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Insurance Law Basics: The Difference Between Appraisal and Arbitration

On Behalf of | Jan 15, 2020 | First-Party Property Insurance Claims

Appraisal and arbitration are two terms related to insurance claims that many policyholders get confused. While there are similarities between them, there are some important differences that you should be aware of before you initiate either action. This blog gives an overview of some of those differences, as well as a primer on both processes.

What is an Appraisal Process?

In real estate, appraising something means determining the valuation of the object under scrutiny. In relation to insurance claims, the appraisal process is when an appraiser investigates the claim and estimates the value of the loss. The appraisal process is initiated by a policyholder when he or she disagrees with the insurance company on the amount of a loss.

A typical appraisal clause allows the two sides to appoint their own competent appraiser. If you are choosing an appraiser, then you should look for one without a conflict of interest. The two sides also agree to an appraisal umpire, who must be “disinterested” and be of sound mental and moral character. After the separate appraisers reach a determination of the loss, they will submit those estimations to the umpire, who will reach a final determination. Both parties can agree to the amount or proceed to litigation.

What is Arbitration in Residential Insurance Claims?

Arbitration is a substitute for litigation that can be used in many different areas of law. In this process, the two sides (you and your insurance company) will meet with a neutral third party known as an arbitrator (not a judge and similar to the umpire in an appraisal process). In the arbitration meeting, the two sides receive an opportunity to present evidence and testimony supporting their side of the dispute. One benefit to arbitration over traditional litigation is the efficiency in which arbitration is completed.

So, What’s the Difference?

Both appraisals and arbitration are designed to help settle disputes between insurance policyholders and the insurance provider. However, the decision reached by an arbitrator is almost always legally binding, while the determination of the appraisal umpire can be appealed to the courts. Also, arbitration can decide issues that are outside of the scope of appraisers; appraisers are only tasked with determining the valuation of a loss.

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The Monfiston Firm, P.A. likes to be on the side of individuals fighting insurance companies. When insurance providers have vast resources to handle disputes, policyholders are at a disadvantage. If you are struggling with a dispute over an insurance claim, get in touch with us today to get started with a free consultation.

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