The Ultimate Guide to Insurance Appraisal in Illinois

Illinois insurance appraisal quick reference — key facts under 215 ILCS 5/397.05 and case law

Legal Authority for Insurance Appraisal in Illinois

Illinois has no comprehensive appraisal process statute — no single law that defines the appraisal procedure from demand through award the way some states do. Unlike Texas, which enacted SB 458 in 2025 to mandate appraisal provisions in personal auto and residential property insurance policies supplementing decades of case law, Illinois governs the process through three overlapping sources: the Standard Fire Policy requirements in the Illinois Insurance Code, standard policy language embedded in ISO forms, and decades of appellate case law dating to 1941. Each source carries legal weight, but the practical reality is that the specific language in the insurance policy drives most outcomes.

The Illinois Insurance Code, at 215 ILCS 5/397, directs the Director of Insurance to promulgate rules ensuring uniformity in fire and lightning insurance policies. That mandate resulted in Illinois adopting a Standard Fire Policy framework that includes an appraisal provision. Section 397.05 adds a fee-shifting rule: when an insured requests appraisal under a fire and extended coverage policy and the insured's full amount of appraised loss is upheld, the insurer must pay the insured's appraiser fee and the umpire's fee.

In practice, most residential and commercial property insurance policies issued in Illinois include an appraisal clause derived from ISO standard form language. The clause provides a mechanism for resolving disagreements over the amount of loss — and only the amount of loss. It does not create a right to resolve coverage disputes or interpret policy language. Questions of legal coverage and policy interpretation belong to the courts — though as the Zhao decision (discussed below) demonstrates, the line between factual causation and legal coverage is not always clear.

Section 397.05 — Appraisal Fee Shifting

Illinois provides a statutory incentive for appraisal that most states do not. Under 215 ILCS 5/397.05, when an insured requests appraisal under a fire and extended coverage policy and the insured's full appraised amount is upheld — meaning the appraisers or umpire agree with the insured's valuation — the insurer must pay the insured's appraiser fee and the umpire's fee. The statute applies to fire and extended coverage policies.

The fee-shifting rule does not apply in every scenario. It is triggered only when the insured initiates appraisal and the insured's full amount prevails. In cases where the panel reaches a compromise figure, or where the insurer initiated the demand, standard cost-sharing rules in the policy apply: each side pays its own appraiser, and the umpire's fee is split. Note that Section 397.05 applies specifically to fire and extended coverage policies — it does not cover all property insurance policies. Verify the policy type before relying on this provision.

Section 155 — Bad Faith Remedies

Section 155 of the Illinois Insurance Code (215 ILCS 5/155) provides the primary statutory remedy for an insurer's unreasonable and vexatious conduct in handling claims. The statute allows policyholders to recover reasonable attorney fees, costs, and an additional penalty subject to three statutory caps (as of March 2026): (a) 60% of the amount recovered, (b) $60,000, or (c) the difference between the amount recovered and the insurer's pre-suit offer — the penalty cannot exceed any one of these limits. In the appraisal context, Section 155 claims have arisen when insurers delay proceedings for years by refusing to agree on umpire candidates, when carriers decline to participate in appraisal after a valid demand, and when insurers ignore appraisal awards after issuance.

The Illinois Supreme Court held in Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (1996), that Section 155 preempts common law claims that merely reframe breach of contract allegations as bad faith torts. However, Section 155 does not preempt truly independent torts with separate elements — fraud, for example, requires proof of intentional misrepresentation and justifiable reliance, elements distinct from vexatious delay. An insured must first succeed on a breach of contract claim — Section 155 does not create an independent cause of action. See Moles v. Illinois Farmers Insurance Co., 2023 IL App (1st) 220853.

Surplus lines exception: Section 155 applies to actions against an insurer involving liability under a policy. The Illinois Surplus Line Law (215 ILCS 5/445) exempts surplus lines insurers from certain Insurance Code provisions, but Illinois courts have not squarely addressed whether Section 155 applies to surplus lines insurers. Practitioners should assume that Section 155 remains the primary remedy unless and until Illinois courts recognize an exception for surplus lines insurers.

