The Appraisal Clause: Managing The Cost of Umpires

This post was inspired by a recent LinkedIn group discussion, wherein a contractor questions the legitimacy of the cost for an Umpire’s services within the Appraisal Clause.  In the discussion, the Umpire was not called into play but is asking for compensation, and the posting social site member is essentially looking for documentation in support of his position that the Umpire shouldn’t be compensated, or that he should be compensated less than the asking price.  In this specific example, it isn’t clear whether whether the contractor appeared as an appraiser, or what the total dollar amount in question for the cost of the Umpire is.  The court, presumably in a valid jurisdiction, apparently encouraged a retired judge to serve as Umpire.

The Appraisal Clause.

For those readers unfamiliar, the appraisal clause is a simple statement within the framework of most property insurance policies which aims to form a tribunal for disputes between the insurer and insured, specifically dealing with the “amount of the loss”.  The clause is rather straightforward but subject to an overwhelming amount of scrutiny and mis-application, but such confusion is the subject better reserved for another place.  The clause usually states:

If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of the loss, then either may demand an Appraisal of loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire.  If they cannot agree upon an umpire within 15 days, you or we may request that the choice [of umpire] be made by a judge of a court of record in the State where the covered property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss. Each party will (1) pay its own appraiser; and; (2) bear the other expenses of the Appraisal and umpire equally.

Many readers will recognize this is a rather simple and straightforward technique intended to resolve disputes in a cost effective manner. Each party has to consider the cost of their Appraiser, and half the cost of an Umpire.

The Issue At Hand.

Failure to decide upon an Umpire is a condition that occasionally surfaces within the Appraisal clause.  When an agreement on the Umpire cannot be made, the parties may “request” that a court appoint one, which is exactly what happened in the example.  At some point, the author of the example suggested the Umpire was asking for $5,800.00 on an award seeking just over $12,000.00, although that comment was apparently removed from the conversation prior to publishing this article.  In an effort to replicate a reasonable example, we’ll simply say that the Umpire’s fee exceeded a reasonable amount; particularly in contrast to the total amount of the loss, or the amount which a competent person reasonably inferred the maximum of the loss could be.

Notably, the Umpire’s award should be split between the parties but we’ll assume it’s an amount that is so exorbitant that splitting it still has a negative outcome in comparison to amount of the loss.  It’s also important to note that a construction consultant on the thread has “paid daily rates for umpires (in very large complex cases) exceeding $1,000 per hour, or $10,000 per day, which is an absurd concept better addressed in another post, but also somewhat relevant here.

In the example, the author clearly stated that “we had an umpire court appointed before we every started trying to negotiate a compromise”. Contrary to many opinions this is the correct method of working through the Appraisal Clause.  The language of the Appraisal clearly states that “The two appraisers will choose an Umpire”, long before it discusses resolving the amount of the loss.  This is a waste of time to debate because it’s such a simple concept.  There is no common law on this issue for obvious reasons, and it’s unfortunate that many who are involved in Appraisal disputes try to circumvent this issue.

The primary issue here is that the parties may have been unfairly subject to alarmingly high costs without having the opportunity to know what they are, or whether they are even fair.

A Just and Equitable Resolution.

Appraisers must be “competent and impartial”, but whether that same requirement applies to an Umpire is still an unanswered question. Why (or how) there is no requirement for the Umpire is an anomaly within insurance contracts, common law, and litigation, but the issue isn’t really whether the Umpire failed under those contexts.  That portion of the matter is irrelevant because he was never “engaged” to resolve the dispute.

To say that the Umpire is owed “nothing” for his time in understanding the issue is somewhat true and false.  On one hand, we would expect that as a retired judge, there is no need to review anything prior to appointment on matter involving “the amount of the loss” under a matter as simple as roofing.  On the other hand, any business person has a right to “review” the subject before acceptance of a court appointment.  It seems unrealistic that a judge would order a colleague to appear in a matter without that person’s consent.

