The appraisal process is one of great controversy. It is a process that many enter into as a result of advisement from a third party without the understanding of potential pitfalls and issues this process may have. 

The appraisal provision for policyholders is a process outlined within each insurance policy as a way for the insurance company and their insured to settle disputed insurance claims settlements without litigation. In many states, this process has been a provision insurance companies have provided for over a century. However, it has only recently become a popular option for policyholders and their representatives or third-party advisors. In State Farm Lloyds v. Johnson in 2009, the Supreme Court of Texas mentioned that until 2002, their court had only addressed the appraisal provision five times since 1892 and that each of those rulings was based on upholding the reward and never on the scope of appraisal. 

What is appraisal?

As stated above, within the conditions section of most homeowner’s or business owner’s insurance policies, a provision is made for either the insurance company or the insured party as an alternative to litigation in the event of a disagreement in the amount of the insured loss. To begin the appraisal process, a demand is made in writing by the disagreeing party, and within 20 days, each party must choose an impartial appraiser. Those two appraisers then select an umpire. Should the parties be unable to agree on the umpire, a request can be made for a judge of a court of record in the state where the property is located to select one. 

Once the parties are chosen, each appraiser evaluates and sets an amount of loss for the property damage. Should the appraisers agree on the amount, they will submit their agreed amount in a report to the insurance provider as an appraisal for the amount of settlement that should be paid for the claim. In a disagreement between the two appraisers, the umpire would act as the objective third party, deciding which amount of loss is most accurate. Whichever two agree becomes the final settlement amount. 

What appraisal is NOT.

Appraisal is not a provision for settling policy coverage disputes. The appraisal process is in place as an option for straightforward claims, which, if you have ever filed an insurance claim before, you should know is rarely the case.

Problems with appraisal. 

Before invoking appraisal, one should be sure they understand the process fully, have a competent appraiser, and have exhausted all options to settle the claim. One option policyholders have is to request a claim review and assessment from an experienced claim expert. They will often provide this service free of charge and be able to discuss their findings and advise you on your next step options available. A claim advocate who provides effective and professional representation can often reach a favorable settlement agreement with the insurance representatives through evidence-based data and comparative documentation. 

If the appraisal process is not conducted accurately, it can cause more problems, resulting in costly delays and unpaid awards. The truth is that there is more possibility for negative appraisal results than the results achieved through other settlement dispute options available. A few reasons appraisal may not be a good option are:

  • The appraisal process provides no guarantee, and once an award is agreed on, the policyholder has limited options outside of litigation.
  • The appraisal process requires each party, the insured and insurer, to designate an appraiser to agree on a settlement amount. Unfortunately, this can often cause bias and a conflict of interest that may cause partiality, ultimately leading to a lack of accord, forcing the umpire’s involvement, which could result in an unfavorable decision for the policyholder. 
  • Appraisal may not adequately address the claim as a whole. An insurance claim often involves much more than damaged building materials and the value thereof. Many insurance claim settlements may involve essential factors such as policy coverage and how it is applied, an assessment of liabilities, and possible additional living expenses or business interruption circumstances. The increase in complexity of a claim causes more considerations to address that may play a vital role in producing an accurate settlement. All of which will likely not be addressed with appraisal. 

Lastly, and one of the most pivotal issues with appraisal is that there are minimal regulations on or enforced in the process. Other than the basic appointment of the representing appraiser, there is no deadline for the process. This means that if the process takes a year to complete, you must personally deal with any damages as required by your policy (which is a stipulation to mitigate further property damage, and you may run the risk of timing yourself out of the ability to further pursue a settlement within your statute of limitations disclosed in the policy. 

Important considerations with appraisal.

It is necessary to ensure you and any additional parties or representatives involved in the claim have made an honest attempt at coming to a settlement agreement prior to choosing to enact the appraisal process. If a policyholder is being represented by a contractor, public adjuster, or claim consultant, they should be certain that their representative has exhausted all options in settling their claim fairly and diligently before resulting in this provision. 

Another important consideration before enacting the appraisal provision would be to ensure a significant enough difference in the disputed amount to quantify the process. Appraiser and Umpire fees alone may eat up the discrepancy amount, making the process more trouble than it would be worth.


As with any aspect of the insurance claim process, it is crucial to be sure you weigh your options and are fully informed before making any decisions that could impact your claim and/or investment. If you are working with any representation, be sure to ask as many questions as needed to be sure you are comfortable with any decisions, and you are aware of all options available to you.

Please note that this is a generalization of appraisal and the process. Each state and some policies may be different, causing possible variations.