In most homeowners’ or lender-placed insurance policies, two very common provisions discussed extensively are: Appraisal and Mediation.  We will discuss Appraisal here.

1. First of all, what is Appraisal?

Appraisal is an opportunity for an insurance company to reconsider and re-adjust an insurance claim.  Appraisal provides greater control to the insured by having an unbiased and independent expert (i.e. the insured’s appraiser) write a new estimate and negotiate with the insurance company’s appraiser based on a new second, re-inspection to discuss new money for the claim.  In most situations, the two appraisers will discuss and reach an agreement.  If the two appraisers are unable to reach an agreement on the value of the claim, then they will agree on an “Umpire” to make one final decision on how much the claim is worth.

Now this could be confusing so let’s break it down:

2. Pros/Cons of Appraisal:

Pros:

• A. A second shot at getting more money for your claim.
  
• B. Having your own expert write an estimate and negotiate directly with the insurance company to get more money.  You can typically get an estimate between $250 – $1,000 for most residential property (or a free one by your public adjuster).
• C. Avoid lengthy (months or years) of litigation and get paid within a couple months.

Cons:

• A. Up-front costs of your Appraiser (if no public adjuster).  Note, some policies and states do not allow a public adjuster to be an appraiser – $1,000+.
• B. If the Appraisers cannot agree to the value of the claim, you will also have to pay half of the cost of the Umpire up-front (under most policies) -$1,000+.
• C. Binding: the final decision is binding on the insured and the insurance company.  If you are unhappy with the appraisal results (i.e. you got less money than you expected), you are generally bound to accept the final result.  You cannot litigate or appeal the appraisal decision unless you have evidence of fraud.

3. When does this apply?

For most states including Florida, Appraisal is available ONLY IF THE INSURANCE COMPANY ACCEPTS COVERAGE ON THE CLAIM.  In other words, if the insurance company denied the claim completely, then appraisal is not available.  If the insurance company accepted coverage for even $1 (or determined the claim is “below deductible”), the option to invoke Appraisal is definitely available.

Always check your insurance policy and local law to confirm availability for your home.

4. How do I invoke it?

So you have a claim (check), got a letter from the insurance company either giving you at least 1 cent or a “below deductible” letter (check), the main question is – how do YOU (the insured) invoke it?

This is where the actual policy language is crucial:

Many policies only require one party to invoke appraisal.  This means you simply write a letter to your insurance company (include your name, insurance claim number, and a short statement with your intention to “invoke appraisal” pursuant to your policy).  

Some policies will require the agreement of both the insured and insurance company to agree jointly on proceeding forward with appraisal.  You should still write a letter, but keep in mind if the insurance company does not want to agree to appraisal, then you have no choice but to either go to mediation or litigation.

5. Is it worth it? A practical example

So the main question is – is Appraisal worth it?

Generally, yes.  Here’s how it typically plays out:

The insured files a claim for Hurricane/Windstorm damages.  There is some damage to your roof and even inside the house – ceiling stains, water damage to the walls, mold in the attic, etc.  The insurance company inspects the loss and determines the interior damages are covered and pays you $500, but denies for the roof replacement because they determine the damages are from wear and tear, deterioration, neglect, etc.

Let’s run the check list – do you have a claim? Yes.  Was coverage for the claim accepted (at least 1 cent)? Yes.  Does you policy have an Appraisal provision?  Yes.  So far so good.

The main issue is: the Appraisers will be tasked to determine whether the roof is covered.  They may determine (1) the roof is not covered because it is 25+ years old; they may determine (2) a part of the roof is covered and repairs alone will fix it; or they may determine (3) the full roof replacement is warranted and they will spend their time deciding on the value of a roof replacement.

A good appraiser will write an estimate to cover a full roof replacement on behalf of the insured.  In contrast, the insurance company’s appraiser will try to negotiate with the insured’s appraiser to state the roof replacement is not deserved (because it’s too old, has too many repairs, or it was previously covered a few years ago and the insured never replaced it even after receiving payment on a prior claim).  If the appraisers can’t agree, it will go to an umpire who will make a final black-box decision.

Unless your home has a history of repairs and claims, many appraisers will negotiate and “split the baby” between their estimates and just give you the split.  So the insured’s $80,000 estimate will be compared against the insurance company’s $500 estimate, and the appraisal award might hover closer to $40,000. 

Was it worth it?  Yes.