Appraisal Clause

The appraisal clause is a built-in dispute-resolution mechanism found in most property policies. When the insurer and insured agree that a loss is covered but disagree on how much it is worth, either party can demand a binding appraisal. Each side selects and pays for a competent, independent appraiser; the two appraisers then choose a neutral umpire. An agreement between any two of the three (the two appraisers, or one appraiser and the umpire) sets the binding amount of the loss. It is faster and cheaper than a lawsuit and keeps valuation fights out of court.

For a small-business buyer, the appraisal clause matters because valuation disputes are extremely common after a serious property loss. The insurer's adjuster may value fire-damaged equipment at actual cash value while your contractor's estimate reflects replacement cost, or you may disagree over the scope of a total loss. Appraisal lets you resolve that gap without litigation, though you still owe your own appraiser's fee and half the umpire's cost. Read the clause before you need it, because some states let the insurer reject an insured's appraisal demand through a special endorsement.

The critical nuance: appraisal decides amount, not coverage. If the real fight is whether the policy responds at all — an exclusion, late notice, or a disputed cause of loss — appraisal is the wrong tool, and courts will often stay or vacate an appraisal award that strays into coverage questions. Appraisal also differs from a full proof of loss or an examination under oath, which are investigation steps rather than binding valuations.