After a business suffers a loss due to property damage, the property owner must file an insurance claim as soon as possible. If the insurer and policyholder cannot agree on the value of a claim, an appraisal can be used to help resolve the dispute. Depending upon a variety of factors, including the size and type of property and the amount of damage, a complex appraisal may be necessary.
The Insurance Appraisal Process
With property insurance claims, it’s not uncommon for policyholders to disagree with their insurance providers. For instance, an insurer may offer a claims settlement much lower than anticipated, or the scope of damages determined by the insurer may be much different than the insured. Disagreements about the amount of the loss are fairly common during the insurance claims process. However, if the insurance company refuses to negotiate, invoking the appraisal process may determine the true and accurate value of the loss.
The goal of an appraisal is to get an outside opinion of a professional on the value of the property and the damages sustained. Invoking an appraisal clause is a contractually binding action to settle valuation disputes between insurers and policyholders. If a dispute arises, either the policyholder or the insurance company can invoke an appraisal clause. Under most insurance policies, the insurer and the policyholder appoint an appraiser. The appraisers selected must be competent and disinterested professionals who will evaluate the claim and calculate the amount of loss.
Invoking an Appraisal Clause
In Texas, most commercial property insurance policies include an appraisal clause. However, the process can vary depending on the companies involved and the policy itself, as each policy is unique. Regardless, insurance policies will include a conditions section that outlines how the appraisal process may be invoked and what it entails.
Most policies outline that if the parties disagree on the amount of loss, either may demand an appraisal of the property and the damage sustained be completed. In these instances, each party will need to hire a competent and neutral appraiser within the specified days detailed in the policy after receiving a written request from the other party. The two appraisers will then choose an appraisal umpire to render a final, binding decision if the two appraisers cannot reach a final agreement. The appraisers will independently assess the amount of loss and submit an agreement to both parties to settle the dispute. The parties must split the expenses, including the cost of hiring their appraiser and the umpire.
The Role of an Insurance Appraiser
When it comes to the term “appraisal,” many may confuse it with a real estate appraisal. An insurance appraisal is different in that some policies require it, or once invoked, the process will put the resolution of the claim in the hands of an appraiser or appraisal panel. An appraisal panel consists of three appraisers — one selected by the insurer, one chosen by the insured, and one neutral umpire. But what exactly does the role of an insurance appraiser entail?
An insurance appraiser is a competent and disinterested professional who evaluates a claim to determine the appropriate value of the property or the amount of loss. Insurance companies use appraisers’ assessments to determine if they need to pay out on a claim and its value. Insurance appraisers can be anyone capable of accurately evaluating and determining the amount of loss, but many policies require someone with insurance industry experience, such as an adjuster, engineer, or contractor.
Once a disputed claim is handed over to an insurance appraiser, they will estimate the loss or damage to the property and the overall value of the insured items, including the property itself. Following their investigation, they will meet with the other party’s appraiser to discuss their findings. If the two appraisers cannot agree on the claim, the umpire will review both of their findings and come to a final decision.
The role of an insurance appraiser typically includes the following duties:
- Investigating, evaluating, and settling insurance claims;
- Determining whether the insurance policy covers the loss claimed;
- Deciding the appropriate amount the insurance company should pay;
- Ensuring that claims are not fraudulent;
- Contacting others for additional information on the claim;
- Conferring with legal counsel on claims when necessary;
- Keeping claims files, such as records of settled claims and an inventory of claims that require detailed analysis;
- Negotiating settlements; and
- Authorizing payments.
What Makes an Appraisal Complex?
Commercial property insurance appraisals can easily become complicated as they involve many different building types and materials, such as brick-and-mortar stores, apartment complexes, corporate offices, and even vacant land. These and other factors can cause an appraisal to go from a simple valuation process to a much longer and more complex ordeal for policyholders.
Complex appraisal assignments involve claims in which the commercial property, the form of ownership of the commercial property, or the property market conditions are atypical, such as when:
- The property is close to a body of water or a flood-prone area;
- The property includes golf courses, mountains, or resort areas;
- The property is in a historic area;
- The property has specific deed restrictions;
- The property is grossly outdated; and
- The property has specific zoning restrictions.
