Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-02013/USCOURTS-azd-2_04-cv-02013-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1446 Breach of Contract- Insurance

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1

 Throughout the complaint, Plaintiff alleges that the site of

the insured loss was his “residence.” However, Plaintiff also

provided Defendant with a lease agreement between Plaintiff and a

third party for the use of this property and the record reflects that

Plaintiff resides in Scottsdale, Arizona. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

ROBERT D. SMITH, )

)

Plaintiff, )

)

v. ) CIV 04-02013 PHX MEA

)

CIVIL SERVICE EMPLOYEES ) MEMORANDUM AND ORDER

INSURANCE COMPANY, a foreign )

corporation, )

)

Defendant. )

_________________________________)

All of the parties have consented to the exercise of

magistrate judge jurisdiction over this case, including the

entry of final judgment. Before the Court is Plaintiff’s Motion

to Compel Appraisal and Plaintiff’s Motion for Order Appointing

Appraiser for Defendant.

Background

Plaintiff and Defendant entered into a contract for the

provision of homeowners insurance for a home in Mesa, Arizona,

owned by Plaintiff, which home Plaintiff leased to a third

party.1 On or about June 22, 2002, Plaintiff became aware of

damage to the property and, on or about August 5, 2002,

Plaintiff submitted a claim to Defendant for covered damages

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pursuant to the insurance policy. 

On August 30, 2002, Defendant tendered to Plaintiff the

amount of $8,123.05, representing the depreciated value of the

estimated $15,873.00 in necessary repairs to the insured home,

as “settlement of your loss at Actual Cash Value.” See

Plaintiff’s Motion to Compel (Docket No. 32), Exh. 1. Plaintiff

objected to the amount of the settlement tendered by Defendant,

asserting that he was entitled to additional monies pursuant to

his policy and the amount of damage to the insured property.

Id., Attach.

Approximately seven months later, in April or May of

2003, Plaintiff obtained the services of a Public Adjuster to

represent him regarding his claim pursuant to his insurance

policy with Defendant. Id., Attach. (Affidavit of James F.

O’Toole). In late May of 2003, the Public Adjuster informed

Defendant’s representative that the adjuster would be preparing

an estimate of Plaintiff’s claim for additional benefits for the

damage to his property pursuant to the insurance policy. Id.,

Attach. On or about May 28, 2003, Plaintiff’s Public Adjuster

submitted a “building estimate” with regard to the alleged

damage to the insured property, estimating that repairing the

damage to the property would cost approximately $59,868.74,

exclusive of overhead, profit, and sales tax. Id., Exh. 14.

On July 7, 2003, Defendant mailed a “Reservations of

Rights” letter to Plaintiff and the Public Adjuster, stating

that Defendant was neither accepting or rejecting Plaintiff’s

claim, and “reserving our right to deny coverage at a later date

should our investigation determine that the loss does not fall

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within the scope of coverage provided by [Plaintiff’s] homeowner

policy.” Id., Exh. 13.

The insurance contract between Plaintiff and Defendant

provides, inter alia:

If you and we fail to agree on the amount of

loss, either can demand that the amount of

the loss be set by appraisal. If either

makes a written demand for appraisal, each

shall select a competent, independent

appraiser and notify the other of the

appraiser’s identity within 20 days of the

written demand. The two appraisers shall

then select a competent, impartial umpire.

If the two appraisers are unable to agree

upon an umpire within 15 days, you or we can

ask a judge of a court of record in the state

of the Described Location to select an

umpire. The appraisers shall then set the

amount of the loss. If the appraisers submit

a written report of agreement to us, the

amount agreed upon shall be the amount of the

loss. If the appraisers fail to agree within

a reasonable time, they shall submit their

differences to the umpire. Written agreement

signed by any two of these three shall set

the amount of the loss. Each appraiser shall

be paid by the party selecting that

appraiser. Other expenses of the appraisal

and the compensation of the umpire shall be

paid equally by you and us.

Id., Exh. 3.

