Title: The Farmers Automobile Insurance Association v. Union Pacific Railway Company

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2009 WI 73 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2007AP1992 
COMPLETE TITLE: 
 
 
The Farmers Automobile Insurance Association, 
          Plaintiff, 
     v. 
Union Pacific Railway Company, 
          Defendant. 
 
------------------------------------------------ 
Joseph P. Donaubauer, 
          Plaintiff-Appellant-Petitioner, 
     v. 
The Farmers Automobile Insurance Association, 
          Defendant-Respondent, 
Union Pacific Railroad Company, 
          Defendant. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2008 WI App 116 
Reported at: 313 Wis. 2d 93, 756 N.W.2d 461 
(Ct. App. 2008-Published) 
 
 
OPINION FILED: 
July 10, 2009   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
April 16, 2009   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee   
 
JUDGE: 
Francis T. Wasielewski   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
BRADLEY, J., dissents (opinion filed). 
ABRAHAMSON, C.J., joined the dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiff-appellant-petitioner there were briefs by 
John V. McCoy, Chad R. Levanetz, and McCoy & Hofbauer, S.C., 
Waukesha, and oral argument by John V. McCoy. 
 
For the defendant-respondent there was a brief by Monte 
Weiss, Charles W. Kramer, and Deutch & Weiss, LLC, Milwaukee, 
and oral argument by Monte Weiss. 
 
 
 
2 
An amicus curiae brief was filed by James A. Friedman, 
Patricia L. Wheeler, and Godfrey & Kahn, S.C., Madison, on 
behalf of the Wisconsin Insurance Alliance. 
 
 
 
2009 WI 73
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2007AP1992  
(L.C. No. 
2004CV3142 & 2004CV3366) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
The Farmers Automobile Insurance Association, 
 
          Plaintiff, 
 
     v. 
 
Union Pacific Railway Company, 
 
          Defendant. 
 
----------------------------------------------- 
 
Joseph P. Donaubauer, 
 
          Plaintiff-Appellant-Petitioner, 
 
     v. 
 
The Farmers Automobile Insurance Association, 
 
          Defendant-Respondent, 
 
Union Pacific Railroad Company, 
 
          Defendant. 
FILED 
 
JUL 10, 2009 
 
David R. Schanker 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
No. 
2007AP1992   
 
2 
 
¶1 
MICHAEL J. GABLEMAN, J.    This is a review of a 
published decision of the court of appeals1 affirming the entry 
of summary judgment against Joseph Donaubauer ("Donaubauer") by 
the Circuit Court for Milwaukee County, Francis Wasielewski, 
Judge.  This case is a dispute between an insurer and an insured 
over the proper replacement value of a home that had burned 
down.  Donaubauer, the homeowner, challenges the validity and 
outcome of an appraisal award determining the replacement value 
of the home. 
¶2 
Three issues concern us today.  First, did the circuit 
court err when it compelled Donaubauer to participate in the 
binding appraisal process?  Second, should the appraisal award 
be vacated or modified?  Third, did the circuit court err in 
denying Donaubauer's request to depose the appraiser and a third 
party contractor who assisted in the appraisal process?2 
¶3 
We hold that the circuit court did not erroneously 
exercise its discretion in enforcing the agreement between the 
parties to participate in the binding appraisal process.  We 
also hold that the circuit court properly affirmed the appraisal 
award because there was no evidence that the appraisers engaged 
in fraud, bad faith, material mistake, or that they lacked 
                                                 
1 Farmers Auto. Ins. Ass'n v. Union Pac. Ry. Co., 2008 WI 
App 116, 313 Wis. 2d 93, 756 N.W.2d 461. 
2 Donaubauer also argues that the circuit court erred in 
granting Farmers summary judgment on his breach of contract and 
bad faith claims.  We find little merit in these claims and will 
allow the court of appeals' opinion to be the final word on 
these issues. 
No. 
2007AP1992   
 
3 
 
understanding of their contractually assigned task.  Finally, we 
hold that the circuit court did not erroneously exercise its 
discretion when it denied Donaubauer the opportunity to conduct 
discovery into the appraisal process.  For these reasons, the 
holding of the court of appeals is affirmed. 
I. 
BACKGROUND 
¶4 
On April 15, 2003, Joseph Donaubauer's home located at 
9277 South Pennsylvania Avenue in Oak Creek, Wisconsin was 
completely destroyed by a fire.  Apparently, sparks from a Union 
Pacific train running near Donaubauer's home started a grass 
fire that spread to his property. 
¶5 
Donaubauer 
had 
purchased 
a 
homeowner's 
insurance 
policy 
from 
The 
Farmers 
Automobile 
Insurance 
Association 
("Farmers")3 with a policy period running from October 1, 2002, 
through October 1, 2003.  The policy had several different types 
of coverage. 
¶6 
First, Donaubauer's policy contained a "Dwelling" 
coverage for which he received $301,350.  This payment consisted 
of the full $287,000 limit of liability under this coverage, 
plus five percent for debris removal.  Donaubauer also had 
"Personal Property" coverage.  Farmers paid the full limit of 
$172,200 for this coverage.  Third, Donaubauer's policy had 
"Loss of Use" coverage for which Farmers paid an additional 
                                                 
3 Donaubauer originally named Pekins Insurance Company as 
the defendant.  In its answer to Donaubauer's complaint, Pekins 
stated that it was Farmers who issued Donaubauer's policy.  This 
was reflected in Donaubauer's amended complaint. 
No. 
2007AP1992   
 
4 
 
$57,400——again the full limit for that policy coverage.  Thus, 
apart from the coverage for replacement value at issue in this 
case, Farmers paid Donaubauer approximately $530,950 for claims 
relating to his home burning down.4 
¶7 
The coverage Donaubauer purchased also included a 
"Home Guard Endorsement" (hereafter, the "Policy").  The Policy 
provided additional coverage above the $287,000 "Dwelling" limit 
if the cost to replace the home was more than this amount. 
Several provisions of the Policy are relevant to this dispute. 
¶8 
The Policy defines "replacement value" as "the current 
cost at time of loss, without deduction for depreciation, to 
replace the damaged, destroyed or stolen property with articles 
of like kind and quality." 
¶9 
In order to receive benefits under the Policy, the 
contract provided: "You agree to . . . [r]epair or replace the 
damaged dwelling with equivalent construction and use on the 
same premises."5  In another place it further specifies 
"[Farmers] 
will not be liable for any loss under this 
endorsement until actual repair or replacement is completed." 
                                                 
4 Donaubauer's first and amended complaint in his lawsuit 
disputed the amount paid out from the regular policy, separate 
from the Home Guard Endorsement issue.  However, by the end of 
2004, Donaubauer received full payments under these liability 
categories, and these coverages are not issues on appeal. 
5 Farmers is not requiring that Donaubauer replace his 
dwelling at the same location.  In this case, that would be 
impossible because city regulations now preclude him from 
rebuilding his residence on the same property. 
No. 
2007AP1992   
 
5 
 
¶10 The Policy also contained what we will call the 
"appraisal clause."  It states as follows: 
 
Appraisal.  If you and we fail to agree on the amount 
of loss, either may demand an appraisal of the loss.  
In this event, each party will choose a competent 
appraiser within 20 days after receiving a written 
request from the other.  The two appraisers will 
choose an umpire.  If they cannot agree upon an umpire 
within 15 days, you or we may request that the choice 
be made by a judge of a court of record in the state 
where 
the 
residence 
premises 
is 
located. 
 
