What is the purpose of an Arbitration (Appraisal) Clause?

An Arbitration (Appraisal) Clause serves the specific purpose of resolving disputes over settlement amounts in insurance contracts. When a policyholder and the insurer disagree on the value of a claim—particularly regarding property damage or losses—this clause provides a structured mechanism for reaching a determination. Instead of resorting to lengthy litigation, the parties can invoke arbitration, wherein a neutral third party or panel reviews the evidence and makes a binding decision on the valuation of the claim.

This process aims to streamline the resolution of disputes, minimize costs associated with legal battles, and expedite payment to the insured, ensuring that claims are handled fairly and efficiently. By having this clause in an insurance policy, it provides clarity and predictability for both insurers and insured parties, leading to more satisfactory outcomes in the event of disagreements over settlements.