We’ve seen anecdotal evidence that some insurance companies as well as adjusters are already talking to policyholders about invoking the Appraisal Clause in their property insurance policy. While appraisal can play an important role in the insurance claim settlement process, it is not for everyone and policyholders need to understand both the costs and limitations. We have several certified appraisers on our staff and one of the first things we do when asked to represent a client is to review the suitability based on the claim facts. Here is a Q&A I did for the media after Hurricane Michael (and now Hurricane Sally) to help policyholders better understand property damage Appraisal.

The Appraisal Process

If you and your insurance company do not agree on the value of your claim or are still in disagreement on the damages to your property or the price to fix your damage, you may have an option in your insurance policy to invoke what is called the appraisal clause. While appraisal might not be for everyone, it is an alternative dispute resolution method that could expedite the settlement of your claim.

So how does appraisal work? You select an independent appraiser to represent you and your insurance company does the same. The two appraisers then agree on the selection of a neutral umpire. Both appraisers independently value the claim damages and then meet to review the claim and hopefully reach an agreement. If the appraisers are not able to agree on certain issues, a neutral Umpire will render a final decision which becomes binding. Each side pays their respective Appraiser and the Umpire fee is split equally.

Q: What are some indications that appraisal might be a good next step?

If you and your insurance company are far apart regarding what should be repaired, how it should be repaired or the cost of repairs, appraisal may be an option. Silence can also a good indicator. If you are not corresponding well with your adjuster or if the insurance company is stonewalling or has simply gone silent, that should serve as a message for a policyholder to prompt the next step, i.e. Appraisal.

Q: What are some of the most common reasons a policyholder contacts you?

A: Either the property owner’s insurance company has invoked the Appraisal process and the policyholder is seeking our professional assistance to help and/or they have reached an impasse with their insurance company altogether and are searching for ways to expedite a resolution of their claim. Typically, this involves significant disagreements on Scope & Price of Repairs. In many cases we are contacted or referred by a client’s attorney or adjuster who are looking for an experienced, impartial Appraiser.

Q: What should people know about the appraisal option in their policy? Do most policyholders have that?

A: One way for policyholders to dispute their insurance company’s offer, is to invoke the Appraisal provision/clause within their insurance policy. When conducted properly, appraisal can be a very effective “alternative dispute resolution method” to resolving what is often a very frustrating insurance claim process. Having said that, it is my experience that the average consumer does not know that the Appraisal provision even exists, much less the nuances or procedural processes that are involved. Furthermore, it should be noted that the Appraisal process is not intended to address issues of Coverage, rather it is designed to help when policyholders and insurance companies have considerable disagreements regarding the “Scope” of the necessary damage repairs as well as the “Price.”

To give an example, most insurance claim adjusters working in the industry use an estimating software program called Xactimate. The most popular of many estimating software programs, the Xactimate program says it extrapolates and updates current market prices, but we often see that the price to replace a roof for example is vastly different than what a local contractor would charge. Moreover, there are ways for an adjuster to select “average grade” building materials such as cabinets in a property where the owner has installed custom (“premium grade”) cabinetry. These subtle selections in the program can add up to thousands of dollars even on the smallest of claims. Then there is depreciation that has to be factored in. I have seen where insurance companies will apply 50-70% depreciation to properties just based on the year they were constructed, but they do not take into consideration that the property was well maintained and therefore, maybe a 10-15% depreciation calculation should be applied. Again, all this adds up in the end and for the unknowing policyholder, they often feel they have no choice but to settle for the amount offered by the insurance company. policyholders need to know there is recourse and everything is negotiable; subject to policy limits and provisions as stated in the policy contract.

Q: What are some of the thresholds in terms of monetary gap that might warrant invoking the appraisal option?

A: Great question. There is a cost associated with invoking the Appraisal process and I have seen insurance companies sometimes leverage it against the policyholder by invoking the Appraisal process on them. Typically, when Appraisal is invoked, the policyholder must name their Appraiser within 20-days of the receipt of the written demand. (By that time the insurance company will likely have named their Appraiser). Then the two Appraisers will then need to agree on selecting a neutral Umpire. Selecting a neutral Umpire can be time consuming given the small cottage niche of industry professionals who do Appraisal work. Some Appraisers will not agree to certain Umpires and some Umpires will not agree to work for certain insurance companies or for Appraisers for a multitude of reasons. But back to the question. The Policyholder must pay for the expense of hiring their own Appraiser (the insurance company pays the expense of their hired Appraiser) and then should the two (2) appraisers not reach an agreement the Policyholder will have to pay for 50% of the Umpire’s time and expense (the insurance company pays the other 50%.)

To summarize, there really should be some considerable discrepancies in both Scope of Repair as a well as differences for price of repair for the policyholder to really have a chance to benefit from the process. It should also be noted that any potential “Appraisal Award” can come in less than what the insurance company originally offered in their estimate so there is a risk there too, although I have only seen this occur one or two times in my career and they were relatively small claims — less than $50K.

Q: There seems to be a lot of misinformation about what can happen after a policyholder gets a check but there’s still a dispute.

A: During the “life of an insurance claim,” there will always be disputes. Having said that, if a policyholder receives a check, we consider that to be a payment for the “Undisputed” amount. In this scenario, we would advise the policyholder to cash the check, but before doing so, write verbiage on the back of their check under their endorsement and include the words “For Advance Payment Only / Undisputed Amount.” That way the insurance company knows the payment is not full or final. Unfortunately, there are some insurance companies who will write verbiage somewhere on a letter or even on the check that suggests cashing the check constitutes their agreement that the check is a “Final Payment.” We caution folks to look at these checks closely and make certain that the insurance company understands in writing that cashing the check does not constitute the policyholders agreement that by cashing the check the claim is over.

Q: Can you describe an example where a client got much more than the insurance company was offering?

A: Last year, I handled an Appraisal where the insurance company adjuster prepared a repair estimate that totaled $139,345 for Loss & Damages to the policyholder’s house, which sustained considerable hurricane/wind damage and interior water damage. The Appraisal award that was rendered and paid totaled $ 2,390,839 to repair the home to its pre-loss condition. The homeowner also received an additional $1,757,000 for loss and damages sustained their personal property and furniture Items as well as for their Additional Living Expenses for having to rent another property during the Reasonable Period of Restoration until the repairs to the home were completed.

Q: What do you tell homeowners about what to expect from the appraisal process?

A: Seeking out a qualified, professional and experienced Appraiser is very important. There are many people who market that they handle these services, but as with hiring any person, check references and speak to others within the industry to confirm rates. Several of our Licensed Public Adjusters are also Certified Loss Appraisers through the Windstorm Insurance Network.  For a list of Certified Appraisers you can reference the Appraiser Directory.

If someone promises a policyholder that the Appraisal process is quick and easy or says they can collect massive amounts of money, I would encourage a policyholder to keep searching. There are absolutely no guarantees, but again if the process is utilized correctly with the right professional, the Appraisal process can be an effective tool to resolve a claim dispute.

Tutwiler & Associates has been working hurricane claims since 1984. For your own peace of mind, call our Pensacola insurance adjusters now at 850-783-3319 for a free, no-cost claim evaluation, visit our Hurricane Sally Insurance Claim Public Adjuster page for additional information or contact a public adjuster to submit a question to one of our insurance claim experts.