UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

ANSAM YALDO, et al.,

Plaintiffs,

v.

ALLSTATE PROPERTY AND CASUALTY

INS. CO.,

Defendant.

 /

Case No. 2:08-cv-14650

HONORABLE STEPHEN J. MURPHY, III

ORDER DENYING PLAINTIFFS’ MOTION FOR SUMMARY 

JUDGMENT (docket no. 11) AND GRANTING DEFENDANT’S 

CROSS-MOTION FOR SUMMARY JUDGMENT (docket no. 13)

This is an action for a declaratory judgment pursuant to 28 U.S.C. § 2201 to

adjudicate the parties’ rights and obligations under a homeowner’s insurance policy issued

by the defendant, Allstate Property and Casualty Insurance Company (“Allstate”) to

plaintiffs with respect to a fire that occurred at 30755 Helmandale Drive, Franklin, Michigan.

Plaintiffs are Ansam Yaldo, the policyholder, and Wafa and Francis Yaldo, who are family

members and insured persons under the policy. Jurisdiction is based upon diversity of

citizenship. The Yaldos are seeking a declaration that Allstate is not entitled to conduct an

Examination Under Oath (“EUO”) of the Yaldos and an order of this Court appointing a

neutral umpire for the parties’ appraisal proceedings. Allstate seeks a declaration that it

is entitled to conduct an EUO of the Yaldos, and that, by failing to submit to an EUO, the

Yaldos are in breach of the insurance contract. The parties’ cross-motions for summary

judgment are before the Court today.

The plaintiffs' summary judgment motion will be denied and the defendant insurance

company’s summary judgment motion will be granted. The EUO provision in the policy is

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a condition precedent to suit upon the policy and, because the Yaldos have not complied

with it, they are barred from bringing suit on the policy until they do. The Yaldos are not

excused from complying with Allstate’s request for an EUO because the EUO provision is

neither explicitly barred by Michigan law, nor is it contrary to the statutory scheme of the

insurance code or violative of due process. The main case that Yaldo relies upon for the

proposition that the EUO provision is unenforceable is a no-fault case, and is thereby

distinguishable.

FACTS

Allstate issued policy number 9 06 536803 11/28 (the “policy”) to plaintiff Ansam

Yaldo, insuring her against loss and damage to her home at 30755 Helmandale Drive,

Franklin Michigan. The policy was in full force and effect on April 11, 2008 when a fire

occurred at the Yaldo home that damaged the home and the plaintiffs’ personal property.

On April 24, 2008, Allstate sent Yaldo a letter identifying the documents and

information that it would consider satisfactory proof of loss. The letter stated that the

plaintiffs were required to give detailed information regarding the actual cash value of the

damaged items and the amount of loss suffered, complete the Sworn Statement in Proof

of Loss and Personal Property Inventory Loss forms and return them to the defendant on

or before June 11, 2008. 

On May 6, 2008, a fire contents restoration company furnished to Allstate an inventory

of items damaged in the fire which the company felt could be cleaned and repaired. On

May 9, 2008, the plaintiffs delivered to Allstate proof of the amount of loss, including a

contractor’s estimate by Charles L. Pugh Company of the cost to repair the premises. On

June 4, 2008, the plaintiffs delivered a personal property inventory setting forth the

replacement cost of the contents of the property. The plaintiffs characterize these

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submissions as proof of the amount of loss, triggering the insurer’s responsibility to respond

within thirty days. Yaldo’s sworn proof of loss, which is required under the policy, was not

submitted until almost one month later.

On June 26, 2008, Ansam Yaldo demanded appraisal of the claim pursuant to the

contract and M.C.L. §500.2833(1)(m), naming Gary A. Matkovich as her appraiser for the

building portion of the claim and Patricia Striho as her appraiser for the contents portion of

the claim. On July 2, 2008, plaintiff Ansam Yaldo submitted to Allstate her Sworn

Statement in Proof of Loss, dated June 26, 2008.

On July 10, 2008, Allstate rejected Yaldo’s Sworn Statement in Proof of Loss as

incomplete in a letter of the same date, “due to disagreements with the structure and

contents estimates provided.” On the same date, Allstate named Michael Schwab as its

appraiser. According to Yaldo, by doing so Allstate acceded to Yaldo’s demand for

appraisal and the amount of plaintiffs’ losses were to be conclusively determined by the

appraisal panel. The appraisers nominated by the parties commenced appraisal activities,

exchanged information, inspected the loss site and discussed the selection of an umpire.