Approximately three months after receiving Defendant’s

notification that they were not accepting nor rejecting

Plaintiff’s claim for additional benefits, in October 30, 2003,

the Public Adjuster informed Defendant’s representative that

Plaintiff was “hereby demanding appraisal with regards to the

above referenced insurance claim” and named an appraiser to

represent Plaintiff. Id., Exh. 4. Defendant took Plaintiff’s

statement regarding the loss to his property in an Examination

Under Oath on January 14, 2004. Id., Exh. 12.

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28 2

 Plaintiff is a citizen of the state of Arizona and Defendant

is a California corporation licensed to conduct business in Arizona.

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Defendant did not name an appraiser in response to

Plaintiff’s invocation of the appraisal clause of the insurance

contract. Approximately ten months after Plaintiff invoked the

appraisal clause, Plaintiff filed suit against Defendant in the

Maricopa County Superior Court on August 24, 2004, asserting a

cause of action in tort pursuant to Defendant’s alleged bad

faith in failing to resolve Plaintiff’s claim for insurance

coverage (Count I), and a cause of action based on Defendant’s

alleged breach of the insurance contract between the parties

(Count II). 

The complaint alleges that “Plaintiff has incurred

substantial special and general damages and is, upon information

and belief, still owed payment under the terms of the contract.”

Complaint (Docket No. 1), Attach. The complaint seeks

“compensatory damages for the claimed benefits, owing under the

subject insurance policy, damages for loss of use of benefits,

and other contract and tort general and special damages,” and

“compensatory damages for mental and emotional distress,

discomfort, loss of time, anxiety and other incidental damages,”

in addition to punitive damages, pre-judgment interest,

attorneys’ fees, and costs. Id. 

On September 24, 2004, Defendant removed Plaintiff’s

suit from state court to federal court, alleging federal

jurisdiction over the matter based on diversity of citizenship2

and asserting that the amount in controversy exceeds the

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3

 Defendant asserts that “the amount in controversy in the above

entitled cause of action, exclusive of interest and costs, exceeds

$75,000.00...” Docket No. 1, Attach. (Defendant’s Petition for

Removal). However, the dispute between Plaintiff and Defendant

regarding the benefits due to Plaintiff under the insurance policy is

approximately $51,000, some $24,000 less than the “amount in

controversy” requirement for the Court to exercise diversity

jurisdiction over this matter.

4

On application of a party showing an agreement described in

§ 12-1501, and the opposing party’s refusal to arbitrate,

the court shall order the parties to proceed with

arbitration, but if the opposing party denies the existence

of the agreement to arbitrate, the court shall proceed

summarily to the determination of the issue so raised and

shall order arbitration if found for the moving party.

Otherwise, the application shall be denied.

B. On application, the court may stay an arbitration

proceeding commenced or threatened on a showing that there

is no agreement to arbitrate. Such an issue, when in

substantial and bona fide dispute, shall be forthwith and

summarily tried and the stay ordered if found for the

moving party. If found for the opposing party, the court

shall order the parties to proceed to arbitration.

C. If an issue referable to arbitration under the alleged

agreement is involved in an action or proceeding pending in

a court having jurisdiction to hear applications under

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statutory minimum to invoke federal diversity jurisdiction.3 See

Docket No. 1. 

The parties have engaged in discovery, including

disclosure of expert witnesses, interrogatories, and requests

for admission. Pursuant to the amended scheduling order

governing this matter, discovery in this matter must be

completed by October 30, 2005 and dispositive motions must be

filed on or before November 15, 2005.

Analysis

On July 12, 2005, approximately eleven months after

filing his complaint, Plaintiff filed a Motion to Compel

Appraisal [Docket No. 32], citing Arizona Revised Statutes § 12-

1502.4 Plaintiff seeks a Court order “compelling Defendant to

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subsection A of this section, the application shall be made

therein. Otherwise and subject to § 12-2101, the

application may be made in any court of competent

jurisdiction.

D. Any action or proceeding involving an issue subject to

arbitration shall be stayed if an order for arbitration or

an application therefor has been made under this section

or, if the issue is severable, the stay may be with respect

thereto only. When the application is made in such action

or proceeding, the order for arbitration shall include such

stay. 