The 
appraisers will separately set the amount of loss.  If 
the appraisers submit a written report of an agreement 
to us, the amount agreed upon will be the amount of 
loss.  If they fail to agree, they will submit their 
differences to an umpire.  A decision agreed to by any 
two will set the amount of loss. 
¶11 After his home burned down, Donaubauer submitted a 
claim under the Policy.  Donaubauer then obtained an estimate 
for the replacement value of his home of approximately $553,000.  
In June 2003, Farmers obtained its own estimate of the 
replacement value; it totaled $380,819.  Donaubauer argued that 
this offer was substantially below the true replacement value, 
and in the latter part of 2003, Farmers increased its offer to 
$471,000. 
¶12 On April 12, 2004, Donaubauer filed suit in the 
Milwaukee County Circuit Court,6 alleging that Farmers refused to 
pay him the replacement value of the home pursuant to the terms 
of the Policy.  His claims included misrepresentation, bad 
                                                 
6 Farmers also filed suit against Union Pacific Railway 
Company on April 2, 2004.  On June 10, 2004, all parties 
stipulated to consolidating the two cases.  Union Pacific is not 
a party on appeal. 
No. 
2007AP1992   
 
6 
 
faith, and breach of contract.  Farmers responded that they had 
no obligation to pay under the Policy until Donaubauer actually 
replaced his home, which he had not done. 
¶13 Litigation 
regarding 
Donaubauer's 
contract 
claims 
ensued.  On January 24, 2005, Donaubauer obtained another 
estimate for the cost of rebuilding his home, this time for 
$720,309. 
¶14 On March 22, 2005, Farmers sent a letter to Donaubauer 
raising several issues.  Farmers stated that the Home Guard 
Endorsement was clear that disbursement under the Policy was 
contingent upon Donaubauer actually repairing or replacing the 
dwelling.  Farmers also asserted that the lawsuit violated the 
Policy and demanded resolution of the disagreement over the 
replacement value via the process outlined in the Policy's 
appraisal clause.  Farmers stated that the Policy's appraisal 
clause, once invoked, was binding on the parties.  Farmers also 
named its designated appraiser pursuant to the appraisal clause, 
and requested that Donaubauer designate his appraiser.  Finally, 
Farmers stated that if Donaubauer "disagrees with the analysis 
set forth herein," he should respond in writing with "the legal 
and factual basis for the disagreement." 
¶15 On March 25, 2005, Donaubauer sent a reply letter 
stating that he understood Farmers was requesting an appraisal 
and that he had to respond within 20 days (per the Policy).  
Donaubauer had recently had surgery, however, so he requested 
that Farmers toll the 20 day requirement until Donaubauer's 
doctor determined he was healthy enough to continue with the 
No. 
2007AP1992   
 
7 
 
litigation.  Farmers promptly responded by letter and granted 
Donaubauer's request. 
¶16 On May 12, 2005, Donaubauer's attorney called the 
attorney for Farmers and informed him that Donaubauer was close 
to recovery, and that Donaubauer had agreed to the appraisal 
process referenced in the previous correspondence.  Farmers' 
attorney confirmed this conversation by letter that same day, 
requesting that Donaubauer select his appraiser when he was 
sufficiently well. 
¶17 The next day, May 13, 2005, Donaubauer's attorney 
confirmed by letter that Donaubauer was "willing to fulfill his 
contractual obligations and participate in the appraisal that 
your client has requested."  Donaubauer confirmed again via 
letter on June 1, 2005, that he was "able to participate in the 
appraisal process" and asked to be contacted regarding the next 
step. 
¶18 Farmers followed up on June 9, 2005, by explaining 
that the appraisal process would commence with Donaubauer's 
selection of an appraiser.  The parties' respective appraisers 
would then select a third appraiser, the umpire, and proceed 
with the appraisal process outlined in the Policy.  On June 27, 
2005, Donaubauer informed Farmers of his selected appraiser. 
¶19 On July 26, 2005, Farmers moved for summary judgment 
and dismissal of Donaubauer's lawsuit on the grounds that 
Farmers had no obligation to make payments under the Policy 
until 
Donaubauer 
completed 
repair 
or 
replacement 
of 
the 
dwelling.  On September 16, 2005, the Milwaukee County Circuit 
No. 
2007AP1992   
 
8 
 
Court agreed that, under the Policy, Donaubauer had to complete 
the actual repair or replacement of his home before Farmers was 
obligated to make further payments.  The court dismissed with 
prejudice 
Donaubauer's 
claims 
and 
causes 
of 
action 
for 
misrepresentation, and deferred ruling on Donaubauer's other 
claims until after the appraisal process had been completed. 
¶20 On September 29, 2005, Donaubauer sent a letter to 
Farmers indicating that he would only continue the appraisal 
process if it was not conducted pursuant to the Policy, and was 
simply considered part of the mediation process and non-binding. 
¶21 On October 10, 2005, Farmers sent a response in which 
it stated that it was "not willing to deviate from the appraisal 
process that our Clients agreed to as is set forth in the 
insurance policy."  On October 21, 2005, Donaubauer replied that 
he was agreeing to continue with the Policy's appraisal process 
except to the extent that it would be binding.  Farmers 
responded again on October 27, 2005, that it was unwilling to 
agree to an appraisal process that was not binding because the 
Policy provided for binding appraisal, because non-binding 
appraisal would be a waste of time, and because Donaubauer had 
already agreed to the appraisal process. 
¶22 On November 17, 2005, Farmers asked the circuit court 
to 
enforce 
the 
appraisal 
agreement 
between 
the 
parties.  
Donaubauer acknowledged that he had agreed to the appraisal 
process outlined in the Policy, but he argued that the Policy's 
appraisal process was not binding, and that Farmers had misled 
him into thinking it was binding.  He further argued that the 
No. 
2007AP1992   
 
9 
 
court should relieve him from the agreement because under Lynch 
v. Am. Family Mut. Ins. Co., 163 Wis. 2d 1003, 1011-14, 473 
N.W.2d 515 (Ct. App. 1991), he asserted, an insured is not 
required to participate in the appraisal process when the 
insurance company failed to demand the appraisal prior to the 
insured's lawsuit.  Farmers argued that the appraisal clause, 
once invoked by either party, was binding on the parties.  
Farmers also maintained that it would set bad precedent to allow 
Donaubauer to withdraw from an agreement because he subsequently 
found case law that might have, if known earlier, led the party 
to take a different course of action.  On January 10, 2006, the 
circuit court 
rejected Donaubauer's arguments and granted 
Farmers' motion to enforce the agreement. 
¶23 After additional disputes regarding the meaning of 
"current replacement cost,"7 the appraisal process moved forward.  
The appraisers obtained information about the home from numerous 
sources, including government records and personnel, information 
supplied by Donaubauer, and even the individual who installed 
the cabinets in Donaubauer's home. 
¶24 On September 8, 2006, all three appraisers, including 
Donaubauer's selected appraiser,8 agreed on a replacement value 
                                                 
7 On April 14, 2006, Donaubauer moved for declaratory 
judgment, asking the circuit court to declare that "current 
replacement cost" found in the Home Guard Endorsement means the 
cost at the time of the appraisal, and not the cost at the time 
of the loss.  The circuit court granted Donaubauer's motion on 
June 23, 2006. 
8 By this point, Donaubauer had selected a different 
appraiser than his original choice. 
No. 
2007AP1992   
 
