Pros and Cons: The Insurance Appraisal Process

A property owner must file an insurance claim quickly after their business sustains damage. As often happens, the insurance company and the property owner may not agree on an appropriate value for the claim. Most property insurance policies provide that when such a dispute arises, either party can demand the appraisal process to determine an independent value for the claim. 

An appraisal, depending upon the scope of damages and the type of property, can become quite complex and expensive. An insurance appraisal determines the value of an insurance claim, but is often advantageous to the insurance carrier and problematic to the insured business owner.  

What does the insurance appraisal process look like?

In the event that negotiations between an insurance company and the policyholder are not successful, the insurance company may invoke an appraisal.  An appraisal consists of the parties involved obtaining an outsider’s opinion of the value of the property loss.  The vast majority of property insurance policies contain an appraisal clause, and courts consistently enforce appraisal clauses.  Most policies also require that the insurer and the policyholder each bear the expense of hiring their own unbiased appraiser, and if the appraisers cannot reach an agreement on the value of the claim, the insurer and policyholder share the additional expense of hiring an umpire to review the two appraisals and make a final determination on the claim’s value.

An insurer’s demand for appraisal makes it difficult for the property owner, who may not have the time or financial resources to go through the process. An appraisal generally puts the brakes on the policyholder’s right to file a suit against the insurance company and may prevent the insured from filing lawsuits against them for breach of contract, bad faith, and/or violation of the Texas Insurance Code.   “Because the policyholder’s rights to file a lawsuit or to prevail in court may be impacted, this is the time you need to consult an attorney,” advises Matthew Pearson, founder of Pearson Legal, P.C.

The unique role of an insurance appraiser

An insurance appraiser fulfills a different role than does a real estate appraiser. Insurance appraisers are independent evaluators who review the facts and circumstances of a loss for damages. The appraiser will report back to their principal on their estimate to repair the damages suffered. It is when the two appraisers cannot agree on the value of damages that an umpire will need to be consulted to determine a final value for the claim. 

Insurance appraisals involve the consideration of many different types of buildings. The materials and labor involved in building construction, the type of building involved, and the prevailing labor and material costs in the geographic area all factor into the complexity of the appraisal. Policyholders must be prepared for even a simple claim valuation to become much more complex, depending upon the type of loss alleged as well as these other factors. 

It is especially true that the appraisal process becomes more complex when unique factors enter into the analysis. For example, limitations on the type of building rehabilitation possible (such as being located in a historic district) can further complicate matters. 

When can an appraisal turn upside down for a property owner?

Policyholders run into problems in some claim circumstances because the insurance company can deny claims even after an appraiser or umpire completes their appraisal. After several months of hiring an appraiser and waiting for their report, an insurance company may deny a claim for any number of reasons. 

Another problem for property owners involves whether it is prudent to even request an appraisal. If coverage is an issue, appraisal is generally not appropriate.  A property owner could spend the time and money to go through the appraisal process only to have their insurer refuse to pay the appraisal award on the grounds that it is not covered under the policy. 

The reality of the situation is that policyholders are best served by seeking representation during the insurance claims process. Complex appraisals are challenging even for property owners who have been through the claims process previously. Turning to an attorney who has experience serving clients in complex appraisals helps ensure a speedier, fairer appraisal process. 

Contact Pearson Legal, P.C. for assistance in a complex appraisal. 

Pearson Legal, P.C. understands the complexities of the insurance appraisal process. Our team of experienced attorneys advocates for our clients with unmatched levels of preparation and tenacity.  Contact our office today to schedule a consultation.