Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsHard
An insured's home suffers damage from a covered peril. The insurer and the insured disagree on the amount of the loss. To resolve this dispute without litigation, they decide to each hire an appraiser, and if the appraisers cannot agree, they will jointly select an umpire. What loss settlement option are they utilizing?
- AAppraisal
- BMediation
- CArbitration
- DProof of Loss
Show answer & explanationAnswer & explanation
Correct answer: A. Appraisal
Appraisal is a loss settlement option used when the insured and insurer agree that a covered loss has occurred but disagree on the amount of the loss. Each party hires an appraiser, and if they can't agree, an umpire is brought in to make a binding decision on the amount.
Why the other options are wrong
- B. Mediation involves a neutral third party facilitating discussion, but without making a binding decision.
- C. Arbitration is a broader dispute resolution where a third party (arbitrator) makes a binding decision on the entire dispute, not just the value.
- D. Proof of Loss is a document submitted by the insured to claim the loss, not a dispute resolution method.
Appraisal (Loss Settlement)
A method of resolving disputes between an insurer and an insured regarding the amount of a property loss, where each party hires an appraiser, and an umpire is selected if they cannot agree.
- Used when parties agree on coverage, but not value.
- Appraisers (and umpire) determine the amount of loss.
- Decision on value is typically binding.
Memory trick: Appraisers call the value, Arbitrators call the whole case.