10 
 
of $396,260.75 and an actual cash value of $248,579.68.  The 
appraisal award itself was a two-page document itemizing the 
components of the award, along with the replacement cost and 
actual cash value for each.9  It was signed by each party's 
selected appraiser and the umpire. 
¶25 Around this same time, the homebuilder the appraisers 
had worked with to compute their award submitted a home proposal 
to Donaubauer.  This proposal included interior and exterior 
layout plans, and a detailed listing of included features such 
as hardwood floors, a security system, and air conditioning, to 
name a few.  The proposed home was 3,264 square feet, and the 
contract price was listed at $356,718.75.10  This home proposal 
was not part of the appraisal award. 
¶26 Donaubauer was unhappy with the appraisal award, and 
on December 7, 2006, filed a motion with the circuit court to 
have the award vacated or modified.  Donaubauer argued that the 
appraisers failed to appreciate their role in the process.  He 
pointed first to the communications between the appraisers, 
which he had obtained, claiming that they displayed significant 
confusion 
by 
the 
appraisers 
and 
inappropriate 
judgments 
                                                 
9 The itemized components of the appraisal award were as 
follows: dwelling, second floor kitchen, septic system, exterior 
concrete, exterior blacktop, shed by garage, outbuildings, 
trees, sod, flowers, plants, and shrubs. 
10 This 
price 
is 
just 
under 
$40,000 
less 
than 
the 
replacement value award.  Presumably this is to allow for 
additional costs or upgrades not included in the proposal, like 
appliances. 
No. 
2007AP1992   
 
11 
 
regarding the attractiveness or unattractiveness of certain 
features of his original home.  These judgments influenced their 
award, he maintained.11  Donaubauer also pointed out that the 
home proposal from the third-party contractor was more than 600 
square feet smaller and came with completely different design 
features than his old home.  He asserted that this also shows 
the appraisers did not understand their role.  On December 15, 
2006, Donaubauer informed the circuit court of his desire to 
conduct depositions of the appraisers and possibly the home 
builder in order to support his motion to vacate or modify the 
appraisal award. 
¶27 On 
February 
8, 
2007, 
Farmers 
moved 
to 
quash 
Donaubauer's discovery.  On March 21, 2007, Farmers renewed its 
motion for summary judgment on Donaubauer's breach of contract 
claim.  On May 16, 2007, Judge Wasielewski granted Farmers' 
motion to quash Donaubauer's discovery requests and denied 
Donaubauer's motion to modify or vacate the appraisal award. 
¶28 On June 1, 2007, Donaubauer moved for a stay of the 
circuit court proceedings until after the court of appeals 
determined whether it would accept Donaubauer's petition for 
leave to appeal a non-final order.  On June 13, 2007, Farmers 
                                                 
11 One e-mail from July 26, 2006, questioned the appropriate 
cost for "a debatable frivolous kitchen."  Another e-mail from 
August 11, 2006, called Donaubauer's original home a "very 
inefficient 
and 
relatively 
aesthetically 
unattractive 
structure," noting that the appraisers would be "presenting a 
comparable structural quality but vastly improved modern day 
dwelling." 
No. 
2007AP1992   
 
12 
 
moved for summary judgment on Donaubauer's bad faith claim.  On 
June 20, 2007, Judge Wasielewski denied Donaubauer's motion to 
stay the circuit court proceedings, and granted Farmers' renewed 
motion for summary judgment on Donaubauer's breach of contract 
claims.  On July 24, 2007, Judge Wasielewski granted Farmers' 
motion for summary judgment on Donaubauer's bad faith claims.   
¶29 Donaubauer then appealed, and in a published decision, 
the court of appeals rejected Donaubauer's claims, affirming the 
circuit court on all counts.12  We accepted review and now 
address 
Donaubauer's 
claims 
regarding 
his 
compelled 
participation in the appraisal process, vacating or modifying 
the appraisal award, and the denial of discovery into the 
appraisal award. 
II. 
STANDARD OF REVIEW 
 
¶30 This case involves the construction of an insurance 
contract, which we review de novo.  Cunningham v. Metro. Life 
Ins. Co., 121 Wis. 2d 437, 450, 360 N.W.2d 33 (1985).  We are 
also reviewing the decisions of the circuit court on whether to 
grant discovery and relieve Donaubauer from his agreement to 
participate in the appraisal.  We review these decisions for 
erroneous exercise of discretion.  Schauer v. DeNeveu Homeowners 
Ass'n, 194 Wis. 2d 62, 70, 533 N.W.2d 470 (1995); Earl v. Gulf & 
W. Mfg. Co., 123 Wis. 2d 200, 204, 366 N.W.2d 160 (Ct. App. 
                                                 
12 In addition to the three issues we address today, the 
court of appeals rejected Donaubauer's bad faith and breach of 
contract claims, as well as a claim that the circuit court 
denied him various constitutional rights.  Farmers Auto. Ins. 
Ass'n., 313 Wis. 2d 93, ¶¶23-40. 
No. 
2007AP1992   
 
13 
 
1985).  We review the trial court's decision to grant summary 
judgment to Farmers and confirm the appraisal award de novo.  
Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315-17, 401 
N.W.2d 816 (1987). 
III. DISCUSSION 
A. 
 
¶31 The first issue is whether the circuit court erred in 
compelling Donaubauer to participate in the binding appraisal 
process.  Donaubauer maintains that he did not agree to engage 
in binding appraisal, only the appraisal process specified in 
the appraisal clause of the Policy, which he believes is non-
binding. 
 
¶32 The circuit court's decision to grant Farmers' motion 
to enforce the out-of-court written agreement between the 
parties was within the trial court's discretion.  Gaugert v. 
Duve, 2001 WI 83, ¶44, 244 Wis. 2d 691, 628 N.W.2d 861.  We look 
for reasons to sustain a trial court's discretionary decision.  
Schauer, 194 Wis. 2d at 71.  We will not reverse the court's 
discretionary act if the record indicates that the court 
exercised its discretion and that there was a reasonable basis 
for the court's decision.  State ex rel. M.L.B. v. D.G.H., 122 
Wis. 2d 536, 542, 363 N.W.2d 419 (1985); Micro-Managers, Inc. v. 
Gregory, 147 Wis. 2d 500, 515, 434 N.W.2d 97 (Ct. App. 1988).  
While reasonable persons may disagree with a court's action, 
"all that this court need find to sustain a discretionary act is 
that the trial court examined the relevant facts, applied a 
proper standard of law, and, using a demonstrated rational 
No. 
2007AP1992   
 
14 
 
process, reached a conclusion that a reasonable judge could 
reach."  Loy v. Bunderson, 107 Wis. 2d 400, 414-15, 320 N.W.2d 
175 (1982). 
 
¶33 Donaubauer concedes that he agreed to participate in 
the appraisal process specified in the appraisal clause of the 
Policy.13  Donaubauer argues that he should not have been 
compelled to participate in binding appraisal, though, for two 
reasons.  First, he asserts that the appraisal process in the 
Policy was non-binding.  Second, he argues that the circuit 
court was wrong to force him to abide by an agreement when 
Lynch, 163 Wis. 2d at 1011-14, according to Donaubauer, 
precludes 
an 
insurance 
company 
from 
invoking 
a 
Policy's 
appraisal process after a lawsuit has been filed, and when the 
insurance company had a reasonable amount of time to invoke the 
appraisal process before the suit commenced. 
                                                 
13 Even if he had not conceded this point, the evidence is 
overwhelming 
that 
this 
is 
the 
case, 
particularly 
the 
correspondence between the parties from March 2005 through June 
2005.  Farmers specifically referenced the Policy's appraisal 
process in its March 22, 2005, letter and demanded that 
Donaubauer follow that process.  Donaubauer responded March 25, 
2005, requesting that the 20 day response period specified in 
the appraisal process be tolled due to Donaubauer's bad health.  
The May 12, 2005, letter from Farmers confirms an earlier phone 
call indicating Donaubauer "has agreed to the appraisal process 
referenced in my earlier letters."  A follow-up letter from 
Donaubauer's attorney the next day, May 13, 2005, explicitly 
confirmed that Donaubauer "is willing to fulfill his contractual 
obligations and participate in the appraisal that your client 
has requested."  Additional correspondence between the parties 
in June 2005 regards the selection of appraisers as required by 
the Policy's appraisal process.  Furthermore, on several 
occasions 
before the circuit court, Donaubauer's attorney 
admitted that he had agreed to the appraisal process specified 
in the Policy. 
No. 
2007AP1992   
 
