Umpire Clause In Insurance Explained

Umpire Clause In Insurance Explained

An umpire clause is part of the vocabulary of insurance policies. What it refers to is a means of resolution granted by an unbiased third party in the event that the insurer and insured are unable to concur on the amount of a claim payout. An umpire clause and an arbitration clause refer to the same thing, with the arbitration process requiring that both the insurance company and policyholder hire an unbiased appraiser to assess the damages incurred during a specific incident, and the cost of repair. The umpire may agree with one or both of the resulting appraisals, and the amount that they agree on will satisfy the claim.

Understanding Umpire Clauses

The umpire clause is a cousin of the appraisal clause, which in turn allows policy holders to hire independent appraisers that can help them determine the value of their damages. Insurance companies can also hire their own appraisers. What typically happens next is that both appraisers come together to select an umpire, who will then serve as an arbitrator.

The umpire and both appraisers will serve as the appraisal panel, whose purpose is to determine the amount of loss. The amount of loss refers to the total dollar amount which is needed to restore the damaged property back to its original condition, whether this be achieved through replacement or repairs.

How the Appraisal Panel Works

Once the appraisal panel has been set up, the appraisers of both the insurance company and policyholder will first review their documents and estimates, as well as the difference between them. They will then try to reach an agreement to resolve their differences. Here, all three members of the panel will attempt to reach an agreed settlement. If, however, the differences between both appraisers cannot be resolved, it is up to the umpire to make the final decision.

What is interesting is that not everyone on the appraiser panel needs to concur with the final decision. Only two out of three of the panel members need to be in agreement. This number can include a mix of the umpire and one of the appraisers, or it can be both of the appraisers. Once these individuals sign the award, the dispute is considered to have been settled, and the amount is then paid to the policy holder.

How an Umpire Clause Works

Here is an example of how an umpire clause might work.

Let us assume that James has a car accident for which he is at fault, and in which his car has been destroyed. James then files a claim with his insurance company, which determines that the value of his damaged vehicle is $15, 000. They then offer to pay him $14, 000 (taking off the $1, 000 collision deductible). James, however, believes that his car is worth $20, 000. Given the drastic difference in amount, both James and the insurer decide to engage the services of an umpire.

Working with an Umpire

An ideal umpire promises to be unbiased and partial, and ideally is both reputable and experienced. Stone Claims Group employs a team of umpires working across insurance companies, policy holders and contracting companies. To find out more, contact us today.


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