The Appraisal Clause: What It Is, And When To Enforce It

The Appraisal Process

Even when an insurer agrees to cover an insurance claim, disputes often arise between the insurer and the insured as to the valuation of the loss, particularly for claims under commercial property and business interruption policies. In these circumstances, policyholders should consider whether and to what extent the dispute could be resolved through an appraisal process before resorting to litigation.

"Appraisal" is an alternative dispute resolution process that is included in many insurance policies as a voluntary option that can be invoked by either party in the event of a disagreement. The typical appraisal clause allows either the carrier or the policyholder to make a written demand for an appraisal if the parties agree as to the scope of coverage under the policy but fail to agree on the amount of loss that the insured is entitled to. The appraisal process is generally not an appropriate forum to resolve issues as to coverage, such as