On July 14, Allstate made a payment in the amount of $213,978.09 toward the building

portion of the loss and $32,73.71 toward the contents portion of the loss. Complaint ¶ 26.

On October 3, 2008, counsel for Allstate sent a letter demanding that plaintiffs and all

persons with an interest in the real or personal property involved in the claim submit to an

Examination Under Oath at Allstate’s attorney’s office on October 15, 2008 and to produce

certain documents. Yaldo claims that Allstate instructed its appraiser to cease engaging

in further appraisal proceedings, but it appears that Allstate merely states in the letter that

until Yaldo submits to an EUO, Allstate “is unable to accept liability for the loss or to agree

with the values submitted.” Plaintiffs' Exhibit 9. Allstate acknowledges that it sent a copy

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of its letter to its appraiser but states that it never instructed the appraiser to cease

engaging in further appraisal activities. The Yaldos did not appear for the EUOs, and

Allstate sent a letter dated October 15, 2008 stating that failure to appear for an EUO when

requested is a breach of duties after loss and that an EUO, once requested, is a

precondition to payment of any claim under the policy and a precondition to litigation under

the policy and Michigan law. Complaint Exhibit 9.

The plaintiffs objected to the EUO through counsel by letter dated October 24, 2009

on the grounds that they believed that Allstate did not have the right to require an EUO at

this stage in the proceedings when the Yaldos did not have similar rights to take testimony,

demand documents and obtain discovery from Allstate. Plaintiffs’ Exhibit 7. Allstate

replied in a letter dated October 27, 2009 that it disagreed with plaintiffs’ reading of the

legal authorities supporting its position. 

Plaintiffs commenced this declaratory judgment action on November 3, 2008. The

action seeks (1) a declaration that it is not a breach of contract to seek a judicial declaration

of the rights and obligations of a party to a homeowner’s policy, (2) a declaration that

Allstate may not thwart the appraisal process by unilaterally suspending appraisal pending

its receipt of Examination Under Oath and production of documents, (3) a declaration that

Allstate cannot conduct one-sided discovery during appraisal by demanding Examinations

Under Oath and the production of documents from its insureds, who do not have reciprocal

rights, and when the demands were otherwise not timely made within the statutory scheme

for claim payment and resolution (4) an order compelling Allstate to proceed with appraisal,

and (5) appointment of a neutral umpire. Allstate answered and asserted affirmative

defenses of breach of contract and misrepresentation or fraud, among other affirmative

defenses. In its breach of contract defense, Allstate asserts that Yaldo is prohibited from

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seeking declaratory relief under the contract because her failure to appear for an EUO is

a material breach of a condition precedent to recovery or litigation under the contract.

The Court issued an order on January 14, 2009, following a scheduling conference

with the parties, which stayed discovery and set forth a briefing schedule for summary

judgment motions. The Court also entered a stipulated order on January 15, 2009 which

provided that the appraisal process shall continue and permitted the defendant to amend

its answer and affirmative defenses eliminating Allstate’s claims that the plaintiffs have

wilfully failed to comply with the policy conditions, breached the terms and conditions of the

insurance policy and engaged in misrepresentation, concealment or fraud that would void

the policy or result in the forfeiture of benefits. The stipulation was without prejudice to the

parties reasserting these claims later. The order thereby limited the scope of this

declaratory judgment action to the question of whether Allstate is entitled to Examinations

under Oath in this matter and whether the appraisal procedures shall continue and

determine the amount of loss. 

DISCUSSION

Both plaintiff and defendant have moved for summary judgment. The Yaldos have

moved for a declaration by this court that they are not obligated to submit to EUOs

requested by Allstate. Allstate has cross-moved for a declaration by this Court that the

Yaldos are obliged under the policy to submit to EUOs, and that by failing to do so they are

in breach of the insurance policy and thereby barred from bringing this declaratory

judgment action.

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment

"should be rendered if the pleadings, the discovery and disclosure materials on file, and

any affidavits show that there is no genuine issue as to any material fact and that the

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movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary

judgment is appropriate if the moving party demonstrates that there is no genuine issue of

material fact regarding the existence of an essential element of the nonmoving party's case

on which the nonmoving party would bear the burden of proof at trial. Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986); Martin v. Ohio Turnpike Comm'n, 968 F.2d 606, 608 (6th

Cir. 1992).

In considering a motion for summary judgment, the Court must view the facts and

draw all reasonable inferences in a light most favorable to the nonmoving party. 60 Ivy St.

Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir. 1987). The Court is not required or

permitted, however, to judge the evidence or make findings of fact. Id. at 1435-36. The

moving party has the burden of showing conclusively that no genuine issue of material fact

exists. Id. at 1435. 

I. Plaintiffs’ Summary Judgment Motion: Are Plaintiffs Entitled To a 

Declaration That They Are Not Required To Submit to an EUO?

The Yaldos argue that they are not required to submit to an EUO because, they

assert, an insurer’s demand for an EUO made more than thirty days after the insured has

submitted proof of loss is unenforceable under the Michigan statutory scheme requiring

prompt payment of claims, is contrary to law, and is violative of due process. The Court

finds that the plaintiffs’ claims that the EUO provision is unenforceable is not supported by

either Michigan or federal constitutional law, as discussed below, and will therefore deny

their motion for summary judgment.

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A. Is Allstate’s demand for an EUO Unenforceable Under Michigan Law?

Plaintiffs argue that, under the Michigan Insurance Code, an insurance company is

obliged to pay claims within thirty days after receipt of proof of the amount of loss. They

argue that because of this requirement for prompt payment, the policy provision in the

Allstate policy requiring the insured to submit to an EUO is unenforceable as contrary to

the insurance code’s requirement of prompt payment.

The Yaldos point out that there are three provisions in the Michigan Insurance Code

requiring an insurer to pay losses promptly after receipt of “proof of the amount of loss.”

First, M.C.L. §500.2833(1)(p) provides that, “except as provided in Section 2845, [the policy

must provide] that the loss is payable within thirty days after receipt of proof of the amount

of loss.” Second, M.C.L. §500.2836(2) provides that except as provided in Section 2845,

“losses under any fire insurance policy shall be paid within thirty days after receipt of proof

of the amount of loss, notwithstanding the provision of any contract or statute to the

contrary.” Third, M.C.L. §500.2006(3) provides that “An insurer shall specify in writing the

materials that constitute a satisfactory proof of loss not later than thirty days after receipt

of a claim unless the claim is settled within the thirty days.” Plaintiffs also point out that the

policy provides that “when the policy provisions conflict with the statutes of the state in

which the residence premises is located, the provisions are amended to conform to such

statutes,” and therefore the policy provisions must be read in conformity with these

provisions.

The plaintiffs argue that Griswold Properties, LLC v. Lexington Ins Co., 275 Mich. App.

543, vacated in part on other grounds, 276 Mich. App. 551 (2007) provides that an insurer’s

failure to comply with M.C.L. §500.2006(3) is acceptance of the proof of loss submitted and

that the claim thereafter shall proceed as if a satisfactory proof of loss was submitted.

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Griswold further held that a purported rejection of a policyholder’s proof of loss on the basis

of a disagreement as to the amounts claimed does not render the policyholder’s claim

submission unsatisfactory.

Griswold was a set of three consolidated appeals to the Michigan Court of Appeals,

all dealing with the issue of whether a first-party insured is entitled to statutory penalty

interest on an insurance claim when the insurer fails to pay the claim within the statutory

period, irrespective of whether the amount of the claim was reasonably in dispute. Plaintiffs

rely on the Court of Appeals’ opinion on the second of the consolidated opinions, Gainors

Meat Packing, Inc. v. Home-Owners Ins. Co. In Gainors, the building that housed plaintiff’s

meat packing business caught fire on July 18, 2002, allegedly destroying the property.

Plaintiff submitted a sworn statement in proof of loss, claiming $795,938.24 in damage to

the building, $684,094.76 for lost contents and $134,889.00 for business interruption for

a total of $1,614,917, but the plaintiff requested only its policy limit of $1,051,370. The

defendant admitted that certain claimed losses were covered by the policy and made a

partial payment of $289,088.76, but refused to pay the remainder, asserting that the fire

was isolated and did not destroy the property and therefore plaintiff was exaggerating its

losses. The appraisal proceedings resulted in a unanimous agreement for the following

award: Building Replacement Cost, $556,307.83; Building Actual Cash Value,

$388.968.00; Personal Property Replacement Cost, $358,750.00; Personal Property Actual

Cash Value, $287,000.00, plus additional other awards, which the defendant timely paid.

