Opinion ID: 1701455
Heading Depth: 1
Heading Rank: 1

Heading: Improper Adjudication of Coverage and Causation

Text: The Rogerses argue, in the alternative, that, if this Court holds that State Farm did not waive its right to invoke the appraisal clause, State Farm improperly adjudicated issues of coverage and causation in the appraisal process. The Rogerses cite a treatise and Alabama caselaw for the proposition that an appraisal pursuant to an insurance contract sets only the amount of loss; it does not resolve issues of causation or coverage. Specifically, they refer to 15 Couch on Insurance § 210.42 (As a general rule, the sole purpose of an appraisal is to determine the amount of damage. As a consequence, an appraisal clause does not permit appraisers to determine whether the loss was, in fact, total.) and Casualty Indemnity Exchange v. Yother, 439 So.2d 77, 79-80 (Ala.1983). In Yother, this Court distinguished arbitration clauses from appraisal clauses in a situation in which the insured contended that it was entitled to the procedural protections applicable to arbitration as set forth in § 6-6-1. The insurer contended that it was subject to the law applicable to appraisals and not § 6-6-1. At issue in Yother was the value of a stolen tractor. The Court, quoting Corpus Juris Secundum and American Jurisprudence, noted typical differences between arbitration and appraisal  arbitration settles an entire controversy, whereas an appraisal resolves a subsidiary issue, such as the valuation of loss. This Court observed: `An agreement for arbitration ordinarily encompasses the disposition of the entire controversy between the parties upon which award a judgment may be entered, whereas an agreement for appraisal extends merely to the resolution of the specific issues of actual cash value and the amount of loss, all other issues being reserved for determination in a plenary action before the court. Furthermore, appraisers are generally expected to act on their own skill and knowledge; they may reach individual conclusions and are required to meet only for the purpose of ironing out differences in the conclusions reached; and they are not obliged to give the rival claimants any formal notice or to hear evidence, but may proceed by ex parte investigation so long as the parties are given opportunity to make statements and explanations with regard to matters in issue.' 439 So.2d at 80 (quoting 5 Am.Jur.2d Arbitration and Award § 3 (1962)). However, the Court in Yother found it unnecessary to determine whether the valuation at issue there was the result of an arbitration or an appraisal, because it disposed of the case on the basis of applicable due-process considerations independent of § 6-6-1, Ala.Code 1975. This Court's distinguishing of arbitration and appraisal in Yother is consistent with other jurisdictions. See Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142, 150 (Tenn.Ct.App. 2001) (Insurance appraisals are generally distinguished from arbitrations. . . . [A]n arbitration agreement may encompass the entire controversy between parties or it may be tailored to particular legal or factual disputes. In contrast, an appraisal determines only the amount of loss, without resolving issues such as whether the insurer is liable under the policy.), and Smithson v. United States Fid. & Guar. Co., 186 W.Va. 195, 202, 411 S.E.2d 850, 857 (1991) (The narrow purpose of an appraisal and the lack of an evidentiary hearing make it a much different procedure from arbitration.). This Court is faced here with a question of first impression: What are the duties and powers of an appraiser when he or she set[s] the amount of the loss under an appraisal clause contained in a homeowner's insurance policy? As has been noted, [t]he question is far from an easy one, and no clear answer is presented by the authorities. Wausau Ins. Co. v. Herbert Halperin Distribution Corp., 664 F.Supp. 987, 988 (D.Md.1987). A Texas Court of Appeals faced with a similar situation noted as follows regarding holdings from other jurisdictions: We have considered the holdings of other jurisdictions interpreting appraisal provisions containing substantially similar language to that contained in the policy at issue in this case in concluding that appraisers have no power to determine the cause of the damage[ ]. Their power is limited to the function of determining the money value of the property damage. Munn v. National Fire Ins. Co. of Hartford, 237 Miss. 641, 115 So.2d 54, 55, 58 (1959) ('The chancellor should have judicially determined what force caused the walls to lean and twist[;][t]hat was not a question for the appraisers to decide. If that damage was the result of the storm, then the appraisers should have been directed to estimate the value of the loss occasioned by the walls being damaged.'); see also Jefferson Ins. Co. of N.Y. v. Superior Court, 3 Cal.3d 398, 90 Cal.Rptr. 608, 475 P.2d 880, 883 (1970) (the function of the appraisers is to