E. An order for arbitration shall not be refused on the

ground that the claim in issue lacks merit or bona fides or

because any fault or grounds for the claim sought to be

arbitrated have not been shown.

Ariz. Rev. Stat. Ann. § 12-1502 (2003).

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submit the valuation issue, that is, the dispute as to the

amount of covered damages, to appraisal as required by the

appraisal clause in the subject insurance policy.” Id.

Plaintiff argues that, because Arizona law favors enforcement of

appraisal clauses in contracts, by way of analogy to arbitration

clauses, the Court must order Defendant to fulfill this

contractual obligation.

Defendant contends that Plaintiff waived his right to

seek Defendant’s specific performance of the contract clause

regarding appraisal by filing a lawsuit alleging breach of

contract and pursuing a claim against Defendant for compensatory

and punitive damages. 

A. Substantive law

The Court has limited discretion when deciding a motion

to compel appraisal. See Dean Witter Reynolds Inc. v. Byrd, 470

U.S. 213, 218, 105 S. Ct. 1238, 1241 (1985); Weyerhaeuser Co.

v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984);

Palozie v. State Farm Mut. Auto. Ins. Co., 1996 WL 814533, at *3

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5

 In an unpublished opinion, another judge of the Court has

determined that contractual clauses agreeing to submit to an appraisal

procedure are analogous to contractual clauses agreeing to submit to

arbitration. See Palozie, 1996 WL 814533, at *2 (“the Arizona Court

of Appeals has determined that an insurance policy appraisal clause

is analogous to arbitration and that arbitration law applies to

disputes involving such clauses.”). 

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(D. Ariz.). When exercising this discretion, the Court should

consider whether the parties entered into a valid agreement to

submit to appraisal, whether the assertion of a right to compel

appraisal falls within the scope of the parties’ agreement, and

whether the party seeking appraisal has waived that right. Cf.

Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477 (9th Cir.

1991) (stating this test in the context of an arbitration

agreement);5 Daisy Mfg. Co., Inc. v. NCR Corp., 29 F.3d 389, 392

& 395 (8th Cir. 1994).

Federal waiver doctrine is consistent with generally

applicable state laws of waiver. See, e.g., Van Ness Townhouses

v. Mar Indus. Corp., 862 F.2d 754, 758 (9th 1999); Hoffman

Constr. Co. v. Active Erectors & Installers, Inc., 969 F.2d 796

(9th Cir. 1992). Pursuant to Arizona law, waiver is

demonstrated by an express, voluntary, and intentional

relinquishment of a known right, or by “conduct so inconsistent

with an intent to assert the right that an intentional

relinquishment can be inferred.” City of Cottonwood v. James L.

Fann Contracting, Inc., 179 Ariz. 185, 189, 877 P.2d 284, 290

(Ct. App. 1994) (emphasis added). A party waives its right to

enforce an appraisal right by expressly waving the right; or by

acquiescing in the other party’s repudiation of the agreement to

submit to an appraisal process; or by acting in a manner

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6

 The Arizona court compared Bolo with EFC Development

Corporation v. F.F. Baugh Plumbing & Heating, 24 Ariz. App. 566, 540

P.2d 185 (1975):

In EFC, the court held that proof of waiver requires

showing conduct inconsistent with the arbitration remedy.

24 Ariz. App. at 569, 540 P.2d at 188. Inconsistency

usually is found when one party engages in conduct

preventing arbitration, proceeds at all times in disregard

of arbitration, expressly agrees to waive arbitration, or

unreasonably delays requesting arbitration. [] EFC moved to

compel arbitration while simultaneously filing a complaint

with the Registrar of Contractors seeking revocation of

Baugh’s license, and filing mechanics’ an materialmen’s

liens. [] The court held that these actions were not

inconsistent with utilization of the arbitration remedy and

refused to imply waiver from EFC’s simultaneous actions. 

179 Ariz. at 190-91, 877 P.2d at 289-90 (internal citations omitted).

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inconsistent with submitting to or enforcing a requirement to

submit to appraisal, including preventing an appraisal,

disregarding an instigated appraisal, or unreasonably delaying

any requested submission to an agreement for an appraisal. Id.