Plaintiff sought penalty interest pursuant to M.C.L. §500.2006(4). The trial court

denied penalty interest on the grounds that plaintiff had failed to submit satisfactory proof

of loss as required by M.C.L. §500.2006(4). The appellate court reversed, holding that

because the defendant had failed to provide the plaintiff with written notification of what

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documents or other evidence it would accept as proof of loss, the defendant had failed to

comply with M.C.L. §500.2006(3), which required an insurer to specify in writing the

materials that constitute a satisfactory proof of loss within 30 days of receipt. The court

held that an insurer’s failure to comply with M.C.L. §500.2006(3) means that the insurer

accepts the proof of loss submitted. Griswold Properties, 275 Mich. App. at 564 (citing

Angott, 270 Mich. App. at 486). The court, however, went on to hold that “satisfactory proof

of loss does not equate to agreement as to the amount of damages.” Griswold, 275 Mich.

App. at 566. The court held that “satisfactory proof of loss does not require agreement of

the parties as to the amount of damages, but is rather the process of the insured providing

the documents and evidence required by the insurer to begin processing the claim,” and

on this basis rejected the defendant’s argument that proof of loss is not satisfactory until

the appraisal process is complete. Griswold, 275 Mich. App. at 567.

State Farm argues that Griswold is not applicable here because in Griswold the

insurance company was found to have violated M.C.L. §500.2006(3) because it entirely

failed to respond to plaintiff’s sworn statement in writing. Griswold, 275 Mich. App. at 566.

Here, the defendant did respond to plaintiff’s sworn proof of loss and specifically rejected

it for failing to set forth an actual cash value of the damaged property. Therefore, defendant

argues, the proof of loss should not be deemed satisfactory. Further, defendant argues,

even if this Court did apply the Griswold holding, it only applies to the question of when the

12% penalty interest begins to accrue under M.C.L. §500.2006(4).

Allstate’s second argument is persuasive. The Griswold court did not hold that the

plaintiff’s claimed amount was payable in the amount that the plaintiff’s claimed due to the

insurer’s default. Rather, the Griswold court held that the insurer was not protected from

paying the 12% statutory penalty interest from the date the plaintiff submitted its sworn

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proof of loss. The Griswold court stated that “satisfactory proof of loss” as used in the

statute means “the process of the insured providing the documents and evidence required

by the insurer to begin processing the claim” and on that basis rejected the insurer’s

argument that proof of loss was not satisfactory until the appraisal process was complete.

Griswold, 275 Mich. App. at 567.

Plaintiff asserts that Cruz v. State Farm Mut. Ins. Co., 466 Mich. 588 (2002) holds that

an insurance company’s right to conduct an EUO is unenforceable when made more than

thirty days after proof of loss had been furnished to the insurer of both the fact of the loss

and the amount of the loss, because such a demand is in conflict with and subject to the

Michigan statutory scheme requiring prompt payment of claims. As discussed below, the

Court finds Cruz distinguishable because it involved no-fault insurance rather than the

homeowners insurance at issue in this case.

The plaintiff in Cruz was injured in an automobile accident while driving a car insured

by State Farm. The State Farm no-fault policy provided coverage for no-fault benefits as

required by the no-fault act, as well as coverage for bodily injury caused by uninsured

motorists and various other coverages. After the accident, plaintiff submitted a claim for

both no fault personal injury protection (PIP) benefits and for uninsured motorist bodily

injury benefits. Cruz provided State Farm with what State Farm acknowledged to be

reasonable proof of the fact and of the amount of loss sustained pursuant to M.C.L.

§500.3142(2) of the no fault act. Because State Farm had a policy provision that

conditioned payment of benefits on the submission by the insured to an EUO as often as

reasonably asked, it declined to pay until the EUO was given, State Farm taking the

position that it could condition payment on the EUO provision notwithstanding the

requirements of the statute regarding prompt payment of benefits. The plaintiff refused

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repeated requests to submit to an EUO and State Farm denied both no-fault PIP benefits

and uninsured motorist benefits. Cruz then requested arbitration of his claim for uninsured

motorist benefits under an arbitration provision in the uninsured motorist section of the

policy, but State Farm refused to arbitrate on the basis that the plaintiff had materially

breached the policy by refusing to submit to an EUO and therefore could not enforce his

rights under the policy to arbitration. Despite the defendant’s refusal to participate in

arbitration, the arbitrators proceeded and found that the plaintiff had not breached the

policy by refusing to submit to an EUO, the other driver was at fault and uninsured, and that

State Farm was liable for uninsured motorist damages in the amount of $150,000. 

