The Convoluted Appraisal Clause
Here are some appraisal clause variations that are included in personal auto policies:
Appraisal Clause #1
APPRAISAL
If we cannot agree with you on the amount of your loss, then you or we may demand an appraisal of the loss. Each party shall appoint a competent and disinterested appraiser. If the appraisers agree on the amount of the loss, they shall submit a written report to us and this shall be deemed to be the amount of the loss.
If the appraisers cannot agree within a reasonable time, they shall then choose a competent, impartial umpire, provided that if they cannot agree on an umpire within fifteen (15) days, either you or we may petition a judge of a court having jurisdiction to choose an umpire. The disagreement of the appraisers shall then be submitted to the umpire. Subject to the provisions of the policy, a written agreement signed by two appraisers or by one appraiser and the umpire will be the amount of the loss.
You must pay your fees and expenses and those of your appraiser. We will pay our fees and expenses and those of our appraiser. We shall share equally with you:
1. payment of the umpire: and
2. all other expenses of the appraisal.
By agreeing to appraisal, we do not waive any of our rights under any other part of this policy, including our right to deny the claim.
Appraisal Clause #2
APPRAISAL
A. If we and you do not agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. The appraisers will state separately the actual cash value and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
1. Pay its chosen appraiser; and
2. Bear the expenses of the appraisal and umpire equally.
B. We do not waive any of our rights under this policy by agreeing to an appraisal.
Appraisal Clause #3
APPRAISAL
If we and you do not agree on the amount of loss, either may demand an appraisal. In this event, each party will select a competent appraiser. The two appraisers will select an umpire. The appraisers will state separately the actual cash value and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will pay its chosen appraiser and share the expenses of the umpire equally. Neither we nor you waive any rights under this policy by agreeing to an appraisal.
Appraisal Clause #4
Limits and Loss Settlement – Comprehensive Coverage and Collision Coverage 1.b.(1)
(1) The owner of the covered vehicle and we must agree upon the actual cash value of the covered vehicle. If there is a disagreement as to the actual cash value of the covered vehicle, then the disagreement will be resolved by appraisal upon written request of the owner or us, using the following procedures:
(a) The owner and we will each select a competent appraiser.
(b) The two appraisers will select a third competent appraiser. If they are unable to agree on a third appraiser within 30 days, then either the owner or we may petition a court that has jurisdiction to select the third appraiser.
(c) Each party will pay the cost of its own appraiser, attorneys, and expert witnesses, as well as any other expenses incurred by that party. Both parties will share equally the cost of the third appraiser.
(d) The appraisers shall only determine the actual cash value of the covered vehicle. Appraisers shall have no authority to decide any other questions of fact, decide any questions of law, or conduct appraisal on a class-wide or class representative basis.
(e) A written appraisal that is both agreed upon by and and signed by any two appraisers, and that also contains an explanation of how they arrived at their appraisal, will be binding on the owner of the covered vehicle and us.
(f) We do not waive any of our rights by submitting to an appraisal.
Isn’t it interesting how different each appraisal clause is?
Do you think you might have a problem if you try to invoke the appraisal clause?
Which appraisal clause is in your policy?
Did you know that you have agreed to these terms (or at least some very, very, similar terms) if you have a personal auto insurance policy?
There are so many loopholes in all of the above clauses that the only real way to get satisfactory results using one of them is to have the most knowledgeable appraiser on your side.
Simply put, you must outgun your insurance company.
At least if you have somebody that knows all the real rules, and where all the common problems arise, you have a fighting chance (you have the fastest draw, if you will, lol).
If you let the insurance carrier tell you how it works, then you will not get a satisfactory result.
Don’t believe me?
Go back and read those appraisal clauses again. I’m gonna expand on this a little bit, but just know I can’t address every issue in an article that is short enough that you won’t get sick of it. . . .
Bear with me while I try to hit the major points quickly. . . .
