DEFINITION of 'Umpire Clause'

The language in an insurance policy that provides for a means of resolution by an unbiased third party if an insurer and an insured cannot agree on the amount of a claim payment. An 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 of their choosing to assess the damages and the cost to repair them. The umpire will agree with one or perhaps both of the resulting appraisals and that amount will be used to satisfy the claim.

BREAKING DOWN 'Umpire Clause'

For example, let's say Sheldon 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. According to his research, Sheldon believes the value of his car to be closer to $15,000. Since they are so far apart, Sheldon and his insurer agree to invoke the policy's umpire clause and have a neutral third party and appraisers determine the value of the car.

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