Contract-Based Insurance Appraisal: It is Binding on You, The Policy Holder, But Insurance Companies May Disregard It


In the vast landscape of insurance, particularly in the state of Texas, understanding the nuances of insurance appraisal is crucial for policyholders seeking fair and efficient resolution of claims. One key aspect of this process is contract-based insurance appraisal, a method employed to resolve disputes over the value of covered property damage. In this blog post, we will delve into the intricacies of contract-based insurance appraisal in the Lone Star State.

Understanding Contract-Based Insurance Appraisal:

Contract-based insurance appraisal is a mechanism designed to resolve disputes between policyholders and insurance companies regarding the amount of loss or damage covered under an insurance policy. This process is often triggered when there is a disagreement between the two parties over the valuation of a claim.

In Texas, the appraisal process is typically outlined in the insurance policy contract. This contractual provision allows either party, the policyholder or the insurance company, to invoke the appraisal clause to resolve the dispute. In reality, it is more advantageous to the insurance company to invoke appraisal. That is because the policy holder's causes of action for breach of contract, breach of the duty of good faith and fair dealing, and related claims are purportedly subsumed into the appraisal decision.

Appraisal is One-Sided Against the Policy Holder

Perhaps the most difficult aspect of insurance appraisal is that it is binding only on the policy holder. Insurance companies regularly make "business decisions" to disregard and not pay outright appraisal awards. They force the policy holder to hire an attorney, file a lawsuit, and incur attorney's fees. The Texas Supreme Court is still deciding whether or not such attorney's fees are then recoverable.

That is, an insurance company may make a "business decision" not to pay the appraisal award, but a policy holder may not. Will this really be jurisprudence in the State of Texas?

Key Steps in the Appraisal Process:

Invoking the Appraisal Clause: Appraisal Costs Money, But the Courts Do Not

When a dispute arises, either the policyholder or the insurance company can invoke the appraisal clause. This is done by sending a written request to the other party, expressing the desire to engage in the appraisal process.

Selection of Appraisers:

Once invoked, both parties select an appraiser, and these two appraisers then choose an impartial umpire. If the appraisers reach an agreement on the amount of loss, their decision is binding.

Each party appoints an appraiser to represent their interests. These appraisers play a crucial role in assessing the damage and determining the fair value of the claim.

Appointing an appraiser costs you -- the policy holder -- money. And money is often not an issue for a large, massively capitalized multi-state entity like an insurance company. But it most certainly an issue for an ordinary person or a business.

Selection of an Umpire: It Costs Even More Money

The two appraisers must agree on the selection of an impartial umpire. If they cannot reach an agreement, either party can request that a court appoint an umpire.

It is important point out that litigation in your local Texas court does not cost you in the same way. You do not have to hire the Judge, as you do an Umpire for contract-based appraisal. You also do not have to pay an hourly or task-based rate to your attorney to represent you. Most lawyers handle such cases on a contingency fee.

Appraisal Hearing: It Can Take a Long, Long Time

The appraisers and the umpire meet to inspect the damaged property, review evidence, and discuss their findings. This process is akin to a mini-trial, allowing each side to present their case.

Decision and Binding Nature: But it Is Only Binding On The Policy Holder

If the appraisers reach an agreement on the amount of loss, their decision is binding as to the cause of loss against the policy holder. The insurance company is free to disregard the appraisal award. In that case, the policy holder must file suit in State Court to obtain relief.

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