Hawaii Insurance License Practice Exam

When an insured and insurer are in disagreement regarding the amount of a loss, the process of appraisal is specifically designed to resolve disputes that arise in this context. In insurance, the appraisal clause is a provision included in many property insurance policies, allowing both parties to engage in a structured process to determine the value of a loss.

In this scenario, each party—typically the policyholder (the insured) and the insurance company (the insurer)—will select their own appraiser. These appraisers evaluate the loss independently and attempt to agree on the value. If the two appraisers cannot reach an agreement, a third appraiser, known as an umpire, may be brought in to mediate the differences between them. This procedural approach allows for a fair and impartial determination based on specific expertise in evaluating damages.

Mediation, on the other hand, involves a neutral third party facilitating a conversation to help the parties reach a voluntary agreement, which may not necessarily focus solely on the financial aspects of the loss as appraisal does. Negotiation refers to direct discussions between the parties involved, which may not always be effective in resolving specific disagreements over loss amounts. Arbitration is a more formal procedure where a third party makes a binding decision based on the evidence presented, but it is