179 Ariz. at 190-91, 877 P.2d at 289-90. 

In Bolo [Corporation v. Homes & Son

Construction Co., Inc., 105 Ariz. 343, 464

P.2d 788 (1970)], a subcontractor refused the

contractor’s request to submit a dispute to

arbitration. [] The contractor initially

elected to file a lawsuit for breach of

contract. [] Six months later, however, the

contractor attempted to compel arbitration.

[] The Arizona Supreme Court held that when

the contractor chose to file suit against the

subcontractor, the contractor acquiesced in

the subcontractor’s rejection of arbitration,

thereby waiving its right to compel

arbitration. []

Id., 179 Ariz. at 190, 877 P.2d at 289 (internal citations

omitted).6 

A party seeking to establish another’s waiver of the

right to compel an appraisal bears the burden of establishing

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7 The Court notes that, in its Meineke decision, the Arizona

court relied on an older Minnesota case, Anderson v. Twin City Rapid

Transit, 250 Minn. 167, 84 N.W.2d 593 (Minn. 1957). In Anderson, the

court concluded that the plaintiff had repudiated their right to

arbitrate by initiating a lawsuit and that the defendants acquiesced

in the repudiation by answering the complaint without demanding

appraisal. Meineke, 181 Ariz. at 582, 892 P.2d at 1371. The Meineke

opinion does not explicitly endorse the outcome of Anderson, and the

decision of a Minnesota court interpreting Minnesota law is not

binding on this Court’s determination of Arizona law. 

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that waiver. See Britton v. Co-op Banking Group, 916 F.2d 1405,

1412 (9th Cir. 1990). In addition to establishing that

Plaintiff, as the moving party, waived his right to compel

appraisal, Defendant must also show that Defendant has been

prejudiced by Plaintiff’s act of relinquishment and then

assertion of this right. See City of Cottonwood, 179 Ariz. at

191, 877 P.2d at 290. Prejudice includes time, expense,

duplication of effort in separate forums, or advantage to the

other party. Mitsui & Co. (USA) v. C & H Refinery, Inc., 492 F.

Supp. 115, 118-20 (N.D. Cal. 1980).

The Arizona courts have determined that a defendant

waives their right to compel performance of an appraisal clause

in a contract when the defendant files an answer to a suit for

breach of the contract, which answer fails to demand enforcement

of the appraisal clause. See Meineke v. Twin City Fire Ins.

Co., 181 Ariz. 576, 581, 892 P.2d 1365, 1371 (Ct. App. 1995)

(filing an answer “without invoking arbitration or appraisal

would nearly always indicate a clear repudiation of the right to

arbitrate or have an appraisal...”). Meineke is distinguishable

from the instant case because, in Meineke, neither party invoked

the appraisal clause prior to the suit. Id., 181 Ariz. at 578-

79, 892 P.2d at 1367-68.7 The Meineke opinion reasoned that

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8

Appellee never refused arbitration, but rather, from the

inception, actively and aggressively pressed its attempts

to bring the matter to arbitration. The basis of the

finding of waiver of an arbitration provision is the

showing of conduct inconsistent with utilization of the

arbitration remedy--conduct showing an intent not to

arbitrate. Bolo Corporation, supra. Inconsistency is

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allowing a defendant to invoke the appraisal clause anytime

after it filed its answer “would leave the insured in limbo as

to which procedure would prevail for settlement of their claim”

and would nullify the time and expense-saving benefits of

appraisal. Id.

Plaintiff’s course of action is distinguishable from

the plaintiff in Meineke and more analogous to the plaintiff in

the unpublished decision in Palozie, 1996 WL 814533, at *5. In

Palozie, wherein the defendant filed the motion to compel

appraisal, the plaintiff invoked the appraisal clause prior to

filing his lawsuit, and the parties were engaged in the

appraisal process when the plaintiff filed suit. The defendant

acknowledged in its answer that the plaintiff had invoked the

appraisal clause. Id. Unlike the defendant in Meineke, the

Palozie defendant’s motion to compel appraisal was not its first

request for appraisal. The defendant had not delayed in

pursuing appraisal but had delayed only in seeking judicial

intervention, albeit to assist it in pursuing appraisal. 

