Court Opinion

ID: 9693961
Source: CourtListenerOpinion
Date Created: 2023-08-25 17:13:29.578885+00
Date Added: 2024-06-11T18:19:53.234002
License: Public Domain

Ethridge, J.,
dissenting:
This case presents a problem the answer to which I conceive to be well-established in insurance law. The appraisers were to determine the, ‘ ‘ actual cash value and loss.” The phrase “actual cash value” means the value of the property immediately before the windstorm. Yet the controlling decision holds, in effect, that the appraisers cannot determine the condition of the walls and foun*652dation of the building at that time, but that this is a question of “liability,” which is for the court.
Manifestly, it would be impossible for appraisers to determine the actual cash value of property before the storm without considering and determining the age, condition and deterioration in the structure itself, including the walls. The end result of the majority opinion is to conclude that, in appraising the value of the property before the storm, the appraisers cannot consider the condition of the walls. Yet this function is necessary to determine the “before” value, and that is a condition precedent to ascertaining the loss. Moreover, the controlling opinion, in my view, does not cite, distinguish, or follow established precedents interpreting such an appraisal clause. If applied in the future it will substantially emasculate the standard appraisal clause in casualty insurance policies.
We are concerned here with the standard appraisal or arbitration clause of the 1943 New York Standard Fire Policy. It provides: “In case the insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss.”
*653In brief, tbe award, “shall determine tbe amount of actual cash value and loss.” Provisions of this type are supported by the same consideration that support all other agreements in policies. Franklin Fire Insurance Co. v. Brewer, 173 Miss. 317, 329, 159 So. 545, 160 So. 387 (1935). Similar appraisal clauses are uniformly upheld as offering a prompt and inexpensive method of adjusting disputes regarding values and extent of damages. 3 Richards, Insurance, (5th Ed., 1952), Sec. 549. Appraisals are mere auxiliary arrangements in a limited contractual area, and have been upheld generally and in Mississippi on grounds of a sound public policy. 6 Appleman, Insurance Law and Practice (1942), Sec. 3921; Aetna Insurance Co. v. Cowan, 111 Miss. 453, 71 So. 746 (1916); Scottish Union & National Insurance Co. v. Skaggs, 114 Miss. 618, 75 So. 437 (1917); Hartford Fire Insurance Co. v. Conner, 223 Miss. 799, 79 So. 2d 236 (1955); Home Insurance Co. v. Watts, 229 Miss. 735, 91 So. 2d 722 (1957); Hartford Fire Insurance Co. v. Jones, 108 So. 2d 571 (Miss. 1959).
Appellant and appellee agreed that a proper appraisal should be final in determining the amount of actual cash value and loss.
Moreover the scope of judicial review of an award of appraisers is carefully limited. It is stated in 6 Appleman, Insurance Law, Sec. 3941, as follows: “An award of the arbitrators or appraisers is supported by every reasonable presumption and intendment, and it will be sustained even though it does not conform to what wonld have been the judgment of the court. Thus, where two methods might have been used in reaching the result, one of which was legal and the other not, the presumption is that the legal method was followed. And an appraiser will not be heard to impreach his own decision. So, an arbitrator’s letter interpreting an award, written after he became functus officio, could not be considered in construing the award. Generally, an award will not be vacated unless it is clearly shown that it was *654the result of fraud or mistake, or of the misfeasance or malfeasance of the appraisers or arbitrators. ...”
In other words, an award of appraisers is conclusive as to the amount of loss, in the absence of fraud or mistake. 3 Richards, Insurance, Sec. 553.
Munn, the complainant, asked for an appraisal. He and the company appointed appraisers and they selected an umpire. Their original appraisal award is in the record. It reflects detailed figures as to the actual cash value of the property, before the windstorm, and their finding as to the amount of loss. One appraiser and the umpire testified. They said all three concluded that the leaning walls of the house were not caused by the windstorm. The building was from 30 to 50 years old, of wood construction, with two stories. All three agreed on the amount of the award. They agreed that the leaning-walls existed before the windstorm and were the results, in effect, of the age or deterioration of the house, or depreciation in it over the many years of its life.
There is no evidence whatsoever to show that the arbitrators acted through fraud or bad faith or through any material mistake of judgment. There is no showing of misfeasance or malfeasance on their part. Under the policy, they had the duty to determine the actual cash value of the house before the windstorm, and the loss to it from the storm. Obviously, in order to determine the actual cash value or the true value of the house before the storm, it was necessary for them to consider the depreciation of this old two-story home.
As stated in 3 Richards, Insurance, pp. 1854-1855, “. . . proper deduction must be made for depreciation in values caused by age and use.” Michels v. Western Underwriters Association, 129 Mich. 417, 89 N. W. 56 (1902). All of the cases interpreting the phrase “actual cash value” support that conclusion, and so hold. Some of them state the matter alternatively, referring to the replacement value of the house in its condition at the *655time. The condition of the property at the time must necessarily be considered by appraisers. 2 Words and Phrases (Perm. Ed. 1955), pp. 332-338, and 1959 Supp., p. 9, cites many cases defining “actual cash value” in casualty insurance policies. That figure depends on the nature of the property insured, the condition of such property and other circumstances existing at time of loss. Newark Fire Insurance Co. v. Martineau, 26 Tenn. App. 261, 170 S. W. 2d 927, 930 (1943).
In New York Central Mutual Fire Insurance Co. v. Diaks, 69 So. 2d 786, 788 (Fla. 1954), it was said the phrase must be considered in the light of replacement cost, less depreciation and other facts pertaining to value. In Lee v. Providence-Washington Insurance Co., 82 Mont. 264, 266 Pac. 640, 644 (1928), the measure of recovery should be based on the actual value of the property in the condition it was in at time of loss, taking into consideration its age and condition. An allowance must be made for depreciation. Patriotic Order Sons of America, Hall Association v. Hartford Fire Insurance Co., 305 Pa. 107, 157 A. 259, 260, 78 A. L. R. 899 (1931). To the same effect are Fire Association of Philadelphia v. Coomer, 158 S. W. 2d 355, 357 (Tex. Civ. App., 1942); Metz v. Travelers Fire Insurance Co., 355 Pa. 342, 49 A. 2d 711, 713 (1946); Butler v. Aetna Insurance Co., 64 N. D. 764, 256 N. W. 214, 218 (1934); Sun Insurance Office v. Rupp, 64 Fed. Supp. 533, 538, 539 (1946); Pinet v. New Hampshire Fire Insurance Co., 100 N. H. 346, 126 A. 2d 262, 264 (1956).
The preceding cases illustrate the established rule that, in determining the actual cash value of property at the time of the fire under a casualty insurance policy, the appraisers must take into consideration its age and condition, depreciation, deterioration and obsolescence. In the instant case the appraisers considered the deterioration, age, and condition of the house at the time of the fire, which was their duty. They decided that the lean*656ing walls existed before tbe windstorm. So naturally they did not award to the insured any loss for them.
See also Pacific National Fire Insurance Co. v. Beavers, 87 Ga. App. 294, 73 S. E. 2d 765, 770-771 (1952) ; Georgia Home Insurance Co. v. Kline, 114 Ala. 366, 21 So. 958 (1897); Schreiber v. Pacific Coast Fire Insurance Co., 195 Md. 639, 75 A. 2d 108, 20 A. L. R. 2d 951 (1950); see also 1 C. J. S., page 1434; 6 Appleman, Insurance Law, Sec. 3946; New York Central Mutual Fire Insurance Co. v. Diaks, 69 So. 2d 786 (Fla. 1954).
45 C. J. S., Insurance, Sec. 1126, pp. 1367, 1368, deals with this issue: “Where the parties to a policy have submitted a difference as to the amount of the loss to arbitration or appraisal, they are mutually bound as to the amount of the loss by the award of the arbitrators or appraisers, if valid. So a finding that there was no loss is binding, since the right to determine the amount of loss carries with it by necessary implication the right to determine that none existed. An award does not fix the liability of insurer, however, where both by the terms of the policy and of the submission it is limited in its effect to the determination of the amount of the loss; it merely determines the amount of insurer’s liability in the event that he should be found liable, and leaves the question of insurer’s liability to litigation. For reasons not connected with the award insurer may not be liable at all, but, if liable, he must pay the amount named in the award.”
Two recent Massachusetts cases are particularly pertinent on this question. In F & M Skirt Co. v. Rhode Island Insurance Co., 316 Mass. 314, 55 N. E. 2d 461 (1944), the appraisers under a fire insurance policy were to determine “the amount of loss or damage.” After a hearing they found that there was no loss or damage sustained by the insured. The court held this finding was within the appraiser’s duty.' It said:
“The pertinent provisions of the governing statutes demonstrate that the contract of insurance provides not *657for the arbitration of the question of liability, hut only for the determination of the amount of the loss sustained by the insured in case the parties are unable to agree. . .
“The plaintiff’s position is that by submitting the matter to arbitration the defendant is estopped to deny that a loss was sustained; that it may he heard only on the question of the amount of loss; and that an award that determined that no loss was sustained was not within the scope of the reference. We think that this construction of the policy is not sound. Obviously the referees would not have the right under such a reference to determine whether a loss, if sustained, was covered by the policy or whether the policy had ever taken effect; in other words, to decide questions pertaining to liability. But the right to determine ‘the amount of loss’ carries with it by necessary implication the right to determine that none existed.”
In Fox v. Employers’ Fire Insurance Co., 113 N. E. 2d 63 (Mass. 1953), the Massachusetts court again dealt with the duties of appraisers. The court held that they must determine the extent of loss and the source of the damage to the building. Fox’s garage was covered by a clause protecting as to damage caused by lightning, but excluding loss by windstorm. The policy provided for the selection of three appraisers to determine the amount of loss or. damage. Apparently lightning struck the roof of the garage, making a hole in it, and the accompanying wind entered through the hole and blew the roof off. The appraisers determined the loss from lightning was $317. Fox sued to recover on the policies, alleging that the award of appraisers was prejudiced and exceeded their jurisdiction. They had determined only the amount of loss from lightning, and did not consider any loss from windstorm, since admittedly that was not covered by the policy. Plaintiff contended that the appraisers’ duty was to determine the loss from all causes, *658including windstorm, as well as lightning. The trial court adopted that view, and instructed the jury to find the total loss “caused by all causes,” whether lightning or wind, stating the appraisers’ duty was to report the total loss, leaving to the court the function of passing upon “liability.” The trial court, with a jury, set aside the appraisers’ award and held that the amount of loss by lightning was $3,825.
On appeal the judgment was reversed. It was held that the appraisers acted properly in determining the amount of loss only by lightning, and not including any loss which was caused by windstorm. The court said: 4 4... it is the amount of the loss or damage under the policy which the referees must determine. It is not the amount of loss or damage whether covered by the policy or not. No practical good would be accomplished by the method for which the plaintiff contends and which was adopted in rulings at the trial. The parties would not be given what they bargained for in the contract of insurance. The summary determination of the amount of loss intended by the statute would be utterly defeated and confusion provided in its stead.
“In order intelligently to determine the amount of loss or damage under a given policy, as an incidental step in their deliberations, the referees must reach their own conclusions as to what they think that loss or damage is. Such conclusions must necessarily be affected by what they think the coverage is. Their views so far as ultimate liability goes are wholly tentative and in no sense a decision on that underlying question. ... In the case at bar it would have been beyond the scope of the reference for the referees to include in their award the amount of loss or damage due to windstorm. A form of extended coverage would have been necessary to embrace that; yet the contention of the plaintiff would lead to the same award irrespective of the plaintiff’s omission to carry extended coverage.'. . .”
*659Plaintiff relied in part on F & M Shirt Company, with reference to the statement therein that appraisers conld not determine “liability.” The court replied: “It is obvious that in the quoted language this court was referring to ultimate liability and was not undertaking to speak with regard to the precise question now before ns. It is one thing- to impeach an award for error of law and quite another to assert that referees exceeded their authority in confining their award to the loss or damage covered by the policy. We do not understand that it is contended that the referees in the case at bar were in error in their construction of the policies.” Hence the court reinstated the award. In brief, it held the appraisers had the duty to determine what part of the loss or damage to the building was caused by lightning, the sole coverage under the policy; and that, in doing so, they properly excluded any loss caused by wind. Appraisers could not determine ‘ ‘ ultimate liability, ’ ’ for an error of law, but they should determine whether and to what extent the particular loss was caused by lightning as covered by the policy. In so acting, they had to determine what loss was caused by wind, and exclude that, since it was not covered by the policy.
In summary, I think the chancery court was correct in refusing to upset the unanimous award of the appraisers. Appraisals are upheld on grounds of sound public policy. The instant contract of insurance had a standard provision. The appraisers unanimously determined the actual cash value of the property before the loss. This was their duty under the contract, and of course, in order to do this, they had to determine the condition of this 30-50-year old house prior to the loss. They decided that the walls were leaning before the windstorm, and this decision was a necessary part of their fixing the actual cash value. They then determined the loss. They made no determination as to liability or coverage under the policy. They simply fixed the amount of the loss by first determining the value of the building *660before the windstorm, and then the damage from the windstorm. All of the authorities appear to hold that appraisers, in fixing the actual cash value before loss, must consider the age and condition of the building. There is no evidence whatever of fraud or mistake. So I would affirm the decree of the chancery court.
Gillespie, J., joins in this dissent.