Umpire Clause: What It Is, How It Works, Example

Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant™ designation for advanced financial planning, the Chartered Life Underwriter™ designation for advanced insurance specialization, the Accredited Financial Counselor™ for Financial Counseling and both the Retirement Income Certified Professional™, and Certified Retirement Counselor designations for advance retirement planning.

What is Umpire Clause

An umpire clause refers to language in an insurance policy that provides for resolution by an unbiased third party if an insurer and an insured cannot agree on a claim payment. The umpire clause is the same thing as an arbitration clause. The arbitration process requires both the insurance company and the policy holder to hire an appraiser to assess damages and repair costs. The umpire will agree with one or both of the resulting appraisals, and that amount will be used to satisfy the claim.

Understanding Umpire Clause

The umpire clause is closely related to the appraisal clause, which allows a policyholder to hire an independent appraiser to determine the value of their damages. The insurance company will also hire their own appraiser. The two appraisers will then select an umpire who essentially acts as the arbitrator.

These three individuals are known as the appraisal panel. The appraisal panel’s purpose is to determine the amount of loss, or the total dollar amount needed for repair or replacement, in order to return the damaged property back to its original condition.

Key Takeaways

• The umpire clause settles disputes between insurance companies and the insured, similar to an arbitration clause.
• Each party hires an independent appraiser who works with the umpire to resolve claim differences.
• Only two of the three members of this panel need to agree to resolve the case.

With an appraiser panel in place, the policyholder’s chosen appraiser and the insurance company’s chosen appraiser will review the documents, estimates, and differences between them. They’ll then try to resolve their differences. In such a scenario, the three will discuss the issues and try to reach an agreed settlement. If disagreements between the appraisers can’t be resolved, the umpire makes the ultimate decision.

Not everyone on the appraiser panel has to agree. Only two of the three individuals need to agree, either the umpire and one appraiser, or both appraisers themselves. Once two of the three individuals on the appraisal panel sign the award, the dispute is over. The amount on the award is paid to the policyholder.

Example of How an Umpire Clause Works

For example, let’s say Max has a car accident and his car is totaled. He is at fault, so he files a first-party claim with his own insurance company. The insurer determines that the value of his totaled vehicle is $10,000 and offers to pay him the $10,000 minus his $1,000 collision deductible. Max believes the value of his car to be closer to $15,000 based on his research. Since they are so far apart, Max and his insurer agree to invoke the policy’s umpire clause and have an umpire and appraisers determine the value of the car.