Umpire Clause

Key Takeaways

• An umpire clause in insurance policies calls for a third party to resolve claim payment disputes.
• The insured and insurer must hire independent appraisers to assess damages and costs.
• The appraisal panel includes two appraisers and one umpire.
• Only two of the three panel members need to agree to settle the claim.
• The umpire makes the final decision if the appraisers can't agree.

What Is an Umpire Clause

An umpire clause is a provision in an insurance policy that provides a means of resolving a dispute between an insurer and a policyholder when they cannot agree on the amount of a claim payment. The umpire is an unbiased third party. Each party hires an independent appraiser to assess damages and repair costs. The umpire and the appraisers work together to come to a decision for the claim.1

How the Umpire Clause Resolves Insurance Disputes

The umpire clause is closely related to the appraisal clause, which allows a policyholder to hire an independent appraiser to determine the value of their damages. In turn, the insurance company will also hire their own appraiser. The two appraisers will then get together and select an umpire. The umpire is basically the arbitrator.1

These three individuals are known as the appraisal panel. The purpose of the appraisal panel is to set or determine the amount of loss, or the total dollar amount needed to return the damaged property back to it's original condition by repair or replacement.

With an appraiser panel in place, the policyholder's chosen appraiser and the insurance company's chosen appraiser will review the documents, estimates, and differences between them. They'll then try to resolve their differences. In such a scenario, the three will discuss the issues and try to reach an agreed settlement of the differences. If disagreements between the two appraisers can't be resolved, the umpire makes the ultimate decision.

Interestingly, not everyone one on the appraiser panel has to agree. Only two of the three individuals need to agree, the umpire and either appraiser or the two appraisers themselves. Once two of the three individuals on the appraisal panel sign the award, the dispute is over. The amount on the award is paid to the policyholder.

Practical Example: Umpire Clause in Action

Let's say Max has a car accident and his car is totaled. He is at fault, so he files a first-party claim with his own insurance company. The insurer determines that the value of his totaled vehicle is $10,000 and offers to pay him the $10,000 minus his $1,000 collision deductible. According to his research, Max believes the value of his car to be closer to $15,000. Since they are so far apart, Max and his insurer agree to invoke the policy's umpire clause and have an umpire and appraisers determine the value of the car.