The plaintiff then filed suit to enforce the arbitrators’ award and also sought in a

second count of the complaint an award of no-fault PIP benefits. State Farm moved for

summary disposition on the grounds that Cruz’s failure to submit to the EUO was a breach

of a condition precedent to his right to obtain either arbitration of his uninsured motorist

claim or payment of no-fault PIP benefits. The trial court granted State Farm’s motion with

respect to the uninsured motorist claim and vacated the arbitration award. The trial judge

also ordered plaintiff to comply with the EUO provision regarding both the uninsured

motorist benefits claim and the non-fault PIP claim. The plaintiff refused and the trial court

granted defendant’s motion to dismiss.

On appeal, the Court of Appeals affirmed in part and reversed in part. Cruz, 241 Mich.

App. 159 (2000). The Court of Appeals affirmed summary judgment on Cruz’s claim for

enforcement of the arbitral award, holding that Cruz’s failure to submit to the EUO was a

breach of a condition precedent to his right to obtain arbitration. The Court of Appeals

reversed the trial court’s grant of summary judgment on Cruz’s no-fault claim on the ground

that the EUO provision was inconsistent with the no-fault act. State Farm appealed the

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Court of Appeal’s holding that the no-fault act precluded the insurer’s reliance on the EUO

provision. Cruz did not cross-appeal that portion of the Court of Appeals decision that

found the EUO provision valid in the context of Cruz’s uninsured motorist claim.

The Michigan Supreme Court affirmed the holding of the Court of Appeals, but on

different reasoning. The Supreme Court rejected the Court of Appeals’ holding that EUOs

were precluded in the automobile no-fault insurance context because they were not

mentioned in the act. Rather, the Supreme Court held that “EUOs, or other discovery

methods that the parties have contracted to use, are only precluded when they clash with

the rules the Legislature has established for such mandatory insurance policies.” Cruz, 466

Mich. at 598. Applying that rule to the facts of the case, the Court held that the insurance

company and its insured could not contract to vitiate State Farm’s duty to pay benefits in

a timely fashion as required by statute; therefore, once State Farm received what it

acknowledged to be “reasonable proof of the fact and of the amount of loss sustained,” it

had to pay benefits or be subject to penalties. Cruz, 466 Mich. at 600.

Cruz does not support the plaintiffs’ argument for several reasons. First, the Supreme

Court opinion in Cruz dealt with EUO’s in the context of the no-fault act, rather than

ordinary homeowner’s insurance. The no-fault act is a comprehensive act that specifically

requires no-fault insurance on every motor vehicle operated in Michigan, provides for

discovery and sets forth requirements for payment without regard to fault. There is no

comparable statutory scheme regulating home or fire insurance, which is not even required

in Michigan. Therefore, the Michigan Supreme Court’s holding that an EUO provision is

unenforceable if it conflicts with the statutory requirement for prompt payment in the nofault act does not apply in the present case, which involves homeowner’s insurance.

Second, the Court of Appeals in Cruz granted summary judgment to the insurer on Cruz’s

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claim for enforcement of the arbitrators’ award in the uninsured motorist context on the

grounds that the plaintiff was not entitled to invoke the arbitration clause because it had

materially breached the contract by failing to submit to the EUO. This holding of the Cruz

Court of Appeals was not appealed to the Michigan Supreme Court and is binding on this

Court. Finally, as pointed out by defendants, the Cruz Supreme Court holding is limited by

its terms to mandatory insurance policies. See Cruz, 466 Mich. at 598 (“EUOs, or other

discovery methods that the parties have contracted to use, are only precluded when they

clash with the rules the Legislature has established for such mandatory insurance

policies.”) (emphasis added). Property and fire insurance are not mandatory.

Plaintiff cites Frans v. Harleysville Lakestates Ins. Co., 270 Mich. App. 201 (2006) for

the proposition that an appraisal pursuant to MCL 500.2833(1)(m) is mandatory upon the

request of either party to a property insurance contract, and no party may unilaterally

withdraw from the process. This appears to be correct. The insurance code mandates that

all fire insurance policies include a provision that if the insured and the insurer fail to agree

on the actual cash value or amount of loss, then either party may make a written demand

for appraisal. M.C.L. §500.2833(1)(m). It is also true that the appraisal process has been

characterized as common law arbitration and the Michigan Supreme Court has recently

reaffirmed that an agreement for common law arbitration may be unilaterally revoked by

either party. Wold Architects and Engineers v. Strat, 474 Mich. 223, 238 (2006). While

the Wold decision was issued after the Frans decision, Frans was not dependent upon

arbitration rules but rather on the statutory basis for appraisal in the insurance code. The

Frans decision, that parties cannot unilaterally withdraw from appraisal, also makes sense

given the Michigan statutory requirement that such appraisal provisions be included in all

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fire insurance policies, because requiring parties to submit to appraisal would be hollow if

either party were able to unilaterally withdraw from appraisal.