State Regulator

Illinois Department of Insurance (IDOI)

The Illinois Department of Insurance regulates the state's insurance industry, including oversight of policy forms, rate filings, and consumer complaints. IDOI does not maintain a dedicated umpire roster or appoint umpires in appraisal disputes — unlike some states where the regulator fills that role. However, IDOI may investigate consumer complaints related to appraisal delays or insurer conduct during the appraisal process. In Illinois, when appraisers cannot agree on an umpire, the standard policy clause directs either party to request appointment by a judge of a court of record.

IDOI does review and approve policy forms, including the appraisal provisions within homeowners and commercial property policies. The department also investigates consumer complaints related to claims handling, which can include allegations that an insurer refused to participate in appraisal or delayed the process.

Appraisal vs. Arbitration in Illinois

Illinois courts have drawn a clear line between appraisal and arbitration. In FTI International Inc. v. Cincinnati Insurance Co., 339 Ill. App. 3d 258 (2d Dist. 2003), the Second District Appellate Court confirmed that appraisal is a limited process concerned primarily with ascertaining the value of property or the amount of loss. Unlike arbitration, appraisers do not resolve questions of law or interpret contract language.

That distinction carries practical consequences. Appraisal operates outside the Illinois Uniform Arbitration Act (710 ILCS 5/1 et seq.), which means formal arbitration rules — including discovery procedures, evidentiary standards, and grounds for vacating an award — do not automatically apply. However, Illinois courts have borrowed from arbitration principles when addressing procedural questions. In Beard v. Mount Carroll Mutual Fire Insurance Co., 203 Ill. App. 3d 724 (1990), the court held that an appraisal clause is analogous to an arbitration clause and is enforceable in a court of law.

Appraisal vs. arbitration in Illinois — appraisal determines the dollar amount of loss; arbitration resolves broader legal and contractual disputes

Scope of Authority

Can Appraisers Determine Causation?

For years, the answer in Illinois was uncertain. Federal courts sitting in diversity reached conflicting conclusions, and no published Illinois appellate decision had directly addressed whether causation questions fall within the scope of appraisal. That changed on May 12, 2025.

In Zhao v. State Farm Fire & Casualty Co., 2025 IL App (2d) 240723, the Second District Appellate Court resolved the question. A hailstorm struck Xiang Zhao's home in Vernon Hills. State Farm acknowledged storm damage to gutters, downspouts, and window trim, paying $12,677.94. Zhao's contractor estimated the damage at $133,817.82 — arguing the hail warranted full replacement of all windows. Zhao demanded appraisal. State Farm refused, characterizing the dispute as a coverage issue rather than an amount-of-loss question.

The appellate court disagreed. It noted that State Farm had already acknowledged a covered loss by making partial payment. The remaining dispute — whether the hail also damaged the windows themselves — was a factual question about the extent of the loss, not a coverage determination. The court wrote that resolving some questions of causation will be necessarily included in the appraisal process, and found Illinois law "clear and unambiguous" on this point.

Zhao joins a line of federal decisions reaching the same conclusion. In Runaway Bay Condominium Ass'n v. Philadelphia Indemnity Insurance Cos., 262 F. Supp. 3d 599 (N.D. Ill. 2017), the court held that a dispute about whether and to what extent building damage was caused by storms was appropriate for appraisal. As a Second District ruling, Zhao is binding in that district; policyholders and insurers in other appellate districts should not assume Zhao's causation holding applies until their district adopts it or the Illinois Supreme Court grants review.

Who Decides

Panel Composition

Under standard policy language, an Illinois insurance appraisal panel consists of three people. Each party selects one appraiser. The two appraisers together select the umpire. If the appraisers cannot agree on an umpire within 15 days, either party may request appointment by a judge of a court of record in the county where the insured property is located. The panel's authority is limited to determining the amount of loss.

Illinois insurance appraisal panel composition — two party-selected appraisers and one jointly selected umpire

Illinois does not impose statutory qualification requirements for insurance appraisers or umpires. The standard is set by the policy language — commonly phrased as "competent and disinterested" or "competent and impartial" for appraisers, depending on the policy form and edition. In practice, competent means relevant professional expertise in property damage estimation, construction, or claims adjustment. Disinterested means no financial stake in the outcome beyond the professional fee; impartial means freedom from bias toward either party.