Defendant has not established that Plaintiff, as the

moving party, acted inconsistently with the remedy Plaintiff now

seeks, i.e., to compel appraisal. See EFC Dev. Corp. v. F.F.

Baugh Plumbing & Heating, 24 Ariz. App. 566, 569, 540 P.2d 185,

188 (1975).8 Additionally, Defendant has not proved that it was

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usually found from such conduct as preventing arbitration,

making arbitration impossible, proceeding at all times in

disregard of the arbitration clause, expressly agreeing to

waive arbitration, or unreasonable delay. See Annots., 117

A.L.R. 301 (1938), 161 A.L.R. 1426 (1946). In view of

appellee's prior and subsequent conduct in continually

pressing for arbitration, no waiver can be implied from the

fact that it filed a complaint with the State Registrar of

Contractors, seeking the revocation of appellant’s

contractor’s license.

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prejudiced by Plaintiff’s acts in seeking to compel appraisal

and filing suit seeking damages for Defendant’s failure to abide

by this contractual provision. See City of Cottonwood, 877 P.2d

at 290. Defendant has not been subjected to unexpected

expenditures of time, or duplication of effort in separate

forums, or advantage to Plaintiff, by any act of Plaintiff. Any

delays in the appraisal process are of Defendant’s own making

and any expense Defendant has incurred in litigating this matter

cannot be deemed prejudicial. See Britton, 916 F.2d at 1413

(finding allegations of prejudice “unpersuasively conclusory”

where non-moving party refused to arbitrate and pursued

litigation); Lake Commc’ns, Inc. v. ICC Corp., 738 F.2d 1473,

1477 (9th Cir. 1984) (noting no prejudice where the progress of

the litigation was limited); Mitsui & Co. (USA), 492 F. Supp. at

118-19 (stating that the point at which a party suffers

prejudice in a lawsuit is where the pleadings are fully joined,

considerable discovery has been conducted, and a date for a

joint proposed pretrial order has been confirmed).

Conclusion

The contract between the parties to this suit contains

a clear contractual agreement regarding appraisal of the insured

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property to ascertain alleged damages. Defendant has not met

their burden of establishing that Plaintiff waived his right to

invoke the appraisal clause by filing this suit, or by expressly

waving the right, or by acquiescing in Defendant’s repudiation

of the agreement to submit to an appraisal process, or by acting

in a manner inconsistent with submitting to or enforcing the

appraisal clause. Nor has Defendant demonstrated prejudice to

Defendant by Plaintiff’s invocation of this right. Therefore,

the motion to compel enforcement of the appraisal clause will be

granted. 

However, the appraisal clause states that Defendant

shall be allowed to select an independent appraiser to represent

Defendant. Therefore, the Court will deny, at this time,

Plaintiff’s motion to appoint an appraiser to represent

Defendant.

THEREFORE, IT IS ORDERED THAT Plaintiff’s motion to

compel appraisal [Docket No. 32] is granted in part and denied

in part. The motion is granted insofar as it seeks to compel

Defendant to select an independent appraiser and to comply with

the appraisal clause of the contract between the parties. The

motion is denied, at this time, insofar as it asks the Court to

appoint an appraiser for Defendant.

IT IS FURTHER ORDERED THAT Defendant shall have ten

days from the date that this order is filed to select and employ

an appraiser and to notify the Court and Plaintiff of the name

and contact information for the appraiser selected by Defendant.

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Any failure by Defendant to select and employ an appraiser

within ten days from the date that this order is entered may

result in the imposition of sanctions on Defendant for failure

to abide by this Court’s order and/or the court reconsidering

Plaintiff's request for the Court to appoint an appraiser. The

parties’ appraisers shall forthwith select an umpire as provided

in the appraisal clause and proceed with the appraisal process

specified in the contract.

DATED this 13th day of October, 2005.

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