15 
 
¶34 Regarding his first argument, Donaubauer is simply 
wrong that the Policy's appraisal process is non-binding.  The 
appraisal clause in the Policy provides: 
Appraisal. If you and we fail to agree on the amount 
of loss, either may demand an appraisal of the loss. 
In this event, each party will choose a competent 
appraiser within 20 days after receiving a written 
request from the other. The two appraisers will choose 
an umpire. If they cannot agree upon an umpire within 
15 days, you or we may request that the choice be made 
by a judge of a court of record in the state where the 
residence premise is located. The appraisers will 
separately set the amount of loss. If the appraisers 
submit a written report of an agreement to us, the 
amount agreed upon will be the amount of loss. If they 
fail to agree, they will submit their differences to 
an umpire. A decision agreed to be any two will set 
the amount of loss. 
This provision is plain and unambiguous.  It provides for an 
appraisal process that may be invoked by either party.  If and 
when one party invokes this clause, the other side must abide by 
it.  Each party then selects its own appraiser, and the 
appraisers select an umpire (or if they cannot, a judge does 
so).  The appraisers work to determine the amount of loss, and 
the amount agreed upon by any two appraisers "will set the 
amount of loss."14  The text of the provision clearly provides 
                                                 
14 The dissent argues that because the word "binding" or 
some form thereof is not in the appraisal clause, the clause is 
not sufficiently explicit so as to be binding.  Dissent, ¶64.  
This is an odd argument.  The dissent cites no authority for the 
proposition that a clause needs to have the word "binding" in 
order to be so.  The clause itself, as the circuit court and 
court of appeals found abundantly obvious, is unambiguously 
binding when validly invoked. 
No. 
2007AP1992   
 
16 
 
for an appraisal process that may be invoked by either party and 
"will set the amount of loss" upon its completion.15 
 
¶35 Donaubauer's second argument is that he justifiably 
relied 
on 
Farmers' 
representations 
that 
Donaubauer 
must 
participate in the appraisal process once invoked by Farmers.    
The root of Donaubauer's problem with the agreement is that, 
after agreeing to the appraisal process, he found a case (Lynch) 
that he believes would have allowed him to refuse Farmer's 
demand to participate in the Policy's appraisal process.  He 
asserts that this means Farmers misrepresented the Policy's 
provisions, that there was a mutual mistake of law, and that the 
circuit court should have allowed him to withdraw from his 
agreement to participate in the appraisal process. 
 
¶36 Initially, we note, though we need not decide, that it 
is far from conclusive that Lynch would have prevented Farmers 
from invoking and enforcing the appraisal process here as 
Donaubauer asserts.  Lynch did not hold that invocation of a 
binding appraisal clause is per se precluded after one party 
files suit.  Rather, Lynch held that the insurer in that case 
could not invoke the appraisal clause when it "had ample 
opportunity" to do so before suit was filed.  Lynch, 163 Wis. 2d 
                                                 
15 Donaubauer also argues that he believed the appraisal 
process was non-binding all along.  This is an unpersuasive 
argument.  In Farmers' first letter regarding the appraisal 
process in March, Farmers stated that the appraisal process was 
binding, and explicitly asked Donaubauer to respond in writing 
if he disagreed with this analysis.  Donaubauer never responded, 
and instead simply affirmed that he would abide by his 
contractual obligations and proceed with the appraisal process. 
No. 
2007AP1992   
 
17 
 
at 1013.  We need not reach Lynch's application here because the 
parties agreed in writing to the appraisal process specified in 
the Policy. 
 
¶37 It is also clear that there was no mutual mistake as 
Donaubauer claims.  A mutual mistake is "one reciprocal and 
common to both parties, where each alike labors under a 
misconception 
in 
respect 
to 
the 
terms 
of 
the 
written 
instrument."  Cont'l Cas. Co. v. Wis. Patients Comp. Fund, 164 
Wis. 2d 110, 117, 473 N.W.2d 584 (Ct. App. 1991).  "[A] party's 
mistake as to the scope, meaning or impact of a written 
instrument is a ground for attacking the validity of a contract 
only if the mistake is based on a past or present fact."  
Milwaukee 
Women's 
Med. 
Serv., 
Inc. 
v. 
Scheidler, 
228 
Wis. 2d 514, 526, 598 N.W.2d 588 (Ct. App. 1999) (citing Cont'l 
Cas. Co., 164 Wis. 2d at 118 (emphasis added)). 
 
¶38 A party entering into an agreement, though, is 
responsible for evaluating the obligations it takes on before 
entering into that agreement.  See Pac. Indem. Co. v. Wyrembek, 
183 F.Supp. 252, 255 (E.D. Wis. 1960).  A mistake of law by a 
party who fails to research and protect its legal rights, and 
who fails to fully consider the legal consequences of entering 
into an agreement, particularly when that party is represented 
by counsel, does not usually constitute grounds to rescind the 
agreement.  See Milwaukee Women's Med. Serv., Inc., 228 
Wis. 2d at 526. 
 
¶39 Here, there was no mutual misconception regarding a 
past or present fact.  The issue is that Donaubauer did not 
No. 
2007AP1992   
 
18 
 
contest Farmers' assertion that he must submit to binding 
appraisal.  Certainly, even had he known about Lynch, Donaubauer 
could have entered into the agreement to submit to the Policy's 
appraisal process anyway.  As the court of appeals explained: 
[W]e are not aware of any authority that permits a 
party to withdraw from an agreement based on that 
party's ignorance of case law that might have affected 
a decision whether to enter into that agreement.  A 
rule that allowed a party to undo an agreement based 
on what was discovered during post-agreement legal 
research 
would 
make 
all 
agreements 
hostage 
to 
agreement-remorse. 
 
¶40 The 
ultimate 
question 
on 
review 
is 
even 
more 
deferential.  We are confined to determining whether the circuit 
court erroneously exercised its discretion in enforcing the 
agreement between the parties.  The circuit court had ample 
reason to bind Donaubauer to his word.  Allowing a party to 
withdraw from an agreement because it did not apprehend the 
applicable law beforehand sets a dangerous precedent.  At the 
end of the day, "[t]he fact that a[n] [agreement] appears by 
hindsight to have been a bad bargain is not sufficient by itself 
to warrant relief."  Pasternak v. Pasternak, 14 Wis. 2d 38, 46, 
109 N.W.2d 511 (1961).  The circuit court exercised its 
discretion in this regard and had a reasonable basis for its 
decision.  Therefore, the circuit court did not err in 
compelling Donaubauer to participate in the binding appraisal 
process to which he previously agreed. 
No. 
2007AP1992   
 
19 
 
 
B. 
 
¶41 The second issue is whether the circuit court should 
have vacated or modified the appraisal award.  Donaubauer 
asserts that the appraisal award should be vacated because the 
appraisers did not understand their task. 
 
