Appraisal Clause

Purpose

Disputes over the amount of a loss – such as the actual cash value of a damaged machine or the extent of a water damage claim – can often be resolved faster and more cheaply by technical experts than through litigation. The clause therefore provides that either party may demand that the determination be made through an appraisal procedure, the outcome of which is in principle binding on both sides.

Effect and limits

Each party usually appoints one expert; if they cannot agree, an umpire chosen by them or appointed by the court decides. The determination is not binding only where it clearly and materially departs from the actual facts; in that case, a court decides on application. The procedure normally settles only factual questions about the amount of loss, not the underlying question of whether the loss is covered at all.

Negotiation and practice

For complex industrial risks, the parties often agree in advance on a list of accepted appraisal organisations or specialisms, to save time if a dispute arises. Cost allocation – usually split equally between the parties – and procedural deadlines are recurring negotiation points in larger property insurance contracts.

Jurisdictional comparison

Switzerland provides in Art. 58 VVG for determination by court-appointed experts where the parties disagree. Germany regulates a private appraisal procedure in Section 84 VVG, whose outcome is non-binding only where it clearly and materially departs from reality. Austria has a comparable procedure in Section 64 VersVG, with its own rules on appointing the umpire and on judicial review.