The Appraisal Clause in Texas Property Insurance: A Policyholder’s Guide
When a Texas property insurance company and a policyholder disagree about the value of a covered loss, the appraisal clause provides a contractual mechanism for resolving that dispute without full-blown litigation. Found in virtually every standard Texas homeowner and commercial property policy, the appraisal clause allows either party to demand an independent appraisal of the loss amount. Understanding how this process works — and when to invoke it — is essential for any policyholder dealing with an underpaid claim.
The appraisal process typically works as follows: either party makes a written demand for appraisal. Each party then selects a competent, independent appraiser within a specified timeframe (usually 20 days). The two appraisers then select a neutral umpire. The appraisers independently assess the amount of loss, and if they agree, their agreed amount is binding. If they cannot agree, they submit their differences to the umpire, and any two of the three (the two appraisers and the umpire) reaching agreement establishes the binding loss amount.
It is important to understand what appraisal can and cannot resolve. The appraisal process is designed to determine the amount of loss — essentially, how much the damage costs to repair. It does not resolve coverage disputes. If your insurer has denied your claim entirely on the basis that the damage is excluded under the policy, appraisal is not the appropriate remedy. However, if your insurer has acknowledged coverage but offered an amount you believe is insufficient, appraisal can be a powerful tool.
Texas courts have generally held that the appraisal process is binding on the issue of the amount of loss, absent fraud, mistake, or the appraiser acting outside the scope of authority. The Texas Supreme Court has reinforced the enforceability of appraisal clauses in numerous decisions, treating them as enforceable contractual provisions. However, invoking appraisal does not waive your right to pursue bad faith claims — if your insurer unreasonably delayed or denied your claim before appraisal was invoked, those claims survive the appraisal process.
From a strategic standpoint, appraisal offers several advantages over litigation for resolving amount-of-loss disputes: it is typically faster (weeks or months rather than years), less expensive (no discovery, depositions, or trial preparation), and the appraisers are typically industry professionals who understand construction costs and repair methodologies. The primary disadvantage is that you cannot recover attorney’s fees, penalties, or bad faith damages through the appraisal process alone.
About the Author: Jonathon G. Nixon is the managing attorney of Nixon Law PLLC, a Houston-based litigation firm focused on property insurance disputes, construction defects, personal injury, and commercial litigation. Contact Nixon Law PLLC at (713) 482-1523 or jnixon@nixon-law.com.