What happens if the insured and insurer disagree on the amount of a loss?

When there is a disagreement between the insured and the insurer regarding the amount of a loss, the correct approach is for either party to demand an appraisal. This is a common practice in insurance policies known as the "appraisal clause." The appraisal process involves both parties selecting an independent appraiser who will assess the loss and provide an unbiased evaluation. If the appraisers cannot agree on the amount, they can appoint an umpire to make a final decision. This process helps facilitate a fair resolution without immediately resorting to legal proceedings, which can be time-consuming and costly.

The option of an automatic payment of the lesser amount does not address the need for an accurate assessment and could lead to further disputes. Similarly, the requirement to go to court immediately is unnecessarily aggressive when a structured resolution process exists. Granting the sole authority to the insured to determine the loss amount would undermine the insurer's interests and could lead to unfair outcomes. Thus, the appraisal option is a balanced mechanism for both parties to work towards resolving their differences in a cooperative manner.