Waiver of the Right to Appraisal

The right to appraisal can be waived. In Lundy v. Farmers Group, Inc., 322 Ill. App. 3d 214 (2d Dist. 2001), the Second District found that the insurer waived its right to appraisal by demanding it for the first time years after paying the claim and ten months after the policyholder filed suit — after also filing and losing motions to dismiss, arguing the Department of Insurance was the proper forum, and serving discovery. The court held that Farmers' conduct was "so inconsistent with the appraisal clause as to demonstrate the abandonment of its right to an appraisal."

Waiver is disfavored in Illinois because of the public policy preference for conserving judicial resources through alternative dispute resolution. But the preference has limits. Parties who wait too long or participate too deeply in litigation before demanding appraisal risk losing the right altogether.

Key Illinois Case Law on Insurance Appraisal

Key Illinois insurance appraisal decisions — from foundational principles to the 2025 causation ruling

The Illinois Insurance Appraisal Process

The Illinois insurance appraisal process — from written demand through award

How to Demand Appraisal

The demand must be in writing. Most policies require written notice to the other party requesting appraisal of the loss. There is no statutory form in Illinois — a clear, dated letter identifying the policy, the loss, and the request for appraisal under the specific policy provision is sufficient. Best practice is to send the demand via certified mail or another method that produces proof of delivery.

Selecting Appraisers

Each party must select their appraiser within 20 days of receiving the written demand. In practice, parties select appraisers with experience in the type of loss at issue. While appraisers are party-selected and bring their appointing party's perspective to the valuation, the policy language requires them to be competent and disinterested — meaning free from financial stake in the outcome beyond their professional fee.

How Umpires Are Selected

The two appraisers jointly select the umpire within 15 days. If they cannot agree, either party may petition a judge of a court of record in the county where the property is located to make the appointment. Umpire selection disputes have been a significant source of delay and litigation in Illinois. In Green v. International Ins. Co., 238 Ill. App. 3d 929 (2d Dist. 1992), the court held that an appraiser's failure to agree on umpire selection may constitute unreasonable and vexatious conduct attributable to the insurer.

Award Enforcement and Vacatur

An appraisal award may be enforced through the courts if a party refuses to pay. Whether the award is binding or non-binding depends on the policy language — but even a non-binding award carries evidentiary weight. A party seeking to vacate an award must demonstrate fraud, collusion, bias, mistake, or that the appraisers exceeded their authority. Mere disagreement with the dollar figure is not grounds for vacatur.

Timing Considerations

Illinois does not impose a statutory deadline for demanding appraisal, but timing matters at multiple levels. The statutory limitation period for breach of a written insurance contract is 10 years under 735 ILCS 5/13-206, but most property insurance policies contain a contractual suit limitation clause — typically one or two years from the date of loss — that supersedes the statutory period.

Critically, 215 ILCS 5/143.1 provides a tolling mechanism: the contractual limitation period is tolled from the date proof of loss is filed until the date the claim is denied in whole or in part. In Country Preferred Ins. Co. v. Whitehead, 2016 IL App (3d) 150080, the Third District applied Section 143.1 and found a demand timely even though nearly three years had passed from the date of loss — because only thirteen months had actually counted against the two-year contractual period after tolling was applied.

Illinois FAIR Plan Association

The Illinois FAIR Plan Association is the state's insurer of last resort, providing property coverage to applicants who can demonstrate at least three unsuccessful attempts to obtain coverage in the standard market. Founded in 1968, the FAIR Plan is a nonprofit association funded by property insurers licensed in Illinois. It offers dwelling fire, homeowners, and commercial property forms, though coverage limits, valuation methods, and available endorsements differ from standard-market policies.

FAIR Plan policies include standard appraisal provisions. The appraisal process follows the same framework as private-market policies, and there is no separate statutory regime governing FAIR Plan appraisals. Practitioners should review the applicable FAIR Plan policy form before advising on appraisal rights or procedures.

Resources & Primary Sources

Frequently Asked Questions