In home insurance policies, the addition of an arbitration clause is on the rise. This creates a potential hurdle for many insurance adjusters because the traditional appraisal process is not the same as arbitration. The arbitration clause defines how a dispute is to be settled in the event of a disagreement between you and the insurance company. Unlike the traditional appraisal process that solely determines the value of property damaged or destroyed, an arbitration process typically involves settling a dispute in a court-like setting with due process, evidentiary proceedings, and a final judicial ruling.
Not All Courts Agree
In 2019, the Federal Second Circuit Court of Appeals found that the Federal Arbitration Act does indeed apply to the appraisal process, regardless of what the state law says. According to this Second Circuit Court of Appeals case, the appraisal process:
“Identifies a category of disputes (disagreements between the parties over ‘the amount of loss’), provides for submission of those disputes to specified third parties (namely, two appraisers and the jointly-selected umpire), and resolves by those third parties of the dispute binding.”
Other federal courts that have ruled differently found that the appraisal process does not constitute arbitration under federal law. The Sixth Circuit Court of Appeals ruled that the appraisal process does not result in a binding resolution, so, therefore, a traditional appraisal process does not fall under the law of the Federal Arbitration Act.
This leaves the future of appraisals in a relatively gray area. If the appraisal process becomes subject to the Federal Arbitration Act, the entire field of insurance appraisal will be affected. In most appraisal training classes, this subject has gone almost entirely unaddressed but will have sweeping impacts on how the entire appraisal process will be conducted.
The Future of Appraisals May Be Affected
How the Federal Arbitration Act will impact the appraisal process depends on the state, and if the subject is even mentioned at all during the dispute process. Even in states like Connecticut, Vermont, and New York that are under the jurisdiction of the Second Circuit Court of Appeals, the majority of appraisals being conducted have not been impacted by the Federal Arbitration Act. Even though appraisers have been able to operate relatively uninterrupted thus far, appraisers must remain aware of how the Federal Arbitration Act may influence the future of the industry.
If you’re in the process of filing an insurance claim, need the guidance of an insurance adjuster, or have questions about the complicated clauses in your policy, reach out to our public adjuster in Bucks County, PA, and the extended area to learn more. Professional adjusters will help you get the most out of your insurance policy, and are well-equipped to help you receive the insurance settlement you deserve if your property has been damaged or destroyed.