Summary
In Headley and Niagara, an appraiser for the insurer prevented completion of the appraisal process by insisting upon selection of an umpire located far from subject property.
Summary of this case from Copper Oaks Master Home Owners Ass'n v. Am. Family Mut. Ins. Co.Opinion
7 Div. 957.
November 28, 1918.
Appeal from Circuit Court, Talladega County; Hugh D. Merrill, Judge.
Riddle Riddle, of Talladega, for appellant.
Coleman Coleman, of Birmingham, and W. B. Harrison, of Talladega, for appellee.
A covenant in a contract, whether of insurance or of other matters, to submit every matter of dispute between the parties, growing out of such contract, to arbitration or to a board of appraisers, to the end of defeating the jurisdiction of courts as to the subject-matter, are universally held to be void, as against public policy. There need be no such express intent to so defeat the jurisdiction; if the necessary effect of the covenant will inevitably so operate, it is held to be void because against public policy. Agreements, however, which merely provide a mode or manner for ascertaining the value of property, or the amount of damages, losses, or profits, are valid, and may be made conditions precedent to the right of action to recover damages based on such values, damages, losses, or profits. Western Assur. Co. v. Hall, 112 Ala. 318, 20 So. 447; Niagara Ins. Co. v. Bishop, 154 Ill. 9, 39 N.E. 1102, 45 Am. St. Rep. 105. The clause of the insurance policy in question falls within the latter class, and is valid and enforceable. The policy of this state favors arbitration and amicable settlement of differences between parties; but it does not favor or allow agreements in advance to oust or defeat the jurisdiction of all courts, as to all differences between parties. Const. § 84; Code, §§ 2908-2923.
A general provision in a contract for the arbitration of any dispute which may arise thereunder does not oust the courts, nor bar a suit either at law or equity. Stone v. Dennis, 3 Port. 231; Kinney v. Baltimore Ohio Employés' Ass'n, 35 W. Va. 385, 14 S.E. 8, 15 L.R.A. 142.
Where the contract explicitly makes the determination by arbitration of amounts, values, qualities, etc., a condition precedent to the maintenance of an action, it is binding, as in insurance and building contracts; but if the condition is not clearly and explicitly precedent, and is merely collateral, an action is not barred. A provision in a contract that certain matters of estimate involving no dispute shall be determined and certified by a certain person, as an engineer or architect, is binding. Campbell v. American Popular Life Ins. Co., 1 McArthur, 246, 29 Am. Rep. 591; Commercial Union Assur. Co. v. Hocking, 115 Pa. 407, 8 A. 589, 2 Am. St. Rep. 562; Cole Mfg. Co. v. Collier, 91 Tenn. 525, 19 S.W. 672, 30 Am. St. Rep. 898; Faunce v. Burke Gonder, 16 Pa. 469, 55 Am. Dec. 519.
An arbitration clause, induced by fraud, folly, or undue pressure, might well be refused a specific performance, or disregarded, when set up as a defense; but when parties stand upon equal footing, and provide such a mode for the adjustment of their differences, it is not easy to assign a reason why such contracts should not stand.
Some contracts of this kind impose a condition precedent to a right of action accruing; others endeavor to prevent any right of action accruing at all. Lawson on Contracts, § 318; President, etc., of Delaware H. Canal Co. v. Pennsylvania Coal Co., 50 N.Y. 250; May on Insurance, § 492; 2 Parsons on Contracts, 707.
By the common law an agreement to refer matters of difference to arbitration did not oust the jurisdiction of courts. A person could not, by his mere voluntary agreement, preclude himself from seeking relief in the court. T. R. 139; 36 L. J. Ch. 480.
If parties to contracts of insurance covenant that in case of disagreement as to the amount of the loss or damages, or the value of the property destroyed or damaged, they will submit such difference to disinterested parties as appraisers, arbitrators, or umpires, and provide a mode for selecting such parties, and make an award of such parties a prerequisite to the bringing of a suit on such insurance policy, such covenant or agreement is valid, and will be enforced by the courts, in the absence of surprise, mistake, fraud, etc. If, however, one party prevents the award from being made as provided in the covenant, he will not be heard in a court of law or equity to say that an award is a prerequisite to a suit on the insurance contract. No one is allowed thus to profit by his own wrong or fault, which the other could not prevent and did not occasion.
