When a policyholder and an insurer agree that a loss is covered but disagree about its value, the policy usually contains a mechanism for resolving it. The appraisal clause is that mechanism.
It resolves amount, not coverage
Appraisal decides how much the loss is worth. It does not decide whether the policy covers the loss in the first place.
That boundary is the source of most disputes about appraisal itself. An insurer arguing that a peril is excluded is raising a coverage question, which appraisal cannot answer.
Where the parties disagree about both coverage and amount, courts in different states have taken different views on whether appraisal should proceed. The law is not uniform.
How the process is structured
Either party invokes the clause in writing. Each side then selects a competent and impartial appraiser, usually within a period stated in the policy.
The two appraisers attempt to agree on the value of the loss. If they agree, that figure becomes binding.
If they cannot agree, they select an umpire, and a decision by any two of the three sets the amount. Where the appraisers cannot agree on an umpire, a court appoints one.
Why parties use it
Appraisal is generally faster and cheaper than litigation, because the scope is narrow and the decision-makers are estimators rather than judges. Discovery and motion practice are avoided.
The people deciding are also familiar with construction costs and depreciation, which are the actual subject of the disagreement. That expertise is not guaranteed in court.
Each party pays its own appraiser and shares the umpire's cost, which makes the expense predictable. That predictability is part of the appeal.
The limits worth understanding first
An award binds on the amount but does not by itself compel payment if the insurer maintains a coverage defense. The award establishes the number that would be owed.
Impartiality requirements have been litigated where an appraiser is paid contingently on the outcome. Some states restrict such arrangements.
Deadlines matter. Policies specify how long a party has to demand appraisal and to name an appraiser, and missing those windows can waive the right.
Where state law shapes the outcome
Some states have made appraisal mandatory when properly invoked, while others treat it as subject to waiver by conduct such as delay or litigation. That difference determines whether it can be compelled.
Statutory prompt-payment provisions, interest and attorney fee rules also differ, and they affect the strategic value of invoking the clause. Those rules change over time.
Because the outcome depends on both the policy language and the state's case law, an attorney licensed in that state is the appropriate adviser before invoking or resisting appraisal.