Hayes v. Allstate Ins. Co.

Decision Date02 December 1983
Docket NumberNo. 83-1456,83-1456
Citation722 F.2d 1332
PartiesJean HAYES and Citizens National Bank, Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY and Allstate Indemnity Company, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Stephen L. Williams, Mann, Chaney, Johnson & Goodwin, Terre Haute, Ind., for plaintiffs-appellants.

John W. Hammel, Yarling, Robinson, Hammel & Lamb, Indianapolis, Ind., for defendants-appellees.

Before ESCHBACH and POSNER, Circuit Judges, and SWYGERT, Senior Circuit Judge.

SWYGERT, Senior Circuit Judge.

The plaintiffs-appellants, Jean Hayes and Citizens National Bank, appeal from the district court's order of March 2, 1983 in their contract action against Allstate Insurance Company and Allstate Indemnity Company ("Allstate"). This order granted Allstate's motion to stay the proceedings and ordered the parties to proceed to appraisal. Our jurisdiction is based on 28 U.S.C. Sec. 1292(a)(1). Because we believe that the district court erred by ordering appraisal when it was not unambiguously mandated by the terms of the insurance policy in question, we vacate the district court's order and remand the case for further proceedings. 1

A house owned by Hayes 2 and insured under a policy issued by Allstate was destroyed in a fire on October 18, 1980. After investigating Hayes's claim, Allstate's representative informed Hayes's attorney that Allstate could not agree with the amount stated on Hayes's proof of loss form and, on January 21, 1981, made an offer of $175,967.10 for repair of the house, $159,976.96 for the contents, and $2,000 for restoration of the yard. Several days later, Hayes's attorney spoke with Allstate's representative and stated that his client accepted the offer for the contents but wanted to negotiate further on the amount offered for the fire damage to the house. Hayes's attorney then sent a letter to Allstate's representative on March 19, 1981 stating that he would recommend a settlement of $330,300 (ninety percent of the policy limit for dwelling protection). This recommendation was based on five separate construction reports submitted to Allstate indicating a consensus of opinion that the house had been ninety percent destroyed. Several weeks later, Allstate's representative responded by sending a draft to Hayes's attorney for $175,967.10, the amount of Allstate's original offer on the dwelling claim. The draft was accompanied by a letter explaining that the amount was based on a bid from Ernie Hatfield, a rebuilder of fire-damaged homes frequently engaged by Allstate, to rebuild the house for that price. Hayes's attorney then requested copies of the bid and supporting documents in order to determine whether to recommend settlement to his client. Allstate's representative mailed the requested documents to Hayes's attorney on April 13, 1981. On April 29, Hayes's attorney rejected the offer of $175,967.10 by letter, returned the draft in that amount to Allstate, and filed suit in Sullivan Circuit Court, Sullivan County, Indiana.

Allstate's attorney filed a petition for removal from the circuit court to the federal district court on May 19, 1981. 3 On June 17, Allstate's attorney then made a written demand for appraisal, naming Hatfield as its appraiser and stating that the demand was pursuant to Condition 8 of the policy at issue. Condition 8, entitled "Appraisal," provides in part: "If you and we fail to agree on the amount of loss, either party may make written demand for an appraisal. Each party will select a competent and disinterested appraiser and notify the other of the appraiser's identity within 20 days after the demand is received." On July 2, 1981, Hayes's attorney rejected Allstate's demand by letter which referred to the last sentence of Condition 7 of the policy. Condition 7, entitled "Our Payment of Loss," provides as follows: "We will settle any covered loss with you. We will pay you unless another payee is named in the policy. We will pay within 60 days after the amount of loss is finally determined. This amount may be determined by an agreement, between you and us, a court judgment, or an appraisal award."

Allstate responded by filing a motion to stay and to enforce appraisal procedures. The district court granted Allstate's motion, basing its decision on the language of Conditions 7 and 8 of the insurance contract. The court construed these two conditions as meaning that "although the parties are free at the outset to pursue any remedy provided in Condition 7, once a demand for the appraisal procedures has been made by either party, those procedures become a mandatory condition precedent to bringing suit." The court also found that the time period in which Allstate had made written demand for appraisal was not unreasonable, and therefore rejected Hayes's assertion that Allstate had waived any right to appraisal.