PARTIAL BREAKDOWN OF CLAUSE #1
As you can see, certain words are in bold type. I didn’t bold those, they are bold in the actual policy. Normally, a word is in bold type because it carries special meaning.
Many times, words that are in bold type are terms that are defined in the policy somewhere else.
So, the first issue is to make sure any bold terms are clearly defined in your policy, and if they are not, clarify with your insurance company why the words are in bold (and get it in writing if possible).
The next thing in appraisal clause #1 is that it says that if the appraisers agree, then they shall give a written report to “us” (bolded), presumably meaning the insurance company. Does that mean you will not get a copy of the report?
Next, we see that there is no definite time frame set within which the appraisers must agree. It only says within a “reasonable” time. So, how long is reasonable; a week, a month, six months, a year?
Next, it says that once the appraisers can’t agree then they have 15 days to select an umpire. If they don’t agree on an umpire in 15 days, then you or the insurance company can petition a judge of a court having jurisdiction to choose an umpire.
Do you know how to file a petition?
Which judge or court do you use?
Do you have to file a suit?
What if a judge says he can’t review your petition ex-parte (outside of an official lawsuit)?
This has happened more than once to some of my clients.
Do you have to hire an attorney? If so, what is the point of the appraisal clause?
Trust me, there are more problems, but I’m trying to not write a super long article so the last one I will address in clause #1 is the last sentence where the language gives the insurance company the right to claim that they can change their mind by specifically claiming that they do not waive any rights.
This is a problem because of how certain waivers come about.
Certain waivers are based on the fact that a person voluntarily agrees to something which WAIVES their right to claim they didn’t agree to that later. It is the action of agreeing to appraisal that would waive the right to dispute it later.
So the last sentence sorta seems like a catchall in favor of the insurance company.
PARTIAL BREAKDOWN OF CLAUSE #2
Hey! This clause has no terms in bold.
Maybe that is a problem, maybe not; what do you think?
Next, this clause says that each party selects a competent and disinterested appraiser, and in the very next sentence it says the appraisers select an umpire. It doesn’t say that the appraisers have to disagree first, and it doesn’t say the umpire has to be disinterested.
Does that mean that you have to immediately pay your appraiser AND your part of the umpire even before the appraisers try to agree?
Does the umpire have to be unbiased?
How long do the appraisers and umpire have to finish up?
What if the appraisers can’t agree on an umpire, what is the process then?
Do you have to hire an attorney?
Do you have to wait indefinitely?
Clause #2 leaves a lot of questions unanswered and it puts an extreme amount of power in the hands of whoever knows the most about appraisal clause law and / or diplomatic negotiations.
And don’t forget – there is that friendly catchall at the end again.
PARTIAL BREAKDOWN OF CLAUSE #3
Clause #3 has bold terms, so like in the other clauses with bold terms, I suggest you make sure you understand why they are bold.
Did you notice that there is nothing about an appraiser being disinterested in this clause?
Also in clause #3, there is no time limit or anything listed for how long the appraisers have to agree, and it also has the same problem as clause #2 in that it doesn’t really say that the appraisers need to try to agree before they name an umpire.
So do you have to pay an appraiser and umpire right out of the gate?
What if the appraisers can’t agree on an umpire?
Same problem again, nothing in clause #3 talks about what happens in the case appraisers can’t agree on an umpire.
Does a judge or court have to get involved if the process breaks down?
How long do you have to wait before you declare that the process didn’t work?
Will you need an attorney?
Oh yeah, did you notice that at least in this clause #3, the friendly catchall at the end also includes that term “you” that is in bold?
Does that help you or hurt you, and who is “you” anyway?
PARTIAL BREAKDOWN OF CLAUSE #4
Wow.
Just wow.
I don’t really know where to start on this one. I predict a class action suit in the future, based on this clause.
This appraisal clause is hidden within the limits section of the policy.
