The Appraisal Clause is meant to be the method for determining disputed values. Appraisal cannot be used to determine what is covered. That is for a court of law to decide. If you have dispute with the company on whether or not something is covered, then you must file a lawsuit against your insurer to get that determination. Many times, disputes can be resolved more quickly by appraisal than the resolution you might get with litigation. The cost of the appraisal process is also significantly lower that the cost of litigation.
Here’s what the Appraisal Clause reads in my Homeowner Insurance policy:
“If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an Appraisal Umpire. If they cannot agree upon an Appraisal Umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the “residence premises” is located. The appraisers will separately set the amount of loss. If the appraisers submit an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the Appraisal Umpire. A decision agreed to by any two will set the amount of loss.
Each party will:
a. pay its own appraiser, and
b. Bear the other expenses of the appraisal and umpire equally.”
Note that the policy requires the appointment of a "competent appraiser." In my opinion, each party should appoint an independent, disinterested appraiser. In past experience, I’ve seen the insured or policyholder appoint the Public Adjuster handling his claim as the appraiser. The PA would likely be a "competent appraiser," but is not a disinterested party. Still, the policy only requires a "competent appraiser."
The appraisers evaluate the loss independently. The appraisers can still negotiate and reach an agreed amount of the damages. But, if they cannot agree, they work together to choose a mutually acceptable appraisal Umpire. If the two appraisers cannot agree on the selection of an Appraisal Umpire, either side may appeal to the local court for the appointment of someone to serve in that capacity.
An Appraisal Umpire must also be a disinterested party, and must be impartial, of good moral character and possessing a good reputation. He also must be willing to listen. No umpire should be chosen that has any financial interest in the outcome of the appraisal. Any other consideration other than the hourly rate of compensation for the umpire is not acceptable.
Once the appraisal Umpire has been chosen, the appraisers each present their loss assessment. Often, this involves informal testimony from the parties involved in the claim. To help the umpire gain a more complete understanding of the details of the loss, the appraisers and the umpire sometimes meet at the loss location and review the loss details. The umpire will subsequently provide a written decision to both parties. If any two parties agree to the amount of the loss, that amount becomes the claim amount. However, if one of the parties does not agree, then the case can still be turned over to legal counsel for litigation.
Make sure that your attorney understands the intricacies of both the appraisal and the arbitration process. The difference can mean everything to your case.