On appeal, Hayes and Citizens National Bank contend that the order compelling appraisal was contrary to the language of the insurance policy and should therefore be vacated. They alternatively assert that the district court erred in concluding that Allstate had not waived any right to appraisal, and that the court's failure to decide several issues, including whether Allstate's appraiser should be disqualified, deprived the appellants of their constitutional rights to due process and equal protection. Because we agree with the first contention, we need not consider the remaining arguments.

In this case, the district court stayed the action and ordered the parties to proceed under the appraisal procedures of Condition 8 in accordance with its determination that the policy required an appraisal. While a court can exercise discretion in deciding whether to stay an action simply for purposes of awaiting the outcome of another pending proceeding, see Voktas, Inc. v. Central Soya Co., Inc., 689 F.2d 103 (7th Cir.1982); Microsoftware Computer Systems Inc. v. Ontel Corp., 686 F.2d 531, 537-38 (7th Cir.1982), the order in this case was not the result of discretionary judgment. There was no other pending proceeding until the court compelled an appraisal, and the purpose of the order was to enforce the policy conditions as interpreted. We therefore review the court's order to determine whether this interpretation was erroneous under Indiana law.

Although the Indiana courts have not construed an insurance policy like the one at issue here, we are guided by several Indiana cases that have articulated general principles for construing the language of insurance policies. First, Indiana courts have held that any ambiguities in insurance contracts must be construed against the insurer and in favor of the insured because the contracts are drafted solely by the insurers and are thus contracts of adhesion. Travelers Indemnity Co. v. Armstrong, 384 N.E.2d 607, 613 (Ind.App.1979); Freeman v. Commonwealth Life Insurance Co., 149 Ind.App. 211, 271 N.E.2d 177, 181 (1971), transfer denied, 259 Ind. 237, 286 N.E.2d 396 (1972). An ambiguity exists "if reasonably intelligent men, upon reading the contract, would honestly differ as to its meaning." Travelers Indemnity Co., supra, 384 N.E.2d at 613. Second, regarding the more specific issue of whether a policy providing for appraisal should be construed as making appraisal a condition precedent to a right of action, an 1895 decision states that the policy should not be so construed unless the condition is actually expressed in the contract or is necessarily implied from its terms. Manchester Fire Assur. Co. v. Koerner, 13 Ind.App. 372, 40 N.E. 1110, 1111 (1895). More recent Indiana cases have discussed the same issue when construing contracts that provide for arbitration and have taken at least as strict an approach as was taken in Manchester Fire Assur. Co., supra. See Kendrick Memorial Hospital, Inc. v. Totten, 408 N.E.2d 130, 135 (Ind.App.1980); Shahan v. Brinegar, 390 N.E.2d 1036, 1040 (Ind.App.1979). 4

Applying these principles to this case, we do not agree that the Allstate policy issued to Hayes conditions a right of action on the completion of an appraisal. The policy does not expressly provide that no action may be maintained upon it until after the amount of loss is determined by appraisal. To the contrary, Condition 7 expressly states that the amount of the loss may be determined by a court judgment. Condition 8 specifies the procedures by which the appraisal is made, but is silent on whether appraisal must precede the action. Condition 12, which provides that no action may be brought against Allstate unless the insured has fully complied with all the terms of the policy, does not expressly apply either since Hayes was in compliance with all the terms when suit was brought.

Nor do the policy conditions, when read together, necessarily imply that the right of action is conditioned on the completion of an appraisal. Under Condition 7, Allstate expressly promises to pay the insured the amount of loss determined by court judgment. 5 While the policy also permits Allstate to demand an appraisal, if the demand is only made after the insured has properly brought suit, nothing in the policy necessarily precludes the court from still determining the loss as specified by Condition 7.

Finally, Allstate also argues that even if appraisal is not a condition precedent to an action, under Manchester Fire Assur. Co., supra, we should view the district court's order as a separate equitable remedy, similar to specific performance, through which the court enforced Allstate's contractual rights. In Manchester Fire Assur. Co., the court held that where appraisal is not a condition precedent to an action, a breach of a policy provision for submitting the amount of loss to arbitration will support a separate action. Manchester Fire Assur. Co., supra, 40 N.E. at 1111. We do not believe, however, that the policy at issue here supported Allstate's request for...

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