Umpire clause
An umpire clause is language in an insurance policy that provides a way to resolve disputes over the amount of a claim by using an independent third party. It functions like an arbitration clause: when the insurer and insured disagree on the value of a loss, each side hires an appraiser and those two appraisers select an umpire (arbitrator) to help decide the amount to be paid.
How it works
- Appraisal vs. umpire clause: The appraisal clause allows a policyholder to demand an independent appraisal of damages. The umpire clause provides the process for selecting an impartial umpire if the two appraisers cannot agree.
- Appraisal panel: The panel typically consists of the policyholder’s appraiser, the insurer’s appraiser, and an umpire chosen by the two appraisers.
- Decision rule: Any two of the three panel members must agree to set the award. That agreement becomes the binding amount used to settle the claim.
- Process steps:
- Each party hires an independent appraiser to assess the loss and prepare estimates.
- The two appraisers confer and try to resolve differences.
- If they cannot agree, they select an umpire to review and decide.
- Once two panel members sign the award, the insurer pays the determined amount (subject to policy terms like deductibles).
Example
If a policyholder’s totaled car is valued at $15,000 by the owner but at $10,000 by the insurer, the parties can invoke the policy’s umpire clause. Each side hires an appraiser; if those appraisers cannot agree, they select an umpire. The umpire either sides with one appraisal or helps produce an agreed amount. Once two of the three panel members sign the award, the insurer pays that amount (after applying any deductible).
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Key takeaways
- Umpire clauses provide a structured, neutral method to resolve disputes over claim value.
- Each side hires an appraiser; an umpire serves as a tiebreaker if appraisers disagree.
- Only two of the three appraisal-panel members need to agree for the decision to be binding.
When it’s used
Umpire clauses are commonly invoked when parties have a significant difference in valuation for property damage, total loss claims, or repair costs and prefer an appraisal/arbitration process instead of litigation.