So, also, if the award, without fault of either party, becomes impossible of performance, it will not be given effect, to destroy all rights of a party. If the appraisers nominated by the parties should willfully refuse to name an umpire or to appraise the property, without fault of the insured, this ought not to bar his right of recovery. Such was evidently not the intention of the parties in entering into the covenant. Such covenants should be construed so as to carry out the lawful intention of the parties. Like other provisions of insurance contracts, doubtful provisions will be construed against the insurance companies, which usually prepare and draft them, and for whose benefit they are usually drawn. To construe such provisions or covenants to absolutely deprive the insured of all rights to enforce the performance of his contract, without any fault on his part and without any consideration or benefit to accrue to him, would be unreasonable, and no such construction will be accorded such provisions if any other interpretation is authorized. It has been held by some courts that if the appraisers should fail or refuse to appraise, or to appoint an umpire, or to make an award, without fault on the part of the insured, he should endeavor to have the insurance company to name another appraiser, and name one himself, who would proceed to an award, and that until he thus puts the insurance company in default, an award would be a prerequisite to the bringing of any action, under contracts like the one in question. Davenport v. Long Island Co., 10 Daly (N.Y.) 535. To this we do not agree, but concur in what was said by the Supreme Court of Illinois on the subject, as follows, in review of the Davenport Case:
"We are unable to subscribe to this doctrine, so far as the policy upon which the present suit has been brought is concerned. The contract here only requires the parties to choose appraisers once, and not twice." Niagara Fire Ins. Co. v. Bishop, 154 Ill. 9, 39 N.E. 1102, 45 Am. St. Rep. 110.
The parties not having so provided in the contract, this court does not feel at liberty to so provide for twice selecting appraisers.
Most courts hold that the insured should not lose all his rights by a refusal of the appraisers to make the award, if the refusal or failure is without fault on his part. The award is not under all circumstances a pre-requisite to the bringing of an action. If the award is provided for, as in the contract under consideration, then the assured must show that it has been made, as provided, or show a valid excuse for its not being made — that it is impossible for him to have it performed, that the failure was unavoidable so far as he is concerned, is a valid excuse, just as the fact that the failure was induced by the fault of the insurance company.
The correct rule, as we hold, is well stated by the Supreme Court of the United States:
"Where the parties, in their contract, fix on a certain mode by which the amount to be paid shall be ascertained, as in the present case, the party that seeks an enforcement of the agreement must show that he has done everything on his part which could be done to carry it into effect. He cannot compel the payment of the amount claimed, unless he shall procure the kind of evidence required by the contract, or show that by time or accident he is unable to do so." United States v. Robeson, 9 Pet. 319, 327, 9 L.Ed. 142.
See, also, Martinsburg Potomac Railroad v. March, 114 U.S. 549, 5 Sup. Ct. 1035, 29 L.Ed. 255.
This rule is also approved in Niagara Fire Insurance Company v. Bishop, 154 Ill. 9, 39 N.E. 1102, 45 Am. St. Rep. 109, having been first announced in the case of United States v. Robeson, 9 Pet. 319, 9 L.Ed. 142.
There is a line of cases holding the contrary, but we are not willing to follow it. See the case of Fisher v. Merchants' Ins. Co., reported in 95 Me. 486, 50 A. 282, 85 Am. St. Rep. 428, and cases therein cited and note thereto.
To apply the rule there announced, we must make a contract for the parties, to the extent of requiring them to continue to appoint appraisers until an award is obtained, or the insured lose all.
Applying the law as thus declared to the facts of this case, we hold that the trial court erred in giving the affirmative instruction to find for the defendant on the plea in abatement. The evidence certainly fails to show any fault on the part of the plaintiff in not obtaining the award, unless the law required her to request new appraisers — and this we hold the contract did not require her to do. She appointed or named an appraiser as she agreed to do; and that the two appointed did not agree is not shown to have been due to her fault. The evidence certainly tends to show that the two appraisers would not agree on an appraised value, nor on an umpire. To use the language of the witnesses, they arrived at a "deadlock." Surely this plaintiff ought not to wholly lose her right of action because, without fault or her part, the appraisers would not render an award. So far as she was concerned, this covenant was rendered impossible of performance, and without fault on her part.
Moreover, the evidence offered is not without adverse inferences that the failure to name an umpire and to reach an award was due to the fault of the insurance company, or the adjusting company, or that of their agents or servants, for whose faults this defendant was responsible. There was evidence which, if believed by the jury, tended to show that the appraiser selected by the insurance company was not wholly "disinterested," however competent he might have been. There was no evidence to show that he was either corrupt or dishonest or incompetent; but there was evidence to support an inference that he was not indifferent as to the rights of both parties, but that he was friendly to the insurance and adjusting companies. There was evidence tending to show that he was frequently employed by insurance companies and adjusting companies to appraise and adjust losses similar to the one in question, and that he was paid rather large fees and compensation as for such services by such companies. There was evidence tending to show that he was acting in the nature or character of a special agent of these companies, and that he was selected by them on the belief that he would be friendly, if not partial to their interests in such matters. As before stated, there is nothing tending to show anything corrupt, dishonest, or even bad faith on his part; yet the evidence did tend to show that he was not wholly disinterested or unbiased, as an arbitrator should be.
The facts in this case are not wholly unlike the facts in the case of Niagara Company v. Bishop, 154 Ill. 9, 20, 39 N.E. 1102, 1106, 45 Am. St. Rep. 105, 111. In that case it is said:
"While it is true that an arbitrator or appraiser is not to be regarded as the agent of the party appointing him simply by reason of the fact of his appointment, yet an arbitrator or appraiser may act in such a partial manner, and so manifestly in the interest of the party appointing him, that it may become a question of fact to be submitted to the jury, or to be determined by the court sitting without a jury, whether he conducts himself as an agent to such an extent that the party appointing him shall be held responsible for his acts. If an insurance company selects a man for appraiser, who, instead of acting as such, conducts himself in the interest of the company and as an agent for the company, the company will be held responsible for such conduct on his part as inures to the benefit of the company. If the evidence proves that he prevents an agreement, or the appointment of an umpire, by methods which show him to be the agent of the company, his acts will be regarded as those of his principal."
In that case the acts of the appraiser which were held sufficient to charge the insurance company were in part identical with acts in this case. It was there said by the court:
"The evidence tends to show that the failure of the appraisers to select an umpire was due to the fact that Donlin, the appraiser chosen by appellant, desired to appoint an umpire living in Bloomington, or Chicago, or some distant city, while Hoag, the appraiser who had been chosen by appellee, was in favor of some man as umpire whose residence was in Elgin, or near the place where the fire occurred." 154 Ill. 18, 39 N.E. 1105, 45 Am. St. Rep. 111.
That is this case mutatis mutandis. Here, the failure was due to the fact that the appraiser appointed by the insurance company insisted on appointing an umpire who lived in Birmingham, Ala., Montgomery, Ala., or Atlanta, Ga.; while the appraiser appointed by the insured insisted on appointing some one who lived in or near Sylacauga or some other place near the scene of the storm and the location of the property injured.
There was evidence in this case that the appraiser, after his appointment, conferred with the agents of the insurance company who wrote the policy, and with the manager of the adjusting company, as to the appointment of an umpire; that he wrote the manager of the adjusting company, who was the agent of the insurance company in this matter, as to the name of a person who had appraised property for insurance companies or adjusting companies, and that the manager wrote to parties to ascertain the name and address of such appraiser or adjuster, and was informed as to the name, stating that he was advised that this was a good man for the insurance company; and that this man was one suggested by the insurance company's appraiser as an umpire, notwithstanding the fact that such party lived in another state and was not known to any of the parties. There was therefore ample evidence to carry this question to the jury.
The correspondence between the two appraisers was admissible to show the bona fides of the acts of both appraisers; and so was the correspondence between the appraisers and the agents of the insurance and adjustment companies, as to the naming of an umpire.
We find no error as to the rulings on motions to strike pleas or demurrers to pleas or replications, which are injurious to appellant.
For the error in giving the affirmative charge for the defendant the judgment is reversed, and the cause is remanded.
Reversed and remanded
ANDERSON, C. J., and SOMERVILLE and THOMAS, JJ., concur.