Most insurance policies contain an “appraisal clause” which means that disputes between insurers and policyholders must be arbitrated (where a neutral party decides the outcome of the dispute) and not litigated (decided in a court of law). Basically, each party hires an appraiser to look at the claim and proposed settlement figures. If the appraisers can't agree on a fair settlement of your claim, they will submit their differences to a neutral third appraiser (commonly known as an umpire), and a decision by any two of the three is usually binding upon the parties.

Costs. Although arbitration is less formal and usually less costly than litigation, it is not free. Each side pays the cost of its appraiser and splits the cost of the third appraiser, if there is one. Obviously, if the appraiser fees are more than what you were looking for from a settlement offer, the process isn’t worth your time. Therefore, consumers should analyze the difference between the settlement amount they are seeking and the amount offered to see if going through the process is financially sensible.

Other important points.
• Either party can normally invoke the appraisal clause when a settlement amount cannot be agreed upon.
• The arbitration process can take anywhere from a couple weeks to a couple months and can only be used in matters where damages are the only issue.
• If your insurer does not honor the arbitration decision, it is acting in bad faith and you may then take them to a court of law. Hiring an attorney is highly advisable in this situation.
• Appraisal clauses are between insurers and their policyholders only.