Opinion ID: 1239059
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Heading Rank: 1

Heading: appraisal provision

Text: The Court of Appeals' opinion correctly states the standard of review: Regardless of the construction given a written contract by a district court, an appellate court may construe a written contract and determine its legal effect. 22 Kan. App.2d at 936 (citing Federal Land Bank of Wichita v. Krug, 253 Kan. 307, 311-12, 856 P.2d 111 [1993]). Because Judge Bell considered factual information beyond what was contained in Friday's petition, Trinity's motion to dismiss should be treated as a summary judgment motion and disposed of as provided in K.S.A. 60-256(c). See K.S.A. 60-212(b). The burden on the party seeking summary judgment is a strict one. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal we apply the same rule, and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied. [Citations omitted.] Mitzner v. State Dept. of SRS, 257 Kan. 258, 260-61, 891 P.2d 435 (1995). A majority of this court is of the opinion that the determining factor in this case is the legislature's intent in adopting K.S.A. 5-401(c)(1). K.S.A. 5-401(b) provides that a written contract may provide for arbitration of future controversies between the parties and that such a provision is valid, enforceable, and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract. The provision in question, 5-401(c)(1), states: The provisions of subsection (b) shall not apply to: (1) Contracts of insurance. The determinative question is whether the legislature intended to include appraisals as a form of arbitration when it precluded arbitration clauses in insurance contracts or whether it intended for appraisals to be of a separate nature than arbitration and allowable in insurance contracts. We do not deem it necessary to set forth the Court of Appeals' reasoning. We agree with the Court of Appeals' conclusion, and to its reasoning we add the following: We do not place much reliance on McKenzie v. Fidelity-Phenix Fire Ins. Co., 133 Kan. 721, 3 P.2d 477 (1931), and Syndicate Co. v. Insurance Co., 85 Kan. 367, 116 Pac. 620 (1911). Both cases are readily distinguishable, and both cases preceded the adoption of K.S.A. 5-401. An insurer and insured can agree to arbitrate a controversy at the present time. That is not the issue in this case. The issue is what the legislature intended when it prohibited a contract of insurance from providing for mandatory arbitration of future controversies. We do not see a meaningful distinction between appraisal and arbitration. Arbitration can be for all or any part of a controversy. The parties can limit the issues to be arbitrated and can, for example, limit arbitration to the value of a loss. Actually, arbitration is a more adversarial proceeding than a normal appraisal. However, the end result is the same. A controversy is settled. Here, the legislature was faced with unilateral contracts providing for a mandatory method of setting the loss, thereby denying the insured redress in the courts. The legislature is presumed to know the law, and it would have been aware that an entire controversy or only one part of a controversy may be arbitrated. We see no indication that the legislature understood there to be some distinction between arbitration and appraisal, terms that appellate courts frequently use interchangeably. The following cases support the Court of Appeals' conclusion that appraisal is a form of arbitration: In 1989, the Florida Court of Appeals considered a nearly identical insurance clause. If the clause was an arbitration clause, the court planned to compel arbitration, and if the clause was an appraisal clause, the court planned not to compel arbitration. Three other Florida Court of Appeals cases were cited, all holding that the appraisal provision in the policy was in fact an agreement to submit the amount of the loss to arbitration. Intracoastal Ventures v. Safeco Ins. Co., 540 So.2d 162 (Fla. Dist. App. 1989). The Illinois Court of Appeals considered the same clause to determine if the insurer could compel arbitration under the appraisal provision when the property sought to be appraised was totally destroyed in a fire and no longer available to appraise. The court cited several prior Illinois appellate court decisions, holding that an appraisal clause is similar to an arbitration clause and recognizing an appraisal proceeding as a form of arbitration. The court then held that the clause covered all loss (as does the policy before us), and granted the insurer's motion to compel arbitration. Beard v. Mount Carroll Mut. Fire Ins., 203 Ill. App.3d 724, 727-30, 561 N.E.2d 116 (1990). In Rawlings v. Amco Ins. Co., 231 Neb. 874, 438 N.W.2d 769 (1989), the homeowner insureds filed suit against the insurer for tornado damage to their residence under their homeowners' policy. The district court sustained summary judgment for the insurer and dismissed the petition, based on the insureds' refusal to submit to an appraisal as set forth in the appraisal clause in the policy. The Supreme Court of Nebraska reversed and remanded, finding that the appraisal provision was an unenforceable arbitration clause. The insurer offered School Dist. No. 1 v. Globe & Republic Ins. Co., 146 Mont. 208, 404 P.2d 889 (1965), as support for its position, but the court did not find it persuasive. Nebraska continues to adhere to the common-law doctrine that arbitration agreements entered into before a dispute arises which purport to deny the parties the right to resort to the courts nonetheless oust the courts of their jurisdiction and are thus against public policy and therefore void and unenforceable. The doctrine applies to contracts of insurance. Rawlings, 231 Neb. at 875. Based on this authority, we hold the Kansas Legislature intended the prohibition in K.S.A. 5-401(c)(1) to apply to all insurance contracts that require any form of arbitration. We also hold that the appraisal provision before us is a form of an arbitration clause and is therefore prohibited in the insurance contract by K.S.A. 5-401(c)(1).