Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsHard
An insured's home is damaged by a fire. During the claims process, the insurer and the insured disagree on the actual cash value of the damaged property. To resolve this dispute, both parties agree to appoint an impartial third party to determine the value. Which policy provision allows for this resolution method?
- AAbandonment
- BSubrogation
- CArbitration
- DAppraisal
Show answer & explanationAnswer & explanation
Correct answer: D. Appraisal
The appraisal clause is specifically designed to resolve disputes over the amount of a loss, such as the actual cash value of damaged property. Each party selects an appraiser, and if they disagree, an umpire makes the final decision.
Why the other options are wrong
- A. Abandonment prohibits the insured from abandoning damaged property to the insurer for total loss payment.
- B. Subrogation allows the insurer to recover from a negligent third party.
- C. Arbitration involves a neutral third party making a binding decision on the entire dispute, not just the value of a loss.
Appraisal Clause
A policy provision used to resolve disputes between the insurer and insured regarding the amount of a loss. Each party selects an appraiser, and if they fail to agree, a jointly selected umpire makes the final decision.
- Resolves disputes over loss amount
- Each party appoints an appraiser
- Umpire resolves disagreements
- Binding on amount of loss
Memory trick: APPRAISE the VALUE, ARBITRATE the CASE.