determine the amount of damage resulting to various items submitted for their consideration, and not to resolve questions of coverage and interpret provisions of the policy, which exceed the scope of their powers); Appalachian Ins. Co. v. Rivcom Corp., 130 Cal.App.3d 818, 182 Cal.Rptr. 11, 16 (Ct.App.2d Dist.1982) (the appraisal clause provides the device to be utilized to determine the amount of loss if the parties cannot agree on the amount; once the amount of the loss has been fixed, whether by agreement between insurer and insured or by appraisal procedure, if the insurer refuses to pay such amount, the insured is not without jury trial rights); Lewis Food Co. v. Fireman's Fund Ins. Co., 207 Cal. App.2d 515, 24 Cal.Rptr. 557, 561 (Ct. App.2d Dist.1962) (the appraisers' function under the policy is to determine the amount of damage resulting to various items submitted for their consideration; it is certainly not their function to resolve questions of coverage and interpret provisions of the policy); Oakes v. Franklin Fire Ins. Co., 122 Me. 361, 120 A. 53, 54 (1923) (the right of the insured to recover the loss is not submitted to the referees, only the amount of the damages); Wausau Ins. Co. v. Herbert Halperin Dist. Corp., 664 F.Supp. 987, 989 (D.Md.1987) (where insurer does not factually dispute the consequences of the occurrence, but contests the issue of legal 'causation' on the basis that the policy exclusions apply so as to limit the scope of coverage, the issue is one of contract interpretation, and is within the competence of the court, not an appraiser, to resolve); Hogadone v. Grange Mut. Fire Ins. Co., 133 Mich. 339, 94 N.W. 1045, 1047 (1903) (the policy provision relates only to cases of disagreement as to the amount of valuation, in whole or in part, and not whether the claim itself is valid); Denton v. Farmers' Mut. Fire Ins. Co., 120 Mich. 690, 79 N.W. 929, 930 (1899) (the sections of the charter do not give board of auditors the power to pass upon questions of liability, but contemplate a valid loss, and confer upon the auditors only the power to fix the amount); St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1202, 1203 (1981) (contrary to arbitration, where the arbitrator is frequently given broad powers, appraisers generally have more limited powers; an appraiser's power generally does not encompass the disposition of the entire controversy between the parties, but extends merely to the resolution of the specific issues of actual cash value and the amount of loss); In re Delmar Box Co., 309 N.Y. 60, 127 N.E.2d 808, 811 (1955) (agreement for appraisal extends merely to the resolution of specific losses of actual cash value and the amount of loss, with all other issues being reserved for determination in a plenary action); United Boat Serv. Corp. v. Fulton Fire Ins. Co., 137 N.Y.S.2d 670, 671 (Sup.Ct.1955) (where appraisers made a determination of a question of liability, they exceeded the powers conferred upon them, and summary judgment is improper); Kentner v. Gulf Ins. Co., 66 Or.App. 15, 673 P.2d 1354, 1356 (1983) (statutory policy language establishes an appraisal procedure to determine the amount of the insured's loss; the procedure does not apply to the determination of the insurer's responsibility). Wells v. American States Preferred Ins. Co., 919 S.W.2d 679, 684-85 (Tex.App. 1996). In Wells, the insureds' house sustained damage as a result of foundation movement. The insured contended that the foundation movement was caused by a plumbing leak, which was covered under the policy; the insurer contended that the foundation movement was not caused by a plumbing leak and was thus not covered under the policy. After determining that the parties disagreed as to the cause of the foundation movement, the insurer demanded an appraisal under the appraisal clause of the insurance policy, which is similar to the appraisal clause contained in the Rogerses' policy. The appraisers determined the cost to repair the foundation; one appraiser and the umpire, however, apportioned the cost to various causes and concluded that none of the foundation damage was caused by a plumbing leak. The trial court entered a summary judgment in favor of the insurer based on the information garnered from the appraisal. The appeals court reversed the summary judgment, stating: We conclude that the authority of the appraisal panel in the present case was limited to determining only the amount of loss. Therefore, we conclude further that the appraisal section of the policy, as a matter of law, did not authorize and empower the appraisal panel to determine that the plumbing leak did not cause the loss to the Wellses' property. It follows, and we so hold, that the appraisal section of the [insurance policy] . . . establishes an appraisal procedure to determine the dollar amount of the insured's loss only, and that it does not authorize or empower the appraisal panel created thereunder to determine what caused or