Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsMedium
An insured's home sustains damage from a fire. Both the insurer and the insured disagree on the amount of the loss. To resolve this dispute without litigation, they agree to each hire an impartial expert to assess the damage, and if these two experts cannot agree, they will jointly select a third expert whose decision will be binding. This process is known as:
- AMediation
- BSubrogation
- CAppraisal
- DArbitration
Show answer & explanationAnswer & explanation
Correct answer: C. Appraisal
Appraisal is a common method used in property insurance to resolve disputes regarding the amount of a loss. Each party selects an appraiser, and if they cannot agree, an umpire is chosen, whose decision is binding on the amount of loss.
Why the other options are wrong
- A. Mediation involves a neutral third party facilitating a settlement, but their decision is not binding.
- B. Subrogation is the insurer's right to pursue a third party responsible for a loss.
- D. Arbitration is a broader dispute resolution process where a neutral third party hears both sides and issues a binding decision.
Appraisal Clause
A policy provision that outlines a method for resolving disputes between the insurer and the insured regarding the amount of a property loss.
- Each party selects an appraiser
- Appraisers select an umpire if they disagree
- Decision of appraisers/umpire regarding loss amount is binding
Memory trick: APPRAISAL values the damage, MEDIATION talks it out, ARBITRATION decides.