The form of ownership of the commercial property can include certain specifications, such as the type of lease it falls under. Specific market conditions that can make an appraisal complex include the impact of a pandemic event, a declining market, or if the property is in a transitional area. Complex appraisal assignments are also sometimes beneficial for appraisers, as higher fees are often involved. This can result in conflicts between the policyholder and the appraiser or insurance carrier, as the more complex an appraisal becomes, the more visits an appraiser will likely need to make to the subject property. Not only that, but a policyholder may find the appraiser assigned is unqualified to complete a complex appraisal. This can lead to an inadequate investigation that could cause the policyholder to lose out on what they should be paid.
Whether an appraisal is complex or not, the process can quickly become disadvantageous for commercial policyholders in certain situations. One of the greatest disadvantages for insureds is that the insurance company almost always retains the right to deny the claim after an umpire enters their findings. This means that parties can spend months or even a year going through the appraisal process and paying the appraisers and the umpire, only to have the insurance company deny the claim on coverage grounds and refuse to pay.
Another disadvantage for policyholders is that the disputed amount may be too small to justify the cost of an appraisal. Appraisals can also take a long time to complete, especially if they become complex. Finally, it can be difficult for commercial policyholders to find an appraiser willing to work for them. This is because appraisers are more likely to want to work for and with insurance companies since they often get repeat business from them.
For commercial policyholders to ensure their rights are protected throughout the insurance claims and appraisal processes, they should consider consulting with an attorney experienced in complex appraisals.
Commercial Property Insurance Appraisal Costs
When considering the cost of an insurance appraisal, most appraisers will typically outline their costs upfront so each party knows what to expect. In Texas, the cost of hiring an appraiser can vary widely, as the cost will take into account the location of the property, the property type, the damage that occurred, and how extensive the damage is. On average, commercial property insurance appraisals can cost roughly $4,000 to complete; however, this amount can vary widely based on the property’s condition. Because of this, the cost can increase to $10,000 or higher for more complex disputes. Therefore, policyholders should consider the size difference between their estimates and the insurers. If the difference in value is small, an appraisal may not be worth the cost.
Obtaining Legal Counsel for a Commercial Property Insurance Appraisal
The insurance claim process can be incredibly frustrating to navigate, particularly if an appraisal is needed to get a second valuation on the disputed claim. While invoking an appraisal clause can be effective for settling insurance claim disputes involving the amount of damage, if not done properly it can result in many headaches for the insured. Hiring legal counsel with experience in the insurance appraisal process can be incredibly helpful in these scenarios. Insurance coverage lawyers will give policyholders a better chance of obtaining a fair outcome for a complex, disputed commercial claim.
Not only that, but hiring an attorney early on can help policyholders get better insight into whether pursuing an appraisal is in their best interest. This is because the process can quickly become costly, as appraisers are typically hired for larger dispute amounts. For smaller disputed claims, the outcome of the appraisal is often not worth the cost and may leave policyholders worse off than they were before.
Appraisers can also be incredibly difficult for insureds to find because they often prefer working for insurers due to the propensity for repeat business. The same can be said for finding impartial umpires as well. Additionally, one of the greatest disadvantages for policyholders pursuing an insurance appraisal is that the insurance company can —depending upon the policy terms—retain the right to deny the claim, regardless even after an appraisal award has been determined. This means that not only would policyholders spend months going through an appraisal and pay for an appraiser and potentially an umpire, but the insurer could still deny their claim anyway. This becomes an additional waste of time, money, and resources, ultimately creating an even greater imbalance of power between the policyholder and the insurance company. This makes it incredibly important to have competent and experienced legal counsel to help insureds navigate the appraisal process and receive what they are owed by their insurance providers.
Commercial Property Insurance Claim Attorneys
At Raizner Slania, we know just how frustrating the claims process can be, particularly if additional steps, such as an appraisal, are needed. Our experienced complex appraisal attorneys are leading the way in establishing a safer and positive appraisal process for Texas consumers to counter the bad faith efforts of insurance carriers. Contact our office today to learn how our insurance attorneys can help guide you through a large and/or complex appraisal.
