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Alternative Settlement Options For Homeowner’s and Auto Insurance Claims

By Erik Folgate

Your homeowner’s insurance and auto insurance are extremely important to staying financially healthy. Your home is one of the most important assets you own, and protecting it should be a top priority. Your automobile is an important asset as well, but the liability insurance involved is a more important coverage when it comes to protecting your financial life. Making a claim on your homeowner’s or auto insurance can be a frustrating process. You want to be compensated fairly for your damages. It is the insurance company’s responsibility to indemnify you, or in other words, put you back to a pre-loss condition. However, your definition of indemnity and the insurance company’s definition may differ. It’s fairly common for the insured to disagree with their initial settlement given by their claims adjuster, but you have the right to dispute your settlement. Typically, you have three different options when it comes to disputing an initial settlement of a homeowner’s or auto insurance claim. They are mediation, appraisal, and lawsuit. I will explain all three and the purpose they serve.

Mediation

A mediation is used for many different types of civil disputes. Resolving an insurance claim dispute is a very common use of having a mediation. Basically, the two parties in dispute come together to meet and discuss their dispute with an objective third-party, the mediator. In this case, a representative of the insurance company and either you or your representative would meet at a neutral site with a mediator to discuss the facts of the claim. Notice that I said “discuss the FACTS of the claim”. A mediation is a legal meeting, so make sure that you don’t bring your emotions into the meeting room. Mediators do not have the time to hear the emotional story behind the dispute. They will base their decision on the facts of your loss.

Most, but not all insurance policies include language about requesting a mediation. Generally, you can dispute coverage, price, or scope of your damages. Basically, anything goes with a mediation. If you are unsure whether to request a mediation or an appraisal, go for the mediation first. You can always request an appraisal later. Mediations are fairly simple. You or your representative must come prepared with documentation to argue your issues about the claim. The insurance adjuster will argue their points. The mediator’s job is to try to help you both come to a compromise between the dispute. His or her goal is to get both parties to agree on a fair settlement by negotiating certain aspects of the claim. If neither party is willing to budget, the mediator will declare an impasse, and the meeting was pointless. An agreement is reached most of the time, but sometimes an impasse is declared depending on the amount or nature of the dispute.

Appraisal

An appraisal is similar to a mediation, but it should generally be used only for a disagreement about the price or scope of an insurance claim. Also, be advised that not every policy contains an appraisal clause. Check your policy before you request for an appraisal. Once you request for an appraisal in writing, you can either appoint yourself as the appraiser or appoint someone else to represent you during the appraisal. You can appoint a contractor, public adjuster, lawyer, or anyone else more experienced in negotiating claims to handle the appraisal. The insurance company will name their appraiser and schedule a time to meet and go over the damages in question. The preliminary step of an appraisal is for the two appraisers to come to a negotiation of the disputed claim. If they are able to do so, they would both sign an appraisal award letter which binds both parties to agree on a certain dollar amount. If they are unable to come to an agreement, they must both agree on a third party to make a decision about the claim. This individual is usually called an umpire. An umpire is usually a very experienced individual in the insurance claims business. Once you assign an umpire, the umpire will review both of sides of the case and come to a conclusion about what the claim is worth. He will come up with a revised estimate for the damages and create an appraisal award based on this dollar amount. The award only needs to be signed by two people to be a binding amount. If the umpire and the insurance company’s appraiser sign the award, you are bound to the agreed dollar amount and you can no longer dispute your claim. Well, techincally this should be the case, but everything can be litigated nowadays.

Lawsuit

This should be your last option to settle a claim, because the fees involved are only worth it for claims involving high dollar amounts. Obviously, you will hire an attorney, and they will file a lawsuit against your insurance company with a demand letter for what dollar amount they are seeking to recover for your claim. They must provide a valid reason for the damages, and unlike liability suits, they must provide documentation to support their demand. Generally, they will hire a public adjuster or general contractor to formulate an estimate for your damages. Again, take into consideration before hiring a lawyer that they are going to take about a third of your insurance settlement. You may end up having more money out of your pocket than you would have before you filed the lawsuit.

The purpose of this article is to help educate you on your options for a claim settlement. If you have a bad feeling about the way your claim was valued, make sure you speak up and exercise your right to dispute the settlement. Make sure that your dispute is warranted. If you try to get something out of nothing, you’ll not only frustrate your insurance company, but you will contribute to the rising costs of insurance premiums. The more money that insurance companies pay out on claims, directly affects their decisions to raise the rates of their premiums. Whether it’s the right thing to do or not, it’s a reality. Having a claim can substantially affect your finances, and it can break some people when it comes to the out-of-pocket expenses involved. Make sure you are proactive with your claim and keep your insurance company in check.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://cashfuturepayments.com/ Duncan McLeod

    I wish I had read this post 10 years ago when I wrecked my car. I was totally ignorant about what I could do about the insurance company’s settlement offer. Reluctantly I accepted their offer thinking that the car was really worth more than that. Since I didn’t know any better, I assumed it was a take it or leave it type offer. Would’ve been nice to get an arbitrator involved.

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