Did you catch that it is a LIMITATION of your policy? That alone strikes me as sorta fishy.
I thought the appraisal clause was meant to EXPAND your rights in the case of a dispute.
Most attorneys agree that the intent of the clause is to have two people who don’t have a dog in the fight try to resolve the claim while the insurance company and the policy holder sit on the bench.
Well, not your “good neighbor’s” new clause. It is a limit on your rights and changes the intent of the clause altogether, in my opinion.
Anyway, I think the main point to make about clause #4 is that it is not really a way for you to disagree with your carrier. Instead it is a way for your carrier to maintain control over the amount they have to pay you.
If you look at letter “e” in clause #4, you’ll see that, even if the appraisers agree and write a written appraisal (and is that on a sticky note, or using formal, published, and peer reviewed appraisal standards?), they still have to explain to your insurance company why they agreed at the number they agreed on!
To me, that means that your insurance company can simply say that any written appraisal submitted was not satisfactorily explained to them, and therefore it is void and doesn’t count.
I mean, what?
How did they get away with this language?
Did they pay off somebody at the department of insurance, or did the department not read the clause?
Also, it is important to realize that this clause #4 is limited to the ACTUAL CASH VALUE of the vehicle, and does not include the amount of loss.
All the other clauses seem to allow you to dispute the amount of the loss, which would include the repair cost.
Not this one.
That means that if your insurance company uses this clause, they can tell you that it costs $4000 to repair your $5000 car, so your car is totaled. They have said the ACTUAL CASH VALUE is $5000.00, so you can disagree and use the clause.
Yay, right?
A written appraisal is submitted by two appraisers that says the actual cash value is actually $10,000.00, so your company has to pay you $10K, right?
Nope! The insurance company can just say, “okay, since it is agreed that it’s worth $10K, then it is no longer a total loss and we’ll give you $4K to fix it – ha!”
They can just ignore the whole appraisal process (if you don’t sue them).
So, if that happens (guess what: it happened this week, and is why I wrote this article) you’ve spent money on an appraiser, and proven the value of your car that they told you was totaled is more than what they said it was, and they just get to say “oh, you’re right, it is worth more so we are back to square one.”
Oh, yeah – they didn’t forget that friendly catchall at the end the clause either.
Are they really that great of a neighbor?
Moral of the Appraisal Clause Story
Guys, the moral of the story is that the appraisal clause is really, really, really hard to navigate and you need to be an expert in order to fight with an insurance company using the appraisal clause.
Even as an expert, I’ve had to painstakingly develop additional agreements and declarations and rules to use so that everybody understands the risks of invoking the appraisal clause and so that any unethical appraiser (I call them “yes men” for insurance companies) at least has to sign an agreement about time frames and rules about umpires and such if we can’t agree.
Are adjusters even trained on the Appraisal Clause?
You can be sure that the vast majority of auto insurance carriers do not train adjusters about the appraisal clause. There was no training about it in 1998 when I got my all lines license and years later when my wife and VP here got hers, there is still no training about it.
I had an attorney friend tell me recently that he thinks the reason the appraisal clause is there is to protect insurance companies from bad faith claims due to incompetent adjusters. I tend to agree.
When the adjuster is forced to make a low offer based on an internal policy or procedure (and believe me, they are forced or they get fired), and if that offer is not fair, the adjuster normally just sticks to their guns because they have been trained to.
Sometimes (okay, a lot of times) that position by the adjuster is completely unreasonable and could be grounds for a lawsuit.
BUT, if the disputes escalates too far and a suit is threatened, THEN the appraisal clause comes to the rescue and allows the insurance company to take a closer look (a second chance to avoid bad faith) before they decide to stick to their guns harder (because your claim is too low for an attorney to help), or give in and let you win one.
Believe it.
As always, the coercive state makes me remind you that nothing in this article is to be construed as legal advice. If you have legal questions, contact a competent attorney!
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