Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-00928/USCOURTS-azd-2_08-cv-00928-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Robert J. Herndon, et al., 

Plaintiffs, 

vs.

American Family Home Insurance Co., et

al. 

Defendants. 

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No. cv-08-928-PHX-ROS

ORDER

Pending before the Court is Plaintiffs’ Motion to Dismiss and Defendant’s Motion to

Compel Appraisal, Appoint Umpire, and Stay Action. The dispute between the parties

centers around whether the present action should be stayed pending appraisal proceedings

regarding the amount of loss suffered by the Plaintiffs in their former residence. For the

reasons stated herein, both motions shall be granted.

I. Plaintiff’s Motion to Dismiss

Plaintiff’s Motion to Dismiss argues that Defendant’s counterclaim to compel

appraisal is improper and that appraisal can only be compelled through a Motion to Compel

Appraisal. Defendant makes no arguments regarding the substance of Plaintiff’s Motion to

Dismiss, instead filing a Cross-Motion to Compel Appraisal, Appoint Umpire, and Stay

Action. Because of Defendant’s lack of response and because the existence of this Motion

makes the counterclaim in question rather irrelevant, Plaintiff’s Motion shall be granted and

the question of arbitration considered through Defendant’s Motion.

Case 2:08-cv-00928-ROS Document 25 Filed 03/23/09 Page 1 of 5
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II. Defendant’s Motion to Compel Appraisal 

Defendant motions to require appraisal as mandated by the insurance contract between

the parties, which reads, in part:

a. 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 and

impartial appraiser within 20 days after receiving a written request from the

other.

b. 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.

c. The appraisers will separately set the amount of the loss. If the appraisers

submit a written report of an agreement to us, the amount agreed upon will be

the amount of the 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.

Arizona courts treat appraisal as “analogous to arbitration” and apply the “principles of

arbitration” to proceedings involving appraisal. Meineke v. Twin City Fire Insurance Co.,

892 P.2d 1365, 1369 (Ariz. Ct. App. 1995); Ori v. Am. Family Mut. Ins. Co., No. CV-05-

697, 2005 U.S. Dist. Lexis 28025 at *6 (D. Ariz. 2005).

The Federal Arbitration Act (“FAA”) creates “a body of federal substantive law of

arbitration, applicable to any arbitration agreement within the coverage of the Act.” Moses

H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983). The FAA applies to

any “written provision in . . . a contract evidencing a transaction involving commerce.” 9

U.S.C. § 2. “The FAA includes a broad definition of the term commerce, 9 U.S.C. § 1, and

the insurance policy at issue here falls under that definition.” Ori, * 5 (citing Wailua Assocs.

v. Aetna Cas. & Sur. Co., 904 F.Supp. 1142, 1147 n.2 (D. Haw. 1995) (stating that insurance

contracts have long been recognized as involving commerce); Perry v. Thomas, 482 U.S.

483, 490 (1987) (holding FAA “embodies Congress’ intent to provide for the enforcement

of arbitration agreements within the full reach of the Commerce Clause”)). The insurance

policy at issue in Ori is substantively similar to the one at issue here and neither party

contends otherwise; the FAA is applicable. 

The FAA provides that arbitration agreements are “valid, irrevocable and enforceable,

save upon such grounds as exist at law or in equity for the revocation of any contract.” 9

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U.S.C. § 2. The Act also “mandates that district courts shall direct the parties to proceed to

arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter

Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (citing 9 U.S.C. §§ 3, 4). Accordingly,

“agreements to arbitrate must be enforced, absent a ground for revocation of the contractual

agreement.” Id. Such grounds include “generally applicable contract defenses, such as

fraud, duress, or unconscionability.” Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681,

687 (1996). “Waiver of the arbitration clause is also a possible defense.” Ori, at * 7; Moses

H. Cone, 460 U.S. at 25.

Here, Plaintiffs argue that appraisal has been waived. “A party seeking to prove

waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to

compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party

opposing arbitration resulting from such inconsistent acts.” Fisher v. A.G. Becker Paribas

Inc., 791 F.2d 691, 694 (9th Cir. 1986). “Because waiver of the right to arbitration is

disfavored, any party arguing waiver of arbitration bears a heavy burden of proof.” Id.

(quoting Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1025 (11th Cir.

