1. What Is an Appraisal Clause and Why It Matters
When commercial insurance claims stall over the value of damages, appraisal clauses offer a powerful path forward. Found in many commercial property policies, these clauses allow either the policyholder or the insurer to request an independent appraisal of the loss. The process involves each side selecting a qualified appraiser, who in turn selects an umpire to resolve any disagreements. Unlike litigation, which can be costly and prolonged, appraisal provides a faster, lower-conflict route to settling disputes about how much a loss is worth—not whether the damage is covered.
For Tennessee property owners, understanding this clause can be crucial. While not as widely utilized as litigation or negotiation, appraisal has gained traction as courts increasingly recognize its legitimacy in commercial disputes. Its streamlined nature and potential to preserve business relationships make it an important, but often underused, tool in the policyholder’s arsenal.
2. Appraisal Is About Value, Not Coverage
Tennessee courts consistently emphasize that appraisal is limited to valuation disputes, not coverage determinations. In Merrimack Mutual Fire Insurance Co. v. Batts, 59 S.W.3d 142 (Tenn. Ct. App. 2001), the court clarified that “appraisal provisions are designed to fix only the amount of the loss and not to resolve issues of liability or coverage.” This means appraisal can’t be used to resolve whether a claim should be paid—only how much should be paid if coverage is assumed.
This distinction is critical for policyholders: invoking appraisal in a coverage dispute will likely lead nowhere. However, when both parties agree that a loss is covered but disagree on the repair or replacement cost, appraisal becomes the appropriate and enforceable next step. Used properly, it can save months of delays and thousands in legal fees.
3. Selecting Appraisers and Umpires: A Strategic Decision
Choosing the right appraiser is a strategic and legal decision, especially in complex commercial claims. In Tolar v. Allstate, No. M2021-00417-COA-R3-CV (Tenn. Ct. App. 2022), the Tennessee Court of Appeals ruled that party-selected appraisers are not required to be neutral—only competent and unbiased in their final judgment. This affirms the common practice of appointing appraisers who may advocate for their party’s valuation, so long as they act with integrity and experience.
The appointed umpire, by contrast, must be neutral and fair, as they often cast the deciding vote. This makes the selection process critical: policyholders should retain professionals familiar with both insurance policy language and commercial construction estimating. A poor choice can compromise the fairness and credibility of the final appraisal decision.
4. Know the Limits—and the Power—of Appraisal
While binding on the amount of loss, an appraisal award does not preclude other legal claims. Policyholders can still pursue remedies for bad faith, delays, or Consumer Protection Act violations if they believe the insurer has acted improperly. Appraisal simply resolves one part of the puzzle: how much the insurer should pay under the terms of the policy.
Timing and procedure also matter. If a policyholder delays invoking appraisal or doesn’t follow the contractual steps, courts may find that the right has been waived. But when used early and effectively, appraisal can equalize power, reduce conflict, and bring resolution when negotiations have broken down. For Tennessee businesses managing commercial property claims, it’s a clause worth understanding—and using wisely.
Additional Resources:
We’ve recently written a general Guide to Public Adjusting in Tennessee which we encourage you to check out.
If you have challenging claim that you need public adjusting expertise with, please reach out to us via our homepage.