders are less common than those who work for insurance carriers. Additionally, it can be more challenging to locate an impartial umpire the insurance carrier’s appraiser will accept.
While invoking an appraisal clause can have many benefits for policyholders, insurers may still attempt to deny, delay, and underpay valid claims. Appraisals are best used to resolve a genuine dispute over how to quantify a loss amount and should be used sparingly, with a full understanding of the considerations and consequences involved.
Commercial Property Insurance Claim Attorneys
Going through the appraisal process can sometimes be of great benefit to policyholders, unfortunately, insurers are still likely to try to take advantage of their insured party. If an insurer doesn’t pay the appraisal award in full or fails to pay interest on the award, they can be held liable.
At Raizner Slania, we are leading the way in establishing a positive and safe appraisal process for Texas consumers to counter the bad faith efforts of carriers. Our experienced insurance lawyers will guide you through a large or complex appraisal. Contact us for more information on how we can help.