1982)). Plaintiffs argue the fact that their home has been foreclosed has made arbitration

impractical or impossible, and the fact that Defendant failed to mention this in its Motion has

prejudiced Plaintiffs, fulfilling the third criteria for waiver. 

Plaintiffs do not contest that all three criteria must be met in order for appraisal to be

waived. However, they make no argument regarding the second criteria – behavior of

Defendant that is inconsistent with the right of arbitration. This alone would be enough to

conclude that the claim has not been waived. 

However, nor have Plaintiffs’ demonstrated that they have been prejudiced by

Defendant’s actions in failing to disclose that their home has been foreclosed upon. Any lack

of disclosure on the part of Defendant was easily remedied. Plaintiffs could – and did –

disclose it themselves in documents that were read by the Court mere minutes after those

submitted by Defendant. Waiver, then, is unavailable.

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The question might, then, arise as to whether Plaintiffs are due some sort of exception

for impossibility. Surely a statutory scheme cannot mandate appraisal where it is impossible.

However, Plaintiffs have not made a sufficient showing of impossibility that the Court need

address this question. They do provide some evidence as to such, in the form of the

Declaration of Plaintiffs’ Appraiser Joseph Berger, who states that he must have “the

opportunity to physically view the Herndons’ home in order to ‘independently’ evaluate and

determine the amount of the Herndons’ damages sustained due to the loss in March 2007.”

Dec. of Berger; Pl. Ex. 2. As the residence is apparently no longer standing, physical access

is indeed impossible. However, Defendants point out that Plaintiffs originally requested

appraisal on the day their home was foreclosed. Further, James O’Toole, a public insurance

adjuster wrote a letter to the mortgagee five months after the foreclosure stating, in part:

The appraisal process can still go forward. If you wish there is considerable

dispute in the value of loss and damage to return the structure to its pre-loss

condition . . . . Be advised that my company handles many first party insurance

claims and have been through hundreds if not thousands of appraisal

proceedings.

O’Toole Letter, attached to Wightman Dec. This indicates that it is still possible to use the

appraisal process even in the absence of access to the property. Further, were this case to

continue to trial, the finder of fact would still be faced with determining the amount of loss

in the absence of direct physical inspection. The difficulty would still exist.

Accordingly, the appraisal process must continue.

III. Defendant’s Motion to Appoint Umpire

 Neither party disagrees that this Court ought to appoint an umpire. Defendant throws

out a number of names. Plaintiff counter-proposes Phoenix attorney and former Superior

Court judge Stephen Scott and Phoenix attorney Steve Copple. Defendant objects to Mr.

Copple, but agrees that Mr. Scott “would undoubtedly make an able umpire.” Thus, he will

be appointed by the Court assuming he agrees to the appointment.

IV. Defendant’s Motion to Stay

The parties agree that the pending civil action in the federal court should be stayed

until completion of the appraisal process and entry of an Appraisal Award. Plaintiff,

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however, clarifies in its Motion that “all disputed claims under the policy should go to

appraisal, including Plaintiffs’ contention that they incurred additional living expenses . . .

and additional storage expenses as a result of the covered loss.” Defendant replies that all

matters as to the “amount of loss” should be appraised in one proceeding, but cautions that

issues that are purely legal need to remain with this Court.

It does not appear that a conflict exists between the parties on this matter. The

appraisal proceeding shall involve the total amount of loss, including additional living

expenses and storage expenses. Questions regarding the scope and coverage of the policy

that do not lend themselves to appraisal shall remain with this Court. 

Accordingly,

IT IS ORDERED Defendants’ Motion to Compel Arbitration, Motion to Appoint

Umpire, and Motion to Stay is GRANTED.

FURTHER ORDERED Plaintiff’s Motion to Dismiss is GRANTED.

FURTHER ORDERED this case shall be stayed pending appraisal.

FURTHER ORDERED Stephen Scott is appointed as umpire to the party’s appraisal

proceedings if he agrees to the appointment.

FURTHER ORDERED counsel for both parties are within ten days to deliver a copy

of this Order to Mr. Scott and to inform the Court by written notice 30 days from the date of

this Order whether Mr. Scott agrees to the appointment.

FURTHER ORDERED the parties are to report to the Court by written notice the

profess of the umpire in completing his responsibility on or before June 26, 2009.

DATED this 20th day of March, 2009.

Case 2:08-cv-00928-ROS Document 25 Filed 03/23/09 Page 5 of 5