Understanding Umpire Clauses in Insurance Policies

Learn what an umpire clause is and how it helps resolve disputes between insurance companies and policyholders.

["# What is an Umpire Clause?", “An umpire clause is a provision in an insurance policy that facilitates resolution by an unbiased third party in cases where the insurer and policyholder cannot agree on the amount of a claim settlement. Essentially, it functions like an arbitration clause. Both the insurance company and the policyholder hire an appraiser to assess the damages and the cost of repairs. The umpire then reviews these appraisers’ findings, and their decision helps finalize the claim amount.”, “## Unveiling the Umpire Clause Mechanism”, “The umpire clause works hand-in-hand with the appraisal clause, which allows policyholders to engage an independent appraiser to determine the value of their damages. Similarly, the insurance company hires its own appraiser. These two appraisers then choose an umpire, who acts as the final arbitrator. Together, these three form the appraisal panel.”, “The appraisal panel’s primary function is to determine the total dollar amount required to restore the damaged property to its original condition.”, “### Key Points to Remember”, “* The umpire clause is akin to an arbitration clause for resolving disputes between insurers and policyholders.”, “* Each party—both the insurer and policyholder—appoints an independent appraiser who works with the umpire to resolve claim-related differences.”, “* Agreement from at least two of the three panel members (the appraisers and the umpire) is enough to settle the dispute.”, “Once the appraisal panel is in place, the process involves reviewing documents, estimates, and discrepancies between the parties. The goal is to reach a consensus. If the two appraisers cannot agree, the umpire makes the final call. Interestingly, only two of the three panel members need to agree to finalize the award. When either both appraisers or one appraiser and the umpire agree, the dispute is settled, and the award amount is paid to the policyholder.”, “## Real-Life Example of an Umpire Clause”, “Consider the scenario where Max is involved in a car accident and ends up with a totaled vehicle. Since he is at fault, he files a first-party claim with his insurance company. The insurer assesses the car’s value at $10,000, which, minus Max’s $1,000 collision deductible, leads to a payout offer of $9,000. Max, however, believes his car’s value is closer to $15,000. To resolve this dispute, both parties agree to invoke the umpire clause in Max’s policy. Appraisers are brought in, followed by an umpire to determine the car’s value and finalize the settlement.”]

Related Terms: appraisal clause, arbitration clause, independent appraiser, insurance claim.


  1. International Risk Management Institute. “Appraisal Under the Homeowners Policy”.

Get ready to put your knowledge to the test with this intriguing quiz!

--- primaryColor: 'rgb(121, 82, 179)' secondaryColor: '#DDDDDD' textColor: black shuffle_questions: true --- ## What is an Umpire Clause in a contract? - [x] A provision appointing a neutral third party to resolve disputes - [ ] Requirement to consult lawyers for any contractual disputes - [ ] Clause explaining penalty conditions - [ ] Detailed guidelines for contract interpretation ## When is an umpire clause generally invoked? - [ ] When parties agree without any conflicts - [ ] During initial contract signing - [ ] To cancel the contract unilaterally - [x] When parties involved cannot resolve a dispute through mediation ## What is a potential benefit of an umpire clause? - [ ] Increasing the complexity and duration of conflict resolution - [x] Providing a process for impartial dispute resolution - [ ] Eliminating the need for contracts - [ ] Allowing one party to dictate terms ## In which types of contracts is an umpire clause more commonly found? - [x] Commercial and business contracts - [ ] Simple purchase agreements - [ ] Personal loan agreements - [ ] Informal verbal agreements ## Who typically acts as an umpire in an umpire clause? - [ ] One party's legal counsel - [x] A neutral third party agreed upon by both parties - [ ] The youngest involved member - [ ] A family relative of highest rank ## How can an umpire clause affect the litigation process? - [ ] By accelerating litigation through court involvement - [ ] Ensuring only one party can win any dispute - [x] Minimizing the need for courtroom litigation by using arbitration - [ ] Mandating constant revisions of the contract ## What is a common disadvantage of an umpire clause? - [ ] Simplifies the dispute resolution process - [ ] Reduces costs of resolving minor disputes - [ ] Promotes mutuality and cooperation - [x] May introduce extra costs for involving a third-party umpire ## What could be a critical requirement for the umpire as per the umpire clause? - [ ] He or she must be a high-ranking corporate employee - [ ] Umpire must be associated with one disputing party - [x] Must be impartial and mutually agreed on by both parties - [ ] Must have a legal background ## How can an umpire clause influence future business relations between contract parties? - [ ] By enforcing biased decisions favoring one party - [ ] By solely preserving terms of the stronger party - [x] By promoting fair and equitable dispute resolution, thereby preserving business relations - [ ] By creating more conflicts ## Which statement is true about the enforceability of an umpire clause? - [ ] Umpire clauses are universally enforced without exception - [ ] They are generally not upheld by courts - [x] They are enforceable when they meet legal standards and both parties agree