Opinion
No. 99-182.
Opinion filed December 1, 1999.
An appeal from the Circuit Court for Walton County, Lewis R. Lindsey, Judge.
Corinne L. Heller of Baker Duke, P.A., Pensacola, for Appellants.
Charles F. Beall, Jr., of Moore, Hill, Westmoreland, Hook Bolton, P.A., Pensacola, for Appellee.
This case asks whether an insurer must comply with an appraisal provision in an insurance policy which requires forced appraisals for disputes involving the "amount of loss," when the insurer asserts that the insured's loss is not covered under the policy yet the insured demands an appraisal. We answer that the insurer must submit to the appraisal process.
Appellants, Michael N. Opar and Carolyn K. Opar, obtained an insurance policy covering their property located on Beach Drive West in Destin from appellee Allstate Insurance Company in early 1995. On October 4, 1995, Hurricane Opal struck northwest Florida and the Opars' beach front residence was destroyed. Allstate denied the Opars' claim for loss for the reason that the damage was caused by storm surge, a loss not covered under the policy. In support of its position, Allstate referred to the contract provision pertaining to "Losses We Do Not Cover," which disallows coverage for "loss or damage to property . . . resulting directly or indirectly from: 1. Water, meaning: a) flood, surface water, waves, tidal water, or overflow or any body of water, or spray from any of these, whether or not driven by wind."
The Opars replied that their property was damaged by windstorm, i.e., Hurricane Opal, which is a covered peril. They made a formal demand for appraisal under the terms of the insurance policy. After Allstate refused, the Opars filed a complaint for declaratory relief seeking an order declaring their right to an appraisal under the policy.
The Opars also filed a separate action for breach of contract.
The insurance policy includes the following appraisal clause:
7. Appraisal
If you and we fail to agree on the amount of loss, either party may make a written demand for appraisal. Upon such demand, each party must select a competent and disinterested appraiser and notify the other of the appraiser's identity within 20 days after the demand is received. The appraisers will select a competent and impartial umpire. If the appraisers are unable to agree on an umpire within 15 days, you or we may ask a judge of a court of record in the state where the residence premises is located to select an umpire.
The appraisers will then determine the amount of loss, stating separately the actual cash value and amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they cannot agree, they will submit their differences to the umpire. A written award by any two will determine the amount of loss.
Each party will pay the appraiser it chooses and equally bear expenses for the umpire and all other appraisal expenses.
The trial court found nothing in the record indicating that there was a disagreement regarding the amount of loss, and, because the clause requires a forced appraisal only if there is a dispute as to the "amount of loss," it determined that the appraisal clause was not implicated until it was decided whether the loss was covered. The court thereupon granted Allstate's motion for summary judgment in the suit for declaratory relief.
The parties do not dispute the enforceability of the appraisal provision, and they are in agreement regarding the basic law regarding appraisal clauses. For instance, it is well established that appraisal provisions are considered binding arbitration agreements. See Florida Farm Bureau Cas. Ins. Co. v. Sheaffer, 687 So.2d 1331, 1333 (Fla. 1st DCA 1997); Transamerica Ins. Co. v. Weed, 420 So.2d 370, 371 n. 1 (Fla. 1st DCA 1982); Gray Mart, Inc. v. Fireman's Fund Ins. Co., 703 So.2d 1170, 1172 (Fla. 3d DCA 1997). Such appraisals are considered conditions precedent to an insured's right to maintain a suit on the insurance contract.New Amsterdam Cas. Co. v. J.H. Blackshear, Inc., 156 So. 695, 696 (Fla. 1934); Sheaffer, 687 So.2d at 1333;Weed, 420 So.2d at 371. The parties also agree that if there is a binding appraisal provision, it is enforceable to determine disputes as to the amount of loss. The appraisal process cannot, however, be used to determine coverage issues, which are judicial determinations. State Farm Fire Cas. Co. v. Licea, 685 So.2d 1285, 1287 (Fla. 1996);Sheaffer, 687 So.2d at 1334.
The question in this case is whether Allstate must comply with the appraisal provision before a determination is made of whether an uncovered peril, storm surge, or a covered peril, windstorm, damaged the Opars' property. A number of recent decisions authorize compliance with an appraisal clause. SeeFlorida Select Insurance Co. v. Keelean, 727 So.2d 1131 (Fla. 2d DCA 1999), which relied on State Farm Fire Casualty Co. v. Licea, 685 So.2d 1285 (Fla. 1996), andParadise Plaza Condominium Ass'n, Inc. v. Reinsurance Corp. of N.Y., 685 So.2d 937 (Fla. 3d DCA 1996), which is an en banc decision of the Third District.