did not cause that loss. Indeed, we hold that, absent an agreement to the contrary, questions of what caused or did not cause the loss are questions to be decided by the court. Moreover, we hold that participation by the insured in the appraisal process does not constitute agreement by the insured to authorize and empower the appraisal panel to determine questions of what caused or did not cause the loss. 919 S.W.2d at 685. It should be noted that the Texas Court of Appeals in Johnson v. State Farm Lloyds, 204 S.W.3d 897 (Tex.App.2006), recently limited the holding in Wells. In Johnson, an insured filed a claim alleging that her roof had been damaged by hail. State Farm Lloyds inspected the roof and concluded that only the ridgeline of the roof was damaged by hail. The insured, however, argued that the entire roof needed to be replaced. The insured demanded the invocation of the appraisal clause of the policy, but State Farm Lloyds declined to submit to an appraisal. [3] The insured filed a declaratory-judgment action, and both parties moved for a summary judgment. The trial court entered a summary judgment in favor of State Farm, holding that an issue of causation existed that precluded the use of the appraisal process. The Texas Court of Appeals reversed the judgment of the trial court, holding that if the parties agree there is coverage but disagree on the extent of the damage, the dispute concerns the `amount of loss' and that issue is determined in accordance with the appraisal clause. 204 S.W.3d at 903. The Johnson court explained its holding, opining that [i]f the parties had to first agree on which specific shingles were damaged and approach every disagreement on extent of damage as a causation, coverage or liability issue, either party could defeat the other party's request for appraisal by labeling a disagreement as a coverage dispute. 204 S.W.3d at 903. Tennessee Courts have also concluded that issues of coverage are not appropriate for the appraisal process. See Merrimack Mut. Ins. Co. v. Batts, 59 S.W.3d at 152 (An appraiser's authority is limited to the authority granted in the insurance policy or granted in some other express agreement of the parties. The appraisal clause in [the insured's] homeowners policy is limited to determining the `amount of loss'  the monetary value of the property damage. It does not vest the appraisers with the authority to decide questions of coverage and liability. . . .) The Supreme Court of Appeals of West Virginia has held similarly. See Smithson v. United States Fid. & Guar. Co., 186 W.Va. 195, 202, 411 S.E.2d 850, 857 (1991) (Under an ordinary appraisal clause, the only issue is the amount of the loss. Questions concerning policy defenses or coverage are not addressed in appraisals.). All jurisdictions, however, are not in agreement as to what issues may be submitted for appraisal. For example, the Supreme Court of Florida held in Johnson v. Nationwide Mutual Insurance Co., 828 So.2d 1021, 1022 (Fla.2002), that causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed. A Florida District Court of Appeal has reiterated the Johnson holding, stating that when the insurer admits that there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid. Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess & Surplus Lines Ins. Co., 916 So.2d 12, 15 (Fla.Dist.Ct.App.2005). Having considered the holding of other jurisdictions regarding the scope of an appraiser's rights and duties under an appraisal clause in an insurance policy, we conclude that the more persuasive authority is the authority holding that an appraiser's duty is limited to determining the amount of loss  the monetary value of the property damage  and that appraisers are not vested with the authority to decide questions of coverage and liability; we thus adopt that holding as our rule of law. Questions of coverage and liability should be decided only by the courts, not appraisers. This holding is consistent with the longstanding principle that [t]he court must enforce the insurance policy as written if the terms are unambiguous. Safeway Ins. Co. of Alabama v. Herrera, 912 So.2d 1140, 1143 (Ala.2005). We find no ambiguity in the term the amount of loss as used in the appraisal clause in the Rogerses' homeowner's policy that would permit an appraisal to include questions of coverage and liability. Such a conclusion is also consistent with the principle that [t]he contract shall be construed liberally in favor of the insured and strictly against the insurer. Allstate Ins. Co. v. Skelton, 675 So.2d 377, 379 (Ala.1996). Therefore, we hold that the trial court erred in ordering the parties to submit to the appraisal process. Although the parties agreed as to the causation of the damage to the roof, they were not in agreement as to the cause of the damage to the brick veneer or to the foundation. The determination of the causation of these matters is within the exclusive purview of the courts, not the appraisers.