Hickerson v. German-American Ins. Co.

• Decision Date: 13 February 1896
• Parties: HICKERSON et al. v. GERMAN-AMERICAN INS. CO. SAME v. ROYAL INS. CO. SAME v. EQUITABLE INS. CO.
• Court: Tennessee Supreme Court

33 S.W. 1041

96 Tenn. 193

HICKERSON et al. v. GERMAN-AMERICAN INS. CO.

SAME v. ROYAL INS. CO.

SAME v. EQUITABLE INS. CO.

Supreme Court of Tennessee.

February 13, 1896

Appeal from circuit court, Coffee county; M. D. Smallman, Judge.

Actions by L. D. Hickerson & Co. against the German-American, the Royal, and the Equitable Insurance Companies, to recover damages resulting from fire. The causes were consolidated. From judgments in favor of plaintiffs, defendants appeal. Affirmed.

Lellyett & Barr, for appellants.

C. A Sheafe and Geo. W. Cross, for appellees.

WILKES J.

Plaintiffs L. D. Hickerson & Co., were insured against loss by fire in the three companies above named, the property insured being lumber, in a yard owned by them at Tullahoma, Tenn. The property having been destroyed by fire, suit was brought upon the policies. The causes were consolidated, and heard before the court and a jury, and a verdict was rendered against the companies separately, to wit: Against the German American Insurance Company for $1,834.94; the Royal Insurance Company $1,834.94; and the Equitable for $918.57,-or a total of $4,588.45. The plaintiff remitted $34.94 each as against the first-named companies, so as to reduce the judgment against them to $1,800 each, the amount sued for in the summons leaving the aggregate amounts of the judgments rendered $4,508.57.

It is insisted that the suits cannot be maintained under the provisions of what is termed the "arbitration" or "appraisement" clauses in the several policies. These clauses are substantially the same in each of the policies, and are the usual clauses found in the great majority of fire policies. We quote from the policy of the Royal Insurance Company, the others being in substance and effect the same: "The amount of sound value and of the damage shall be determined by mutual agreement between the company and the assured, or, failing thus to agree, the same shall then be immediately ascertained by a detailed appraisal by competent persons, etc., one to be appointed by the assured, and one by the company (which two persons shall, in case of a disagreement, appoint a third); and their report, rendered in detail in writing, and made under oath, shall be binding on the company and the assured as to the amount of such loss or damage, but shall not decide the legal liability of the company under this policy." And again: "Until such notice as aforesaid is given, particular account and certificate produced, examinations and appraisals permitted by the assured, the loss shall not be payable." Again: "It is hereby expressly provided that no suit or action against this company for the recovery of any claim under or by virtue of this policy shall be sustainable in any court of law or equity until after an award shall have been obtained fixing the amount of such claim in the manner heretofore provided," etc. Similar clauses and provisions in fire policies have been upheld in the courts, the leading case being Hamilton v. Insurance Co., 136 U.S. 242, 10 S.Ct. 945, where other authorities are collated. In some courts such provisions have been declared invalid, and in others they have been much limited and circumscribed. See Bid.

Ins. § 1153. In no tribunal have they been allowed to oust the courts of their jurisdiction (Bid. Ins. § 1153); and they must be so construed as, upon the one hand, to protect the companies from fraudulent claims, and, at the same time, to secure the insured in the collection of his honest dues. It is evident that the object of such provisions is to furnish an easy court of appraisal and arbitration to settle real differences of estimate and opinion, without the delay and cost of a suit for that purpose. Until such real difference has arisen out of an honest effort between the insurer and insured, there is neither occasion nor authority for an appraisal and arbitration. In Beach, on Insurance (section 1244) it is said, quoting from Vangindertaelen v. Insurance Co., 82 Wis. 112, 51 N.W. 1122: "The arbitration is only provided for in case the parties fail to agree." And again: "The condition making such award a condition precedent to the commencement of a suit upon a policy presupposes a failure to agree and consequent arbitration." Again, in section 1310, it is said: "An allegation that the insured furnished such proof and offered in writing to arbitrate the amount of the loss, but that the company refused such arbitration, and refused to pay the insurance, or any part of it, but not averring a failure to agree on the amount was held not to show a right to resort to arbitration on the part of the insured." In Boyle v. Insurance Co., 169 Pa. St. 349, 32 A. 553, it is held, in substance, that there is no authority for the appointment of appraisers when the insurers and the insured have made no effort to agree and settle between themselves. See, also, Chapman v. Insurance Co. (Wis.) 62 N.W. 422; Farnum v. Insurance Co., 83 Cal. 246, 23 P. 869; Bid. Ins. § 1157.

It appears in this case that Curry, an adjuster, went to the complainants' books, and compared the original approximate statement of loss made by them with the books, and found what he claimed were discrepancies. To these he objected, and a revised statement was more carefully prepared from the books by the plaintiffs, and submitted to the companies; but this does not appear to have been examined by the companies, and no counter statement was made to show the real account, as the companies understood it, but an appraisement was demanded, without further effort to arrive at the loss. These provisions in insurance policies are not intended to introduce or establish any new system for the adjustment of losses by fire that does not obtain in other business settlements and transactions. It was never intended that an appraisal should be demanded by either party before any occasion for it had arisen; otherwise, they would both prove instruments to delay the settlement of losses, instead of aiding in their settlement. Upon the happening of a fire loss, the insured is required to give notice and furnish a detailed statement of his loss. When this is received by the company, it is incumbent on the company to examine the same; and, if not agreed to, specific objections must be pointed out by the company, and an honest effort must then be made to adjust the difference. A mere general objection to the proofs, without pointing out in detail the items excepted to, will not be sufficient, but the objection must be so specific, with detail of items, as to enable the assured to see upon what points differences exist; and a counter statement, if necessary, should be furnished, showing the contention of the companies in such way that the difference, if practicable, may be adjusted and settled. If this shall fail after an honest effort is made, an appraisal may be demanded by either party, and only in such event. In the selection of appraisers, it is not contemplated that either party shall select a person with a view to sustain his own views or further his own interest, but the appraisers are to act in a quasi judicial capacity, and as a court selected by the parties, free from all partiality and bias in favor of either party, and so as to do equal justice between them. This tribunal, selected to act instead of the court and in place of a court must be, like a court, impartial, and not partisan; and, if these provisions are not carried out in this spirit and for this purpose, neither party is precluded from going into the courts to reach his just deserts, notwithstanding the provisions. In many courts it has been held that such demand for appraisal is a waiver of other defenses upon the part of the insurer, notwithstanding the policy may provide that the award shall be binding only as to the amount of loss, and shall not decide the liability of the company under the policy. Upon reason, it would seem that this result should follow, as it would only be a farce to adjust the amount of loss when the company denied liability for any amount. In such case the company has nothing to arbitrate, and the amount of damage is a matter to determine only after the preliminary questions of liability have been conceded or adjudged.

We are of opinion, therefore, that the insurer cannot demand an appraisal and arbitration of the amount of loss while at the same time it denies all liability under its policy; and a demand for appraisal by the insurer is a waiver of other defenses going to the question of liability. Lasher v. Insurance Co., 18 Hun