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Insurance · Claims and Loss Settlement

What is the role of an 'appraisal' clause when the insured and insurer disagree about the amount of a loss?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

It provides a dispute-resolution process in which each party selects an appraiser, the appraisers select an umpire, and an agreement by any two of the three sets the amount of loss

  1. A It lets the insurer decide alone
  2. B It cancels the claim
  3. C It applies only to liability claims
  4. D It provides a dispute-resolution process in which each party selects an appraiser, the appraisers select an umpire, and an agreement by any two of the three sets the amount of loss

Why this is the answer

The appraisal clause in many property policies provides a method to resolve disputes specifically about the amount (value) of a covered loss — not about whether coverage applies. Typically, each party (insured and insurer) selects a competent, independent appraiser; the two appraisers then choose an umpire; and an agreement between any two of these three parties establishes the amount of loss. This process avoids litigation over valuation disagreements. It addresses the loss amount only; coverage disputes are handled differently. Understanding the appraisal clause as a structured valuation dispute-resolution mechanism is standard claims content on the property insurance exam.
Source: NAIC Model Outline, Appraisal Clause

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About this topic: Claims and Loss Settlement

Claims and loss settlement questions cover the insured's duties after a loss, actual cash value versus replacement cost, the coinsurance formula, deductibles, appraisal and subrogation. This is one of 11 Property Insurance questions on claims and loss settlement, each with a full explanation on a single study page.

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