Appraisal vs. Lawsuit – How to Choose the Right Option for Your Property Insurance Claim

Unfortunately, it is becoming increasingly common for insurance companies to undervalue damage to both residential and commercial property when owners file a claim. When that happens, property owners have three options, only two of which make sense, in our opinion. The first option is to accept the inappropriately low amount offered by the insurance company and later complain about it online. While the complaints may provide some emotional outlet, they offer no help whatsoever toward making up the shortfall when you’ve suffered damage to your property. So that leaves property owners with two potentially helpful options.

When you have a contractual relationship with your insurance company to provide coverage for damage, it is quite reasonable to expect them to honor their obligation when damage occurs. If they fail to do so, you have every right to take steps to recover what is owed to you under the terms of your policy. The question becomes, which steps should you take?

For most property owners in Florida, the choice is between working with an attorney to resolve the value dispute or attempting to achieve appropriate results through the appraisal process.

Resolving Insurance Disputes    

When two parties disagree about an aspect of their contractual relationship, at least one of them will suffer until the dispute is resolved. In insurance disputes, it is usually the policyholder who suffers. It is important to resolve the disagreement quickly, while also fairly respecting each party’s contractual obligations.

Lawsuits

Litigation is the best-known method of dispute resolution. In litigation, one party files a lawsuit seeking damages. The other party must defend its position and may file a countersuit. Lawyers for both sides can use legal tools to gather information, which provides a better understanding of how strong each party’s case will be in court. 

Although litigation is aimed at taking a matter to a judge for a decision, the attorneys for both parties will be trying to negotiate a resolution based on the information they have uncovered. Most of the time, the process ends with an agreement reached out of court. But if the parties cannot agree on a solution, each party presents its evidence and arguments to the judge, who issues a decision binding on both parties. 

It is sometimes possible to appeal the judge’s decision to have the matter reexamined in a higher court, but only if there are issues of law that the judge may have decided incorrectly. Factual determinations cannot be appealed.

So, even though litigation officially involves court action, most of the time, the dispute is resolved through negotiation based on each party’s legal standing. Knowing that the outcome could be decided by a judge is what often encourages insurance companies to honor their contractual obligations under a policy.

Alternative Dispute Resolution

Other methods of dispute resolution also frequently involve negotiation. When a dispute goes to mediation, for instance, both parties negotiate with a neutral mediator who helps them find common ground. If they refuse, however, the mediator cannot order an outcome the way a judge can.

Another method of dispute resolution, arbitration, operates like a cross between mediation and litigation. There is a neutral third party who tries to help both parties reach an agreement on the disputed issue. In that respect, it is like mediation. But unlike mediation, the third-party neutral professional who works with the parties has the authority to issue a binding decision, just like a judge. The decision is generally not appealable. The appraisal process for resolution insurance claim value disputes operates similarly to an arbitration process.

Overview of the Appraisal Process

Unlike a court case, which may address many issues, such as whether a loss is covered under the policy or whether an insurance company acted in bad faith in handling a claim, the appraisal process is limited to a single issue. The only fact to be resolved in an insurance appraisal is the value of the loss.

The appraiser working for the policyholder and the appraiser who works for the insurance company will meet with a third party who serves as an umpire in the process. During the appraisal process, the parties review evidence and reach a determination. The outcome is a decision agreed to by at least two of the three members. As a practical matter, whichever party convinces the umpire will have the most favorable outcome. The outcome can only be appealed in rare situations.

Choosing the Right Approach for Your Situation

In some cases, a property owner might find it advantageous to use the appraisal process to resolve a value dispute, but in many situations, litigation is required. If the dispute extends beyond the value of the loss, an appraisal will not help. (In some cases, however, the value issue can be decided through an appraisal while the remaining issues are resolved in court.) 

A lawsuit can address numerous issues and involves legal procedures to uncover information from the insurance company that can strengthen the claim. Parties to lawsuits also enjoy certain legal protections that are lacking in the appraisal process. However, the litigation process could potentially take much longer to conclude, particularly if the matter goes to trial.

Both approaches will require an investment of resources. In the appraisal process, the policyholder will need to pay their appraiser and half the cost of the umpire. In most insurance litigation, the policyholder will likely need to pay their attorney and cover court costs.

It is important to review the fine print in the insurance policy. If the dispute involves only the value of the loss, the policy may specify that the policyholder agrees to use an appraisal process.

Deciding whether to address a value dispute with the help of an attorney or through the industry’s appraisal process should be based on a consideration of a variety of factors. It can be helpful to consult an insurance attorney before making a decision. An attorney may help you see that there are more issues at stake than just loss of value. Or an attorney may tell you that the matter would be more efficiently handled through an appraisal.

Talk to the Insurance Attorneys at Ver Ploeg & Marino

At Ver Ploeg & Marino, we have decades of experience working with the insurance industry, and we know how insurance companies regularly take advantage of policyholders. When an insurer has undervalued your claim, we urge you to take action to protect your rights and financial interests. Ultimately, it is your decision about whether to use the appraisal process or to work with an attorney, but it is wise to learn as much as possible before making your choice.

If you’d like to discuss your property loss situation with a knowledgeable insurance attorney on our team, give us a call at 305-577-3996 or contact us online to schedule a confidential consultation.

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