Defendant’s argument in opposition is that, first, as a factual matter it has not

withdrawn from appraisal; rather, it has simply demanded its rights under the contract to

examine the plaintiffs under oath. Second, it argues that by refusing to comply with the

EUO provision the plaintiff has breached the contract and may not enforce its appraisal

rights under the contract. Again, this argument appears to be correct. While the insurance

code requires the appraisal provision to be included in fire insurance contracts, plaintiff’s

rights under the appraisal provision arise from her contract with the defendant, not from the

statute. The contract of insurance provides that submission to an EUO upon the insurer’s

reasonable request is a condition to payment of a claim and to the commencement of

litigation. The Michigan Supreme Court has stated that EUO provisions are viewed

favorably by the courts due to the potential ability of EUOs to discover and eliminate

fraudulent claims. Cruz, 466 Mich. at 597. The Michigan court has also stated that EUO

provisions are presumed to be valid and enforceable. Id.

B. Does the EUO provision violate Yaldo’s right to due process?

The Yaldos argue that permitting Allstate to conduct an EUO would violate the due

process guarantees of the Fourteenth Amendment to the United States Constitution. The

Yaldos argue that appraisal has frequently been described as a quasi-judicial proceeding.

They argue that “since appraisal is a statutorily mandated substitute for a civil jury trial as

to damages, and thus qualifies as state action subject to the 14th Amendment, the U.S.

Supreme Court has recognized that property insurance policy appraisal proceedings are

subject to procedural due process guarantees.” Plaintiffs’ Summary Judgment Brief at 18.

Plaintiffs argue that the appraisal panel has the authority to take testimony and require

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the production of documents of both parties to an appraisal proceeding and pursuant to

M.C.L. §500.2833(1) the appraisal panel determines the amount of loss. Allstate responds

that Yaldo has not provided any authority to support these assertions. The Michigan

Insurance Code does not have any provisions authorizing the appraisers to take testimony

under oath and require the production of documents and Yaldo has not cited any cases

showing that appraisers have such authority. Allstate appears to be correct on this point,

since a review of the Insurance Code does not reveal any statutes authorizing appraisers

to take testimony under oath or require the production of documents. The Yaldos reply that

although Michigan law does not dictate the precise procedures to be followed by an

appraisal panel, “courts have been quite flexible in permitting the appraisal panel to

determine how the evidence should best be exchanged under the circumstances of each

claim.” Plaintiff's reply at 5. In support of this proposition, plaintiffs cite cases from Indiana

and Massachusetts, which, aside from not being in this jurisdiction, actually undermine the

point for which plaintiff is citing them. In the Indiana case, Atlas Construction Co. v. Indiana

Insurance Co., 160 Ind. App. 33, 309 N.E.2d 810 (1974), the Indiana Court of Appeals

distinguished appraisal from arbitration and held that the procedural protections of the

Uniform Arbitration Act are not binding on appraisers because the appraisal process lacks

the judicial qualities of an arbitration. Id. at 37. The Massachusetts case, Doherty v.

Phoenix Ins. Co., 224 Mass. 310, 112 N.E. 940 (1916) merely stands for the proposition

that an award by a panel of referees cannot be overturned absent a finding of fraud, bias

or prejudice on the part of the referees. 

Plaintiffs argue that due process requires that a state-mandated quasi-judicial loss

determination via appraisal must provide for equal access to information relevant to the

proceeding and any statutory interpretation which would procedurally favor one party over

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another is constitutionally prohibited. In support of this proposition, plaintiffs cite Hardware

Dealers Mut. Fire Ins. Co. v. Glidden Co., 284 U.S. 151 (1931).

Hardware Dealers does not support plaintiffs’ assertions. In Hardware Dealers, the

Supreme Court upheld a Minnesota statute that required fire insurance policies to include

a policy provision, nearly identical to the one at issue here, permitting either party to the

insurance contract to invoke the appraisal process. In upholding the Minnesota statute,

the Supreme Court rejected the insurance company’s contention that the mandatory

appraisal procedure violated due process. The Court held that the Fourteenth Amendment

is not offended by state-mandated alternate dispute procedures, limited to the single issue

of the amount of loss, provided they are not unreasonable or arbitrary and satisfy the

constitutional requirements of reasonable notice and opportunity to be heard. 

