There are many moving parts at play from the moment a commercial property damage insurance claim is filed. Though each claim is unique and each policy is unique, there are only a few ways to resolve an insurance dispute. Two such methods are insurance appraisal and arbitration. While these two practices are similar in name, both are used for resolving different types and degrees of insurance disputes. Its important policyholders understand the unique distinctions between appraisal and arbitration to ensure their claims are properly investigated and resolved.
Insurance Appraisal vs Arbitration
The commercial property insurance claims process can be quite complex and involve many different elements depending upon the extent of the damage. Often, in these situations, appraisal and arbitration help the parties reach a final resolution regarding a disputed claim. While these processes may be used in tandem with each other, they work to help resolve different parts of a claim. The following outlines the main differences between an appraisal and arbitration in the insurance claims resolution context:
Appraisal clauses in property insurance policies are used as a method for determining the value of losses involved in a claim. An appraisal cannot be used as a means to determine what is and isn’t covered; it can only be used to determine the monetary values attributed to the damaged items. This process involves getting the opinion of a professional on the value of the property and damages sustained. When insurers and policyholders are unable to agree on the value of a commercial property damage claim, invoking the policy’s appraisal clause can help resolve the dispute.
The process of pursuing an appraisal is a contractual course of action to settle valuation disputes between insurers and policyholders. When a claims dispute arises, in most policies, either the policyholder or the insurance company can invoke an appraisal clause. Under most policies, this process involves both the insurer and the policyholder each appointing an appraiser. Each party is responsible for paying its own designated appraiser and the parties bear any other related expenses and the costs of an umpire equally.
The appraiser should be an impartial and disinterested party who will evaluate the loss independently. Both appraisers can negotiate and reach an agreed-upon amount, but if they cannot agree, they will then work together to choose a mutually acceptable umpire to make the final decision. The umpire chosen must also be a disinterested, impartial party with a good moral character and reputation. Once the umpire has been selected, the appraisers will each present their loss assessment for the umpire to review. The umpire will then provide a written decision to both parties. If the two parties agree with the umpire’s assessment of the amount of the loss, then that amount becomes the claim amount; however, if the insurer and the insured still cannot agree, then depending on the policy terms, the claim will next move into arbitration or litigation.
Arbitration is a form of alternative dispute resolution often used in place of litigation. Unlike an appraisal, arbitration works to determine whether or not a disputed claim is covered and how much value in terms of loss the policyholder is entitled to. In most cases, claim disputes that must be arbitrated occur due to the awarded amount being much lower than what it should be or a valid claim being wrongfully denied.
Insurance companies favor arbitration over litigation; and, some commercial policies mandate arbitration. In this case, if a dispute arises, arbitration would be the only means of resolving it.
Similar to appraisers, arbitrators must be unbiased, independent, and unaffiliated with either side. The main difference between the two is that an arbitrator must be certified unless they are already a practicing attorney. For a professional to become an arbitrator in Texas, they must complete 30 hours of training on arbitration and alternative dispute resolution procedures from a college, university, legal trade association, or real estate trade association. The policyholder and the insurer can also choose to elect a panel of arbitrators or designate an organization to help provide arbitration services. However, some policies require the arbitrator(s) to have senior-level experience in insurance claims or underwriting.
Once selected, the arbitrator or arbitration panel will review the facts of the case as presented by both sides and come to an appropriate decision on an arbitration award for the claim. The arbitration award includes all of the information presented about the claim along with the arbitrator’s final decision on fees, damages, and/or any legal or disciplinary actions if needed. Depending on what the policyholder and the insurer agree to when pursuing arbitration, the award can either be binding or non-binding.
In binding arbitration, both parties agree that the award cannot be appealed regardless of the circumstances; some policies contain language that mandates binding arbitration, and consumers should look for these clauses and ask about them before selecting the right policy for them. Once an award is handed down in binding arbitration, it stands as-is. In non-binding arbitration, however, either party can appeal the award in court in the event they are dissatisfied with the outcome.
Insurance Coverage Attorneys
At Raizner Slania, our team of experienced insurance coverage attorneys is well versed in both arbitration and appraisal and has successfully represented countless commercial policyholders who have been taken advantage of by their insurers. If you need assistance with a commercial claim going through an appraisal or one that is set to be arbitrated, we can help. Contact our office today for more information.