What is ADR as It Relates to Property Insurance Claims?

What is ADR as It Relates to Property Insurance Claims?

When a policyholder files a property insurance claim—whether for hurricane damage, fire damage, or damage from a busted pipe—the expectation is simple: a fair settlement in a timely manner. Unfortunately, claims don't always unfold that way. Disputes often arise over the scope of damage, repair costs, or policy coverage. That’s where Alternative Dispute Resolution (ADR)comes into play.

ADR refers to methods used to resolve legal conflicts without going through the traditional court system. In the context of property insurance claims, ADR can provide a faster and less costly way to settle disputes between policyholders and their insurance companies. Let’s break down what ADR really means in the property insurance  space—and why it matters.

Why ADR Matters in Insurance Claims

Litigation is often time-consuming, expensive, and emotionally taxing. ADR offers a way to avoid those downsides while still getting to a resolution. Many insurance policies now contain provisions that require or allow for ADR before, or instead of, filing a lawsuit.

In property insurance disputes, ADR can be especially useful because:

• Claims involve technical issues (construction costs, valuation, code upgrades) that may be better resolved by experts than by judges.
• Policyholders may be waiting on funds to repair or rebuild, and faster resolution means faster recovery.
• Insurers want to reduce litigation costs and preserve client relationships.

Common Types of ADR in Property Insurance

1. Appraisal
Appraisal is one of the most common forms of ADR in property insurance. It’s a process outlined and contained in most insurance policies that is used to resolve disputes over the value or amount of the loss.  Appraisal does not address the question of whether a particular loss is covered under an insurance policy.

Here’s how it works:

• Each party (the policyholder and insurer) selects an appraiser.
• The two appraisers select a neutral umpire.
• The two appraisers inspect the property and will attempt to come to an agreement on the value or amount of the loss.
• If the two appraisers agree on the value or amount of the loss, their determination will set the amount of the loss and will be binding in most cases.
• If the appraisers cannot agree, the umpire will step in to resolve the dispute.
• A decision agreed upon by either of the two appraisers and the umpire will be binding in most cases.

Appraisal can be quick and cost-effective, but it has limitations. For example, the appraisal process does not involve or address issues related to policy interpretation, bad faith, or coverage—just the amount owed.

2. Mediation
Mediation involves a neutral third party (the mediator) who facilitates negotiations between policyholders and insurers. Unlike a judge or arbitrator, the mediator doesn’t decide or adjudicate disputes between the policyholders and insurers; rather, they help the parties reach an agreement amongst themselves.

Many states, including Florida, have formal mediation programs for property insurance claims, especially after natural disasters. Mediation can be a great option when both sides are open to compromise.

3. Arbitration
Arbitration is more formal than mediation but less so than a court trial. An arbitrator—or panel of arbitrators—hears evidence from both sides and issues a decision. That decision may be binding or non-binding, depending on the agreement between the parties as relates to arbitration.

Some insurance policies contain mandatory arbitration clauses, though these have become less common and are subject to legal scrutiny in some jurisdictions.

Pros and Cons of ADR

Pros:

• Faster resolution
• Lower legal costs
• Greater privacy
• Flexibility in scheduling and procedure
• Expert decision-makers

Cons:

• Limited ability to appeal
• Some processes don’t resolve all issues
• ADR may be biased toward repeat players (e.g., insurers)
• Costs can still add up, especially if experts or multiple arbitrators are involved

Final Thoughts

ADR can be an effective path forward when the parties disagree on the amount owed on a property insurance claim. Knowing which process fits your situation—and what each one can and can’t do—is key. Whether you’re a homeowner trying to repair storm damage or a commercial property owner with significant loss of business income, understanding ADR options gives you more control over the outcome.

The attorneys at Averill & Reaney resolved hundreds of property damage claims through the ADR process. If you're unsure whether your policy includes ADR provisions or want help navigating a disputed claim, don’t hesitate to consult Averill & Reaney. Knowing your rights and options to protect them is the first step towards a fair resolution.