While the case does support the proposition that the Fourteenth Amendment applies

to a state-mandated alternative dispute procedure, the case provides no support for the

Yaldos' assertion that due process is violated by permitting the parties unequal access to

information within or outside the appraisal process, and has never been cited for that

proposition by any other court. The Yaldos have provided no other authority for the

proposition that the policy provision permitting Allstate to examine its insureds under oath

violates the Fourteenth Amendment. The Court therefore rejects the Yaldos’ assertion that

the EUO provision, freely agreed to by the policyholder, violates the Fourteenth

Amendment.

Finally, the plaintiffs assert that this Court has the authority to select an umpire for the

appraisal panel pursuant to M.C.L. §500.2833(1)(m). The defendants do not dispute that

the Court has the authority to appoint an umpire under the appropriate circumstances, but

argue that the Yaldos are barred from requesting this relief at this time in this litigation

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because they are in breach of contract and therefore are barred from bringing this

declaratory judgment action.

The Yaldos have failed to show that the EUO provision, which they agreed to in their

contract of insurance, is unenforceable under either Michigan law or the United States

Constitution and therefore the Court denies their motion for summary judgment.

II. Allstate’s Cross-Motion for Summary Judgment

Allstate has cross-moved for summary judgment in its favor. In its cross-motion,

Allstate argues that the Yaldos’ failure to submit to an EUO is a material breach of the

insurance contract, and, under the policy terms, the Yaldos may not institute a suit on the

policy while they are in breach of the policy. Allstate therefore seeks a judgment of this

Court dismissing the Yaldos’ suit.

The Allstate policy at issue provides that no action may be brought against the insured

unless there has been full compliance with all policy terms. Policy, Exhibit 1 to Plaintiff’s

Motion for Summary Judgment at 6 (“Policy”). Section I of the policy identifies conditions

precedent to recovery under the policy. In the event of a loss to any covered property, it

requires the insured to, as often as the insurer reasonably requests, provide the insurer all

documents the insurer reasonably requests, show the insured the damaged property,

submit to EUOs and produce members of the insured’s household for EUOs to the extent

the insured can do so, and, within 60 days after the loss, give the insurer a signed, sworn

proof of loss that includes the actual case value and amount of loss for each damaged or

destroyed item. Policy at 16-17. The policy further provides that the insurer has “no duty

to provide coverage under this section if you, an insured person, or a representative of

either fail to comply [with this subsection] and this failure to comply is prejudicial to us.”

Policy at 17 (emphasis in original). The policy further provides that payment for such

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losses will be either the costs of repair or replacement or, if the insured does not repair or

replace the property, the actual cash value of the property, including a deduction for

depreciation. Id. Finally, the policy provides that 

No one may bring an action against us in any way related to the existence or amount

of coverage, or the amount of loss for which coverage is sought, under a coverage to

which Section I Conditions applies unless:

a) There has been full compliance with all policy terms; and

b) the action is commenced within one year after the inception of loss or damage.

Policy, § 12 at p. 20.

Allstate cites Yeo v. State Farm Ins. Co., 219 Mich. App. 254 (1996) for the

proposition that an EUO provision in a homeowner’s policy is a valid and enforceable

condition precedent to recovery under the policy. In Yeo, the insured claimed her home

was burglarized and her property stolen and sought to collect under her homeowners

policy. The insurance company, State Farm, requested an EUO of the plaintiff. The

plaintiff, Yeo, failed to appear for the EUO and then filed suit. The trial court granted State

Farm’s motion for summary judgment on the grounds that, by failing to comply with the

insurer’s request for an EUO, Yeo had filed to satisfy a condition precedent to suit on the

policy. The trial court dismissed the case without prejudice; State Farm appealed, arguing

that the dismissal should be with prejudice. Court of Appeals affirmed the trial court, finding

that the insured’s compliance with the insurer’s request for an EUO was a condition

precedent to recovery on the policy and to suit upon the policy, but held that a dismissal

without prejudice was appropriate on the facts of that case because there was no showing

that the insured’s failure to submit to the EUO was willful. 