¶42 The appraisal process is usually conducted pursuant to 
a contract, here a contract for insurance.  A court's review of 
an appraisal award is therefore grounded in principles of 
contract interpretation.16  An appraisal process is an agreement 
by parties to a contract to allow third party experts to 
determine the value of an item.  The court's role is not to 
determine whether the third party experts accurately valued the 
item (as if the court itself could do better job), but whether 
the 
third 
party 
experts 
understood 
and 
carried 
out 
the 
contractually assigned task.  The obvious point of contracting 
for an appraisal process is to keep a jury or court out of that 
decision.  Courts have an obligation to enforce this aspect of 
an agreement between parties by asserting only limited power to 
review appraisal awards. 
                                                 
 
16 The parties spend significant time in their briefs 
comparing arbitration and appraisals——a comparison that is apt 
in many ways and prevalent in the scholarly literature.  
However, arbitration is governed by statute in Wisconsin, while 
appraisals are not.  Our treatment of the appraisal process is 
informed by common law, contract interpretation, common sense, 
and the efficient administration of justice. 
 
No. 
2007AP1992   
 
20 
 
 
¶43 Appraisals also deserve a more deferential review 
because the appraisal process is a fair and efficient tool for 
resolving disputes.  First and foremost, the process is fair to 
both parties.  It allows each to appoint an appraiser of their 
own liking, with a neutral umpire as the deciding vote.  
Appraisals also promote finality, are time and cost-efficient, 
and place a difficult factual question——the replacement value of 
an item——into the hands of those best-equipped to answer that 
question.  As a form of alternative dispute resolution, the 
appraisal process is favored and encouraged.  See generally, 
State v. P.G. Miron Constr. Co., 181 Wis. 2d 1045, 1055, 512 
N.W.2d 499 (1994) ("It has been the policy of this state and 
this 
court 
to 
foster 
arbitration 
as 
an 
alternative 
to 
litigation.  The advantage of such a process lies in the 
avoidance of the formalities, delay, and expense of litigation." 
(citations omitted)). 
¶44 Appraisals, then, are presumptively valid.  They 
should not be lightly set aside, even if the court disagrees 
with the award.  Dechant v. Globe & Rutgers Fire Ins. Co., 194 
Wis. 579, 581, 217 N.W. 322 (1928).  An appraisal may be set 
aside only upon the showing of fraud, bad faith, a material 
mistake, or a lack of understanding or completion of the 
contractually assigned task.  Id.; see also 44A Am. Jur. 2d 
Insurance § 1665 (2009); Cent. Life Ins. Co. v. Aetna Cas. & 
Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991); Wells v. Am. States 
Preferred Ins. Co., 919 S.W.2d 679, 683 (Tex. App. 1996).  
Unhappiness with the amount of an appraisal award is not enough 
No. 
2007AP1992   
 
21 
 
to set it aside.  Dechant, 194 Wis. at 581 (holding that even a 
substantial difference between the appraisal award and the loss 
as determined by the jury was not sufficient to set aside an 
award). 
¶45 Review of an appraisal award should usually be limited 
to the face of the award.17  See Quinn v. New York Fire Ins. Co., 
22 Wis. 2d 495, 500-02, 126 N.W.2d 211 (1964) (holding that 
because the face of the appraisal award did not include the 
actual cash value as required by the Policy, the award, on its 
face, did not comply with the requirements of the Policy and 
should be set aside).  If fraud, bad faith, material mistake, or 
a 
lack 
of 
understanding 
of 
the 
process 
are 
reasonably 
implicated, it is within a judge's discretion to allow further 
inquiry or discovery.  Ultimately, the greater danger in 
                                                 
17 The dissent takes issue with this statement, believing 
that this approach does not ensure a fair appraisal process.  
Dissent, ¶¶73-74.  It is the dissent's approach, however, that 
is radical.   
The dissent neglects the fact that the parties contracted 
for the appraisal process.  Thus, a deferential review is in 
accord with the parties' bargained-for agreement.  In addition, 
we have not stated that review is always limited to the face of 
the award.  Rather, we have stated that review is usually 
limited to the face of the award.  This gives the circuit judge 
discretion to exercise his or her judgment in the interests of 
fairness, while also ensuring that appraisals are not readily 
subject to challenge in courts, and are given the deference they 
deserve.  Finally, the dissent neglects the interests of 
efficiency and finality.  The purpose of alternative dispute 
resolution methods such as binding appraisal is to help 
litigants 
resolve 
their 
disputes 
relatively 
quickly 
and 
inexpensively.  The dissent's approach would defeat this purpose 
by expanding and protracting expensive and stressful litigation—
—the exact opposite purpose such clauses were intended to have.   
No. 
2007AP1992   
 
22 
 
reviewing appraisal awards is not an unjust award, but litigants 
second-guessing an award obtained as a result of a process to 
which they agreed.  Courts must not substitute their judgment 
for that of the appraisers. 
¶46 In the case at bar, Donaubauer challenges the award on 
the grounds that the appraisers did not understand their role in 
the process.  Here, the face of the award demonstrates that the 
appraisers understood and accomplished their contractual task.  
The appraisal award itemized the components of the valuation and 
gave the replacement cost and actual cash value for each.  The 
award specified values for the dwelling itself, and gave 
separate additional values for the second floor kitchen, septic 
system, exterior concrete, exterior blacktop, shed by the 
garage, outbuildings, trees, sod, flowers, plants, and shrubs.  
Nothing on the face of the award demonstrates that the 
appraisers lacked understanding of their task. 
¶47 Donaubauer asserts that the communications between the 
parties evince a misunderstanding of their task.  Since we see 
nothing 
on 
the 
face 
of 
the 
award 
that 
supports 
a 
misunderstanding, the communications need not be examined.  But 
even if we took these communications into account, we do not 
believe they show what Donaubauer alleges.  When viewed in 
context, they appear to be the normal back-and-forth between 
appraisers in an effort to ascertain the true replacement value.  
Donaubauer's focus on the appraisers' communications embodies 
precisely the kind of second-guessing of the appraisal process 
we must avoid. 
No. 
2007AP1992   
 
23 
 
¶48 Donaubauer also argues that the replacement value in 
the appraisal award was not sufficient to provide a replacement 
of like kind and quality as seen from the discrepancy between 
his original home and the proposed home from the third-party 
builder.  He notes that the proposed home was 600 square feet 
smaller, and did not contain many features that were included in 
his original home. 
 
¶49 These are specious arguments.  The simple fact is that 
the home proposal was not part of the appraisal award.  It was a 
proposed home design based on the amount of the award, but it 
was not a part of the award.  Donaubauer certainly had and has 
the freedom to solicit additional design proposals from other 
contractors that fit his desired specifications.18 
¶50 The real issue, of course, is that Donaubauer feels 
the award was too low.  It may be that the award was low, and it 
may be that Donaubauer cannot obtain a 4,000 square foot home 
with the same specifications based on the award.  Conversely, 
the award may be too high.  That is of no event.  The salient 
fact is that Donaubauer agreed to participate in the binding 
appraisal process he contracted for in his Policy.  There is no 
                                                 
18 The dissent never addresses this fact.  Rather, the 
dissent speculates that the homebuilder who submitted a proposed 
home plan to Donaubauer "appeared to believe that the award was 
insufficient to cover the cost of a home of like kind and 
quality to Donaubauer's original home."  Dissent, ¶74.  No such 
conclusion can persuasively be drawn from the fact that one home 
builder submitted one bid and in so doing, omitted certain 
features that were present in the destroyed home.  The record 
contains no evidence of what sort of home Donaubauer could 
receive with the appraisal award. 
No. 
2007AP1992   
 