The facts in Keelean are very similar to those at bar. There, an action was brought for damage to a condominium unit. The insured maintained that the tenant had vandalized the property, which was a covered peril, while the insurer claimed that the damage was due to normal wear-and-tear, a peril that was not covered. The insured refused to participate in the appraisal process unless the insurer waived its right to contest coverage under the policy. The appraisal process was terminated with the insured filing suit against the insurer for declaratory judgment and breach of contract. The insurer moved to stay the action and to compel appraisal, but those motions were denied. In reversing the trial court's rulings on the motions, the Second District observed that arbitration agreements are a favored means of dispute resolution and that the only defenses are that the agreement is invalid or that no agreement existed. Thus, the court's review was limited to determining if the trial court properly considered whether the arbitration was valid, an arbitrable issue existed, and the right to arbitration had been waived. Keelean, 727 So.2d at 1132. Finding that the agreement was valid and that there had been no waiver, the court concluded, based on language in Licea, that an arbitrable issue did exist, because the assessment of the amount of loss necessarily includes a determination as to the cost of repair and whether the required repair was caused by a covered or non-covered peril. Id. at 1133. As there was no reason given to deny the appraisal, the Second District reversed and remanded for entry of an order requiring the parties to submit to an appraisal as required under the insurance policy.
The Licea case, which the Second District relied upon in Keelean, addressed the issue of whether an appraisal clause was void for lack of mutuality due to a separate policy clause which provided that the insurer's request for an appraisal would not waive any of its rights. In deciding that the appraisal clause was valid, the court observed that a provision preserving the right to deny coverage merely allowed the insurer to proceed with the appraisal process if the insured so requested without abandoning any coverage defense that might be available. Licea, 685 So.2d at 1287. The coverage determination was exclusively a judicial question, but if coverage was found, the insurer would be bound immediately by the amount ascertained and awarded by the arbitrators. The court concluded as follows:
Thus, where there is a demand for an appraisal under the policy, the only "defenses" which remain for the insurer to assert are that there is no coverage under the policy for the loss as a whole or that there has been a violation of the usual policy conditions such as fraud, lack of notice, and failure to cooperate. We interpret the appraisal clause to require an assessment of the amount of a loss. This necessarily includes determinations as to the cost of repair or replacement and whether or not the requirement for a repair or replacement was caused by a covered peril or a cause not covered, such as normal wear and tear, dry rot, or various other designated, excluded causes.
Id. at 1288.
Paradise Plaza Condominium Ass'n similarly involved the question of whether the insurer's reservation of a right to contest coverage rendered the damage appraisal clause in the insurance policy void for lack of mutuality. In deciding that it did not, the Third District considered the insured's argument that the trial court erroneously ordered appraisal to proceed before determining any coverage issue. In rejecting that argument, the court noted that the parties had specifically agreed to the appraisal costs as a necessary part of the claim process. The court also reasoned that a rule requiring coverage questions to be resolved before arbitration might have adverse effects on the expeditious, out-of-court disposition of litigation, which would be contrary to the very reason that arbitration is favored. Moreover, the court suggested that a "coverage first" rule might inefficiently require insurers to litigate even tenuous coverage defenses because of an unavoidable uncertainty as to their ultimate exposure. Paradise Plaza, 685 So.2d at 941.
See also Hanover Fire Insurance Co. v. Lewis, 28 Fla. 209, 10 So. 297 (1981), wherein the court found that an arbitration award on the amount of damage was binding on the parties in the subsequent litigation which addressed coverage.
Based upon the above case law, we conclude that the trial court erred as a matter of law by failing to require the parties to proceed with the appraisal process. As explained inKeelean, the trial court's duty was to determine whether there was an enforceable agreement, an arbitrable issue, and an absence of waiver. Here, the parties agree an enforceable appraisal provision exists, there is no showing of waiver, and an arbitrable issue is present in that the insured contends that damage was caused, in whole or in part, by windstorm, a covered peril. The order granting Allstate's summary judgment is therefore reversed.
In so ruling, we have considered Allstate's reliance onNew Amsterdam Casualty Co. v. Blackshear, 156 So. 695, 696 (Fla. 1934), wherein the supreme court stated that "the law does not require the insured to submit to a purely speculative appraisal of damages as to which it may be contended no liability at all exists." We find Blackshear distinguishable because it involved an insurer who apparently denied coverage but then requested an appraisal. In a case in which the insurer is the party demanding the appraisal, the insured is only protected if the insurer admits some liability for the loss. Contrast that situation with one in which the insured requests the appraisal — the insurer is protected by the limitation of the appraisal to the amount of loss and by the rule that only courts may determine coverage issues. Although the insurer will incur the cost of the appraisal even though its liability is still at issue, it has agreed to the appraisal process as part of the claim proceeding, and it has not sustained an underlying loss as has the insured.
REVERSED and REMANDED with directions to enter an order directing the parties to proceed with the appraisal process.
LAWRENCE and PADOVANO, JJ., CONCUR.
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED.