Court Opinion

ID: 9577067
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:31:24.259285+00
Date Added: 2024-06-11T13:19:54.204189
License: Public Domain

*353Six J.,
concurring in part and dissenting in part:
I dissent from the majority’s view that appraisal is merely a form of arbitration and that K.S.A. 5-401(c)(l) precludes appraisal provisions in insurance contracts.
The question of Trinity’s liability under the policy is not at issue. The dispute centers on an appraisal of the property after the fire to determine the amount of the loss. The Trinity policy references an appraisement, not an arbitration. The method for determining the amount of the loss should not be judged by the strict rules applicable to a K.S.A. 5-401 arbitration and award.
“[T]he view prevailing in nearly all jurisdictions is that a stipulation not ousting the jurisdiction of the courts, but leaving the general question of liability for a loss to be judicially determined, and simply providing a reasonable method of estimating and ascertaining the amount of the loss, is valid.” 44 Am. Jur. 2d, Insurance § 1681, p. 671.
Several prominent text writers have drawn the distinction between appraisal and arbitration in the context of insurance contracts. See 14 Couch on Insurance 2d §§ 50:5,50:6 (1982); 2 Windt, Insurance Claims & Disputes §§ 9.30, 9.33 (3d ed. 1995); and Keeton & Widiss, Insurance Law § 9.6 (1988).
This court long ago recognized the distinction between “appraisers of value or persons selected to make a measurement or computation under such a contract, and arbitrators properly so called” in Guild v. Railroad Co., 57 Kan. 70, 79, 45 Pac. 82 (1896):
“Conditions are frequently attached to policies of insurance providing that, in cáse differences arise between the parties touching a loss, the matter shall be submitted to arbitrators. Where these provisions are in such form that they require the submission of every controversy that may arise under the policy to arbitrators, and thus in terms oust the courts of all jurisdiction in the matter, they are held invalid; but where they merely provide for the submission to arbitrators of the question as to the amount of loss sustained, so that the arbitrators have nothing to do but make an appraisement of the property destroyed, if definite and reasonable in their provisions, they are generally sustained, and held to be, when so expressly stated in the policy, conditions precedent to a recovery.”
Although, as the Court of Appeals noted, Guild is factually distinguishable in that it concerned the enforceability of an appraisal provision in a real estate contract, the analysis in Guild applies as *354well to an appraisal provision in a fire insurance policy. The court in Guild reached for the law of insurance contracts to resolve a real estate contract dispute. Here, no reach is required. We have an insurance contract before us. Guild made the distinction between arbitration and an appraisal provision while discussing appraisal provisions in insurance contracts and noting authorities holding that such provisions were enforceable as conditions precedent to recovery. Guild recognized the then-existing common-law rule that either party may revoke an arbitration agreement anytime before the making of an award. 57 Kan. at 79-80. We referenced Guild in City of Lenexa v. C. L. Fairley Constr. Co., 245 Kan. 316, 321, 777 P.2d 851 (1989).
Even before the 1973 enactment of the Uniform Arbitration Act (the Act), K.S.A. 5-401 et seq., arbitration agreements in insurance contracts were considered unenforceable. See Clayton v. Alliance Mutual Casualty Co., 213 Kan. 84, 85, 515 P.2d 1115 (1973) (In a pre-Act automobile insurance policy, uninsured motorist coverage in question was an agreement to arbitrate a future dispute and was therefore invalid.). The K.S.A. 5-401(c)(1) exemption of insurance contracts from the Act codified existing common law. The Court of Appeals’ attempt (with which the majority agrees) to distinguish Guild based on K.S.A. 5-401 et seq. is questionable. The Act had no effect on prior law as to the enforceability of arbitration agreements in insurance contracts.
The majority cites three cases from other jurisdictions as support for its position: Intracoastal Ventures v. Safeco Ins. Co., 540 So. 2d 162, 163-64 (Fla. Dist. App. 1989) (applying the rule stated in U.S. Fire Ins. Co. v. Franko, 443 So. 2d 170 [Fla. Dist. App. 1983], that an appraisal clause in an insurance policy was enforceable as an arbitration agreement); Beard v. Mount Carroll Mut. Fire Ins. Co., 203 Ill. App. 3d 724, 561 N.E.2d 116 (1990); and Rawlings v. Amco Ins. Co., 231 Neb. 874, 438 N.W.2d 769 (1989).
Under Florida and Illinois law, arbitration agreements are favored and are not prohibited in insurance contracts. Franko, 443 So. 2d at 172; Beard, 203 Ill. App. 3d at 729. There was no reason for the courts in Florida and Illinois to distinguish between an *355arbitration agreement and an appraisal provision in the context of determining whether an appraisal provision was enforceable.
Although Rawlings is consistent with the majority’s analysis, cases from other jurisdictions have adopted a contrary view; see, e.g., Jefferson Ins. Co. v. Superior Court, 3 Cal. 3d 398, 403, 90 Cal. Rptr. 608, 475 P.2d 880 (1970) (“Although arbitrators are frequently, by the terms of the agreement providing for arbitration, . . . given broad powers . . . , appraisers generally have more limited powers.”); Atlas Constr. Co. v. Ind. Ins. Co., 160 Ind. App. 33, 37, 309 N.E.2d 810 (1974) (In determining whether statutes applicable to arbitrations would apply to an appraisal, the court drew a distinction between an appraisal [involving only amount of loss] and arbitration clause [in which other issues are determined] and held that the appraisal clause in a fire insurance policy was enforceable and binding on the insured.).
Atlas Constr., 160 Ind. App. at 37, emphasized the distinction between appraisal and arbitration, quoting Hartford Fire Insurance Co. v. Jones, 235 Miss. 37, 41-42, 108 So. 2d 571 (1959):
“ ‘Appraisement, in particular, is perhaps most often confused with arbitration. While some of the rules of law that apply to arbitration apply in the same manner to appraisement, and the terms have at times been used interchangeably, there is a plain distinction between them. In the proper sense of the term, arbitration presupposes tire existence of a dispute or controversy to be tried and determined in a quasi judicial manner, whereas appraisement is an agreed method of ascertaining value or amount of damage, stipulated in advance, generally as a mere auxiliary or incident feature of a contract, with the object of preventing future disputes, rather than of settling present ones. Liability is not fixed by means of an appraisal; there is only a finding of value, price, or amount of loss or damage. The investigation of arbitrators is in the nature of a judicial inquiry and involves, ordinarily, a hearing and all that is thereby implied. Appraisers, on the other hand, where it is not otherwise provided by the agreement, are generally expected to act upon their own knowledge and investigation, without notice of hearings, are not required to hear evidence or to receive the statements of the parties, and are allowed a wide discretion as to the mode of procedure and sources of information.’ ”
Guild resolved the issue in this jurisdiction.
I agree with the majority’s determination that the Federal Arbitration Act does not preempt K.S.A. 5-401(c)(1).
*356McFarland, C.J., joins in the foregoing concurring and dissenting opinion.