24 
 
credible evidence on the face of the award of fraud, bad faith, 
material mistake, or a failure to understand the contractually 
assigned task.  Therefore, the award should not be set aside. 
C. 
¶51 The final question is whether the circuit court erred 
when it denied discovery into the appraisal process.  Donaubauer 
argues that because replacement value of the home was at issue, 
and his discovery requests were relevant to that issue, that his 
discovery requests were improperly denied.  He asserts that if a 
prima facie case for fraud, bad faith, or failure to appreciate 
the task exists, then discovery should be allowed. 
¶52 We agree that if the challenger of the award shows 
prima facie evidence of a reviewable claim——fraud, bad faith, 
material mistake, or a failure to understand or complete the 
contractually 
assigned 
task——then 
discovery 
is 
potentially 
available.  Even so, the circuit court is vested with discretion 
on discovery disputes.  Earl, 123 Wis. 2d at 204.  The record 
here is clear that the trial judge examined the relevant facts, 
applied a proper standard of law, and reached a conclusion that 
a reasonable judge could reach in precluding Donaubauer from 
deposing the appraisers and the third-party contractor.  See 
Loy, 107 Wis. 2d at 414-415.  The trial judge did not believe 
the appraisers' communications displayed a misunderstanding of 
No. 
2007AP1992   
 
25 
 
their task, and this was a reasonable conclusion.19  Therefore, 
we hold that the trial court did not erroneously exercise its 
discretion when it denied Donaubauer's discovery requests. 
IV. 
CONCLUSION 
¶53 We hold that the circuit court did not erroneously 
exercise its discretion in enforcing the agreement between the 
parties to participate in the binding appraisal process.  We 
also hold that the circuit court properly affirmed the appraisal 
award because there was no evidence that the appraisers engaged 
in fraud, bad faith, material mistake, or that they lacked 
understanding of their contractually assigned task.  Finally, we 
hold that the circuit court did not erroneously exercise its 
discretion when it denied Donaubauer the opportunity to conduct 
discovery into the appraisal process.  For these reasons, the 
holding of the court of appeals is affirmed. 
By the Court.—The decision of the court of appeals is 
affirmed. 
 
                                                 
19 In the hearing on this question, the trial judge was 
presented with evidence of the appraisers' communications, but 
emphasized that the parties had contracted for the appraisal 
process, which he found was fair by its design.  The trial court 
noted that discovery and further inquiry into the appraisal 
process would be unwarranted absent a showing of fraud, a lack 
of integrity in the process, partiality, or other serious 
misconduct.  After consideration of these factors as applied to 
the facts of the case, the court concluded that Donaubauer had 
not presented sufficient cause to second guess the award, and 
was not entitled to discovery.  This is a manifestly reasonable 
result and a sound exercise of judicial discretion by the trial 
court. 
No.  2007AP1992.awb 
 
1 
 
¶54 ANN WALSH BRADLEY, J.   (dissenting).   Although both 
arbitration 
and 
appraisal 
are 
contractual 
methods 
for 
alternative 
dispute 
resolution, 
there 
are 
significant 
differences.  One difference lies in the statutory formality 
established to define the parties' responsibilities and protect 
their rights.  "Arbitration in Wisconsin is a formal procedure, 
and the parties' rights and responsibilities are defined by 
statute. . . . Appraisal in Wisconsin, on the other hand, is a 
mechanism of dispute resolution that is not regulated by statute 
and, depending on the parties' agreement subjecting themselves 
to an appraisal process, may or may not be formal."  Lynch v. 
Am. 
Fam. 
Mut. 
Ins. 
Co., 
163 
Wis. 2d 1003, 
1010-11, 
473 
N.W.2d 515 (Ct. App. 1991).   
¶55 The 
appraisal 
process 
may 
be 
less 
formal 
than 
arbitration, but that does not mean that it can be less fair.1   
¶56 Even though the exact process necessary to create a 
fair method for resolving disputes through appraisal is not set 
forth in the statutes, there must be at least a minimum level of 
process to ensure that the parties are heard and that an 
appraisal decision is fairly reached and reviewed.  This is 
especially important because the form appraisal clauses in 
standard insurance policies, which are contracts of adhesion, 
may result in a policyholder's forfeiture of the right to have a 
jury determine the amount of loss.   
                                                 
1 See generally Timothy P. Law & Jillian L. Starinovich, 
What Is It Worth?  A Critical Analysis of Insurance Appraisal, 
13 Conn. Ins. L.J. 291 (2006-2007). 
No.  2007AP1992.awb 
 
2 
 
¶57 The 
majority, 
however, 
seems 
oblivious 
to 
the 
necessity of establishing minimum standards for fairness in the 
appraisal process because it: (1) allows for the forfeiture of 
an important right by erroneously reading into the appraisal 
clause the word "binding" where it does not exist; (2) appears 
to constrain meaningful review of an appraisal award under most 
circumstances by limiting review to the face of the award; and 
(3) affirms the circuit court's erroneous decision refusing to 
permit Donaubauer to conduct necessary discovery in an action in 
the circuit court to invalidate the appraisal award.  Because 
the majority fails to establish even minimum standards for 
fairness in the appraisal process, I respectfully dissent. 
I 
¶58 Before addressing the infirmities in the majority 
opinion, 
I 
briefly 
describe 
its 
response 
to 
the 
issues 
presented.  The majority concludes that Donaubauer agreed to 
binding appraisal——not just once, but twice.  It interprets a 
clause in the policy that the agreement of two appraisers "will 
set the amount of loss" as an explicit statement that the 
appraisal is binding.  Majority op., ¶34.  Hedging its bets, it 
also determines that Donaubauer's letter stating that he was 
"willing to fulfill his contractual obligations" amounts to a 
second agreement, and that "Donaubauer did not contest Farmers' 
assertion that he must submit to binding appraisal."  Majority 
op., ¶39. 
¶59 In addition, the majority concludes that appraisals 
are presumptively valid, and that they are fair because each 
No.  2007AP1992.awb 
 
3 
 
party is allowed "to appoint an appraiser of their own liking, 
with a neutral umpire as the deciding vote."  Id. op., ¶43.  It 
determines that "[r]eview of an appraisal award should usually 
be limited to the face of the award."  Id., ¶45.   Donaubauer 
argues that the arbitrators' e-mail communications are evidence 
that 
they 
misunderstood 
their 
role 
in 
the 
process.  
Nevertheless, the majority concludes, "Since we see nothing on 
the face of the award that supports a misunderstanding, the 
communications need not be examined."  Id., ¶47. Further, it 
concludes that the circuit court correctly exercised its 
discretion when it did not permit Donaubauer to conduct 
discovery in the circuit court action.  Majority op., ¶52. 
II 
¶60 I examine first whether Donaubauer is bound by the 
amount 
determined 
in 
the 
appraisal 
process 
and 
is 
thus 
foreclosed from pursuing an action in a court of law.  The right 
to access courts in order to file a lawsuit for damages is an 
important right for all citizens.  "[A]ny waiver of the right 
must be clear and unambiguous."  DeGroot v. Farmers Mut. Hail 
Ins. Co. of Iowa, 643 N.E.2d 875, 876 (Ill. App. 1994) 
(determining that an appraisal clause similar to clause before 
us today did "not operate as a final and binding resolution of 
the party's dispute" and did "not foreclose either party from 
maintaining an action in a court of law"). 
¶61 Appraisal clauses, like arbitration clauses, may be 
binding or nonbinding.  In order to determine whether the 
No.  2007AP1992.awb 
 
