What is the purpose of the appraisal clause in an insurance contract?

The appraisal clause in an insurance contract serves the specific purpose of resolving disputes regarding the amount of loss between the insured and the insurer. This clause is particularly relevant in property insurance policies, where differing opinions may arise about the value of the damaged property or the extent of the loss incurred.

When a dispute occurs, either party can invoke the appraisal process, which typically allows both the insured and the insurer to appoint their own appraisers. These appraisers assess the loss independently, and if they do not agree, they may appoint an umpire who can help settle the disagreement. The outcome of this process helps to arrive at a formal value of the loss, ensuring that claims are settled with an agreed-upon figure, thereby streamlining the claims resolution process.

This mechanism provides clarity and fairness, as it gives both parties an opportunity to establish their case without resorting to litigation. It aids in handling disputes efficiently while adhering to the terms set forth in the insurance policy.