At minimum, it could be construed that the Umpire merely reserved time to deal with this matter.  Perhaps he put off another business opportunity to deal with this as a favor to his colleague.  These details are unknown but they warrant consideration.  Let’s consider that it’s not unreasonable to assume the Umpire did, in fact, move aside $5,800 worth of business to handle this matter.  It’s not unreasonable to think a retired judge could charge upwards of $400 an hour.  Even though spending 14.5 hours is a far cry from “efficient”, it’s possible (albeit remotely) that anyone would spend waste that much time on such a simple matter.  Again, this is where the “competent” description should be worked into the policy language as a prerequisite for an Umpire.

The correct resolution here is simply to leave the other parties out of this matter.  The court can (and does) err on occasion, but the Appraisal itself was never a dispute between the Umpire and any party, or between the court and any party.  The matter is, by it’s very nature, a contractual issue between the insurer and insured, but in Appraisal they are both represented by the Appraisers.  The appraisers and umpire are merely flies on the wall, except for their own liability in conducting themselves in a reasonable manner.  They owe a duty of good faith and fair dealing to their clients.  It’s by the nature that they forced the selection of the Umpire and ultimately failed to oversee the issues that they are liable to their clients.  The court has no jurisdiction to order the parties to pay the Umpire because there is no cause of action between them and the Umpire; at least not at this juncture.  Presumably, neither has filed a complaint or pleadings concerning the cost of the Umpire.  The only rule on the cost of the Umpire is any existing agreement between the Umpire and interested (affected) parties, which is to say the insured and/or insurer (more appropriately their Appraisers) were free to seek counsel or investigate the costs of the Umpire at the time they asked the court to recommend one.  Let’s remember the language is “request”, and not “appoint”, when asking the courts to deal with a dispute over the Umpire.  This is why we (at Peak Claims) emphasize hiring a professional with some legal knowledge and experience to provide appearances within the Appraisal clause.

It could be that counsel for either party, or the appraisers (hopefully in a joint manner) asked the court to appoint the Umpire.  There was nothing stopping them from noting the costs would be a concern in this matter.  The parties merely failed to reason with each other that the costs of the Umpire might over-run the value of the claim itself.

It is the responsibility of the party arguing the Umpire’s cost to settle such differences outside of the Appraisal, even if it means binding themselves into a pre-existing litigation, which, of course, will likely ruin the efforts made by all the parties thus far.  If anything, this is a claim for another forum.  It’s neither the policy holder nor insurers problem to deal with.  In theory, the Appraisers and Umpire could be negligent for failing to consider the cost of the Umpire, but these are all separate issues from the Appraisal itself.


Even though Appraisers must be “competent and impartial”, it’s surely their job to consider the effect of allowing a “free for all”.  The concept that one commentator suggests it’s even plausible that one Umpire’s cost of $10,000 per day is beyond comprehensible, even in the most complex of matters, except perhaps if an entire fleet of engineers and attorney were systematically working together on a massive (think SkyScraper) type of loss.  The Appraiser should be able to provide the Umpire with a perfect picture of his argument, instead of duly burdening the parties with that issue.  For example, even in litigation where hundreds of thousands are on the line, the parties aren’t subject to paying a court ordered mediator $10,000 per day to help resolve the dispute.  The mediator shouldn’t care about anything but the hourly rate, and it should be reasonable.  The attorneys have to justify that cost to their clients no different than an Appraiser in a tribunal.

Both an insurer and insured have a right to argue that an Appraiser’s actions left them with less indemnity (and more risk) than had they skipped the Umpire entirely.  This is, at minimum, a situation bound to revert into an Errors and Omissions claim.

There doesn’t appear to be any common law (in any jurisdiction) on these concerns but we suspect the issue will eventually come to light.  Appraisers and Umpires should take great care in evaluating these matters prior to engaging, rather than taking every job that is placed before them.

Peak Claims has over nine years of experience providing insurance appraisal and umpire services to insurance carriers and property owners in Colorado (Denver), Utah (Salt Lake City, Kansas, Wyoming, and California.  We conduct a rigorous intake evaluation prior to providing appraisal clause services, but don’t charge for doing so, and also provide consulting services to those providing appraisal clause services.  Phillip A. Crimaldi is the Director of Operations for the company and is highly experienced with the Appraisal Clause, and is the author of this article.  

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