4 
 
appraisal clause here was binding or nonbinding, we must examine 
the words of the insurance contract.   
¶62 This examination has double import here because of 
Donaubauer's subsequent agreement to "fulfill his contractual 
obligations."  See majority op., ¶17.  Donaubauer's subsequent 
agreement is nothing more or less than an agreement to fulfill 
the obligations set forth in his insurance contract. 
¶63 The contract provides:   
If you and we fail to agree on the amount of loss, 
either may demand an appraisal of the loss.  In this 
event, 
each 
party 
will 
choose 
a 
competent 
appraiser . . . . The appraisers will separately set 
the amount of loss.  If the appraisers submit a 
written report of an agreement to us, the amount 
agreed upon will be the amount of loss.  If they fail 
to agree, they will submit their differences to the 
umpire.  A decision agreed to by any two will set the 
amount of loss. 
¶64 It 
is 
particularly 
noteworthy 
that 
the 
words 
"binding," "bind," or "bound" appear nowhere in this appraisal 
clause.  Such words, or a variation thereon, are completely 
absent from the text.  Yet both the majority and the circuit 
court read the word "binding" into the clause where it does not 
exist. 
¶65 The majority and the circuit court commit the same 
error: they conflate the agreement to participate in an 
appraisal process (which appears in the text of the clause) with 
an agreement to be bound by the amount determined in the process 
(which does not appear in the text).  See majority op., ¶3 ("We 
hold that the circuit court did not erroneously exercise its 
No.  2007AP1992.awb 
 
5 
 
discretion in enforcing the agreement between the parties to 
participate in the binding appraisal process."). 
¶66 I instead follow the basic principle of insurance 
contract interpretation that any ambiguity is construed against 
the drafter of the policy.  If Farmers wanted the contract to 
provide for a binding appraisal process, it should have heeded 
the advice offered to those who draft contractual appraisal 
clauses: when drafting a binding appraisal clause you should 
expressly state that it is binding in order to avoid any 
ambiguity. See Thomas J. Stipanowich, Contract and Conflict 
Management, 2001 Wis. L. Rev. 831, 871 (discussing the nature 
and process of decision making, including whether appraisals are 
binding or nonbinding, and stating: "[I]t behooves drafters to 
make explicit the parties' expectations[.]"); see also Neil S. 
Hecht, Variable Rental Provisions in Long Term Ground Leases, 72 
Colum. L. Rev. 625, 685 (1972) ("To anticipate [the] possibility 
[that one of the parties is unwilling to accept the appraisers' 
determination], it is wise to add a clause providing that the 
decision of the appraisers shall bind the parties[.]"). 
¶67 Insurance policies around the country follow that 
advice and expressly state in the appraisal clause whether it is 
binding.  See, for example, the clause set forth in another 
Wisconsin case, Bowman v. Famers Insurance Group of Companies: 
You or we may demand appraisal of the loss.  Each will 
appoint 
and 
pay 
a 
competent 
and 
disinterested 
appraiser . . . . Each appraiser will state separately 
the actual cash value and the amount of loss.  An 
award in writing by any two appraisers will determine 
the amount payable, which shall be binding on the 
parties.  
No.  2007AP1992.awb 
 
6 
 
No. 1994AP661, unpublished slip op. (Wis. Ct. App. Apr. 27, 
1995) (emphasis added); see also Canfield v. Watertown Fire Ins. 
Co., 55 Wis. 419, 12 N.W. 252 (1882), infra, ¶79 n.2 ("[T]heir 
award in writing shall be binding on the parties hereto[.]")  By 
contrast, the words in the insurance contract before us simply 
fail to make binding the acceptance of the appraisal amount.   
¶68 The same wording——verbatim to Donaubauer's policy——was 
examined in Merrimack Mutual Fire Insurance Company v. Batts, 59 
S.W.3d 142 (Tenn. Ct. App. 2001).  In that case, an insured 
wanted to enforce the appraisal clause against the insurance 
company.  She argued that the appraisal clause in her homeowners 
policy was in essence a binding arbitration agreement requiring 
the insurance company to pay the full amount of the appraisers' 
calculation of her loss.   
¶69 The court set forth the rules of construction for 
insurance policies.  It stated that "[t]he respective rights of 
an insured and an insurance company are governed by their 
contract of insurance."  Id. at 148.  "As with any other 
contract, the courts must give effect to the parties' intentions 
as reflected in their written contract of insurance."  Id.  
Examining the exact words that are now before us, the court 
concluded that the appraisal clause did not bind the insurance 
company to pay the amount set by the appraisers.  Id. at 150. 
¶70 Consistent with Merrimack Mutual, Donaubauer was not 
required under the express language of the policy to be bound by 
the amount set by the appraisers.  In fact, under Lynch v. 
American Family Mutual Insurance Company, 163 Wis. 2d 1003, he 
No.  2007AP1992.awb 
 
7 
 
was not even bound to participate in any fashion whatsoever in 
the appraisal process. 
¶71 In Lynch, the court held that "an insurance company 
may not demand an appraisal of a loss after the commencement of 
an action by the insured on that loss when the insurance company 
failed to demand the appraisal prior to the lawsuit even though 
it had an opportunity to do so."  Id. at 1008.  Here, the facts 
are clear.  On April 15, 2003, Donaubauer's home was destroyed 
by fire.  A year later, on April 12, 2004, he commenced a 
lawsuit in the circuit court.  Almost another year passed after 
the commencement of the action before Farmers invoked the 
appraisal 
clause 
and 
designated 
its 
appraiser. 
 
Farmers 
certainly had plenty of opportunity to demand an appraisal prior 
to the commencement of the action and it simply failed to do so. 
¶72 When 
agreeing to participate in appraisal after 
commencing litigation against Farmers, Donaubauer agreed only to 
"fulfill his contractual obligations" under the policy.  Here, 
the parties' agreement, as reflected in the policy, did not 
expressly provide for binding appraisal.  Accordingly, I 
conclude that Donaubauer is not bound to accept the amount 
determined 
by 
the 
appraisal. 
 
He 
has 
not 
clearly 
and 
unambiguously forfeited his right to have a jury decide the 
issue of his damages. 
III 
¶73 Having concluded that parties can be bound to an 
appraisal process without an explicit agreement, the majority 
appears to constrain any meaningful review of an appraisal award 
No.  2007AP1992.awb 
 
8 
 
under most circumstances.  The majority opinion asserts that 
"[r]eview of an appraisal award should usually be limited to the 
face of the award," but that "[i]f fraud, bad faith, material 
mistake, or a lack of understanding of the process are 
reasonably implicated, it is within a judge's discretion to 
allow further inquiry or discovery."  Majority op., ¶45. 
¶74 Here, 
Donaubauer 
presented 
evidence 
that 
the 
appraisers misunderstood their role.  The appraisers' e-mail 
communications indicated that they might not understand that 
they were required to provide an award that would permit 
Donaubauer to build a new home of "like kind and quality," as 
provided 
by 
the 
insurance 
policy. 
 
This 
inference 
is 
strengthened by the fact that the very same homebuilder who 
assisted the appraisers in calculating the amount of the award 
submitted a proposal for Donaubauer's new home——and it was 600 
square feet smaller than the original home.  See majority op., 
¶25.  Thus, the homebuilder appeared to believe that the award 
was insufficient to cover the cost of a home of like kind and 
quality to Donaubauer's original home. 
¶75 Nevertheless, despite the extrinsic evidence that the 
appraisers failed to understand their role in the process, the 
majority limits its review to the face of the award.  It states: 
"Since we see nothing on the face of the award that supports a 
misunderstanding, the communications need not be examined."  
Majority op., ¶47. 
¶76 Rare will be the case, however, where fraud, bad 
faith, material mistake, or lack of understanding of the process 
No.  2007AP1992.awb 
 