Thomson v. State Farm Ins. Co., 232 Mich. App. 38 (1998) held that the burden is on

the insured that fails to submit to an EUO or otherwise cooperate with the insurer in regard

to contractual provisions allowing an insurer to investigate a claim to show that it had not

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wilfully withheld material information that would justify a dismissal of its claim under the

policy with prejudice.

Allstate also cites Allen v. Michigan Basic, 249 Mich. App. 66 (2001), in which the

Court of Appeals held that the insured willfully failed to cooperate with the insurance

company when the insured refused to submit to and Examination Under Oath on the basis

of her Fifth Amendment right against self-incrimination. In Allen, the plaintiff sought

recovery under her homeowner’s policy after a fire occurred at her home. She did not

produce any documents and failed on three separate occasions to appear for EUOs

scheduled by her insurer on the grounds that her attorney advised her not to answer

defendant’s questions until after any criminal investigation into her involvement in the fire

was complete. Allen, 249 Mich. App. at 67-68. Allen was charged with arson in connection

with the fire but ultimately found not guilty. The insurer denied coverage and Allen

thereafter filed suit. The trial court denied the insurance company’s motion for summary

disposition and the defendant appealed. The Court of Appeals held that the trial court had

erred in refusing to dismiss the case because Allen’s refusal to submit to an EUO was a

wilful breach of the insurance contract and precluded her subsequent suit on the policy.

Allen, 249 Mich. App. at 73-74. The court stated that the plaintiff’s claim was based upon

her contract to which she and the defendant had agreed, and that the contract placed upon

her the specific duty after a loss to appear for an EUO at the defendant’s request. The

court stated that “[w]hile plaintiff had the right to assert her Fifth Amendment privilege in

response to defendant’s requests, she did so at the peril of her claim under the policy.”

Allen, 249 Mich. App. at 75 (citing Phillips v. Deihm, 213 Mich. App. 389, 399-400 (1995)).

The court held that plaintiff’s failure to comply with defendant’s EUO demand, coupled with

her failure to produce documents, constituted a deliberate effort to withhold material

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evidence and a pattern of non-cooperation sufficient to require dismissal of her claim with

prejudice. Id.

Finally, Allstate cites Auto-Owners Ins. Co. v. Kwaiser, 190 Mich. App. 482 (1991) for

the proposition that appraisal proceedings are only to be utilized where there exists no

issue as to coverage. In Auto-Owners, the insured sought coverage for damages causes

when the roof of the living room of their mobile home collapsed in a heavy rain. The

insurer’s engineer discovered that the roof was rotted due to long-term trapped moisture

and that any repair involved replacement of the entire roof. The parties could not agree on

a settlement amount and the insurance company requested appraisal, after which the

insurance company filed a declaratory judgment action asking the court to resubmit the

matter for appraisal after a clarification of the insurer’s liability. The appellate court held

that matters of coverage are for the court, not the appraisers, and that therefore the trial

court erred in granting summary disposition to the policyholder without first determining the

extent of coverage under the policy.

Allstate argues that Auto-Owners is applicable here because there is a coverage

issue, as opposed to simply a valuation issue, because the policy provides that it does not

cover any loss in which any insured persons have concealed or misrepresented any

material fact or circumstance, and therefore if the Yaldos were exaggerating their losses

or claiming for losses that did not in fact occur such losses would not be covered under the

policy.

Allstate’s arguments are well taken, and conclusively dispose of this matter. As

discussed above, the Yaldos are incorrect that Allstate may not seek an EUO at this stage

of the proceedings. Further, the cases cited by Allstate establish that the failure of an

insured to submit to at least one EUO is a material breach of a condition precedent to

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recovery on the policy or suing on the policy. The parties have stipulated that this conduct

by the Yaldos does not constitute a willful breach of the policy, and therefore under relevant

Michigan law the correct approach is for the Court to dismiss the Yaldos' suit without

prejudice and permit them to comply with the policy provisions. Therefore, the Court will

grant Allstate’s cross-motion for summary judgment and dismiss the Yaldos' claim without

prejudice for failing to submit to an EUO.

CONCLUSION

For the reasons stated above, the Court DENIES plaintiffs’ motion for summary

judgment and GRANTS defendant’s cross-motion for summary judgment. The case will

be dismissed without prejudice.

s/Stephen J. Murphy, III 

STEPHEN J. MURPHY, III

United States District Judge

Dated: July 13, 2009

I hereby certify that a copy of the foregoing document was served upon the parties and/or

counsel of record on July 13, 2009, by electronic and/or ordinary mail.

Alissa Greer 

Case Manager

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