9 
 
is apparent from the face of an appraisal award. The majority's 
determination that review is usually limited to the face of the 
award is thus tantamount to a conclusion that as long as the 
appraisers 
provide 
dollar 
figures 
for 
several 
enumerated 
categories, the award will stand.  This determination is not 
adequate to ensure that appraisals are fundamentally fair.  
¶77 Further, this hollow standard of review is not 
mandated by our case law.  The majority cites Quinn v. New York 
Fire Insurance Company, 22 Wis. 2d 495, 126 N.W.2d 211 (1964) 
for the proposition that review "should usually be limited to 
the face of the award," but this is a mischaracterization of 
Quinn.  In that case and under the terms of the policy, the 
appraiser was required to appraise the actual cash value of 
property damaged by fire.  Nevertheless, the award made "no 
reference to actual cash value; it sets forth only the loss."  
Id. at 500.  The court determined that "The award, on its face, 
does 
not 
comply 
with 
the 
requirements 
of 
the 
policy."  
Therefore, the court concluded that the appraisal award was "of 
no effect."  Id. at 502. 
¶78 Quinn affirms the principle that when it is apparent 
from the face of the award the arbitrators did not understand 
the process, the award is invalid.  However, it does not limit 
the court's review to the face of the award.  Nowhere does it 
state that grounds for invalidating an appraisal award must 
usually be apparent on the award's face. 
¶79 In 
fact, 
our 
case 
law 
supports 
the 
opposite 
conclusion.  In Canfield, 55 Wis. 419, the insured filed a 
No.  2007AP1992.awb 
 
10 
 
lawsuit in court to set aside an appraisal.2  The insured 
testified that he was not permitted to present evidence to the 
appraisers and that the appraisers incorrectly believed that 
certain items were not covered by the insurance policy.  The 
court 
excluded 
the 
insured's 
testimony. 
 
On 
appeal, 
we 
determined that the testimony was wrongly excluded.  We stated 
that the insured "may set up any matter which shows the award 
invalid, whether such matter appears upon its face or not."  Id. 
at 424. 
¶80 Here, the majority breaks new ground by limiting, 
under most circumstances, a court's review of an appraisal to 
the face of the award.  The result will often prevent any 
meaningful review at all. 
¶81 In this case, the appraisal award is a two-page 
document.  The first page of the award contains: a signed 
declaration of the appraisers that they will act impartially and 
make a "true, just and conscientious award"; the selection of an 
umpire; a statement of the qualifications of the umpire; and a 
statement of the total replacement cost and actual cash value of 
loss.  The second page provides an itemization of the total 
replacement cost and the total actual cash value of the 
                                                 
2 Although the court in Canfield appears to use the terms 
"appraisal" and "arbitration" interchangeably, the clause in the 
insurance policy was for appraisal of the amount of loss: "If 
differences of opinion should arise between the parties hereto 
as to the amount of loss or damage, the subject shall be 
referred to two disinterested and competent men . . . who shall 
ascertain, estimate, and appraise the loss or damage, and their 
award in writing shall be binding on the parties hereto[.]"  
Canfield v. Watertown Fire Ins. Co., 55 Wis. 419, 420, 12 N.W. 
252 (1882).   
No.  2007AP1992.awb 
 
11 
 
following 
items: "dwelling"; "2nd floor kitchen"; "septic 
system"; "exterior concrete"; "exterior blacktop"; "shed by 
garage"; "outbuildings"; "trees"; "sod"; and "flowers, plants, 
shrubs." 
¶82 It is clear from the face of the award that the 
appraisers assigned a replacement cost and actual cash value for 
items in the ten separate categories listed above.  What is 
invisible, however, is any explanation of how the appraisers 
arrived at the replacement cost and cash value of any of the 
above items.  It is unclear whether the appraisers adhered to 
the policy's definition of "replacement value" as the cost of 
replacing Donaubauer's home with a home of "like kind and 
quality."  Unlike in arbitration where an arbitrator must 
explain his factual conclusions and legal reasoning in a written 
decision, there is no reasoning that can be tracked on the face 
of this appraisal award.  If Donaubauer is correct and the 
appraisers did not appreciate their role in the appraisal 
process to determine the cost of rebuilding a home of like kind 
and quality, it would likely not be apparent from the face of 
the appraisal award.   
IV 
¶83 Finally, the majority deprives litigants of the tools 
necessary to substantiate a claim that the appraisal process was 
not fair.  Here, Donaubauer filed an action in circuit court 
seeking to invalidate the appraisal on the grounds that the 
No.  2007AP1992.awb 
 
12 
 
appraisers misunderstood their task.3  He contends that he should 
have been permitted to conduct discovery in the circuit court 
action to bolster his claims.  Specifically, he sought to depose 
the appraisers to ascertain their understanding of the task.   
¶84 Importantly, Donaubauer does not request discovery 
during an appraisal process.  Rather, he requests discovery in a 
civil action filed in circuit court to vacate the appraisal 
award.  A basic tenet of civil procedure is that relevant 
evidence which is not privileged is discoverable.  Wis. Stat. 
§ 804.01(2)(a).  Evidence of the appraisers' understanding of 
their role would be relevant to Donaubauer's claim.   
¶85 The majority agrees that the appraisal should be 
vacated if the appraisers failed to understand their task, and 
that discovery into this matter is potentially available if 
Donaubauer made a prima facie showing that they misunderstood 
their task.  Yet, without explaining the circuit court's 
reasoning, the majority simply concludes that "the trial judge 
                                                 
3 We can be guided by the statutory standards for vacating 
or modifying an arbitration award.  Wisconsin Stat. § 788.10 
requires an award to be vacated "[w]here the award was procured 
by corruption, fraud or undue means"; "[w]here there was evident 
partiality or corruption on the part of the arbitrators"; 
"[w]here the arbitrators were guilty of misconduct . . . or any 
other misbehavior by which the rights of any party have been 
prejudiced"; or "[w]here the arbitrators exceeded their powers, 
or so imperfectly executed them that a mutual, final and 
definite award . . . was not made."  Section 788.11 requires an 
arbitration award to be modified if "there was an evident 
material miscalculation of figures or an evident material 
mistake"; "[w]here the arbitrators have awarded upon a matter 
not submitted to them"; or "[w]here the award is imperfect in 
matter of form[.]" 
No.  2007AP1992.awb 
 
13 
 
examined the relevant facts, applied a proper standard of law, 
and reached a conclusion that a reasonable judge could reach[.]"   
¶86 The circuit court did not provide any indication that 
it considered the evidence set forth by Donaubauer or his claim 
that the appraisers misunderstood their task.  It merely stated 
that finding no indication of fraud, it would not allow 
discovery: 
If there was a whiff of fraud or some indication that 
this process lacked integrity, I would think under 
those circumstances, when you are talking about a 
fraud here, it would be a fraud on the Court and that 
I consider very serious.  I think the Court under 
those circumstances would have inherent power to do 
whatever is necessary to right that kind of a 
situation.  . . . As I said earlier, I don't see that 
type of a situation present here.  I don't see Mr. 
Donaubauer or any party to this appraisal process as 
being entitled to use all of the discovery mechanisms 
of Chapter 804[.] 
¶87 Yet, fraud is not the only circumstance under which an 
appraisal award should be vacated.  This court has stated, and 
the majority agrees, that an appraisal can be vacated when the 
appraisers did not understand their role in the process.  
Majority op., ¶25.  Dechant v. Globe & Rutgers Fire Ins. Co., 
194 Wis. 579, 217 N.W. 322 (1928).  Here, Donaubauer presented 
evidence that the appraisers misunderstood their role in the 
process.  Without discovery, however, he is deprived of an 
opportunity to substantiate his claim. 
¶88 Fundamental fairness requires more.  I conclude that 
the circuit court erroneously exercised its discretion by 
quashing 
Donaubauer's 
discovery 
request 
and 
thus 
denying 
No.  2007AP1992.awb 
 
14 
 
Donaubauer a meaningful opportunity to substantiate and be heard 
on his claim.   
¶89 For the reasons set forth above and because the 
majority fails to establish even minimum standards for fairness 
in the appraisal process, I respectfully dissent. 
¶90 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON joins this dissent.   
 
 
No.  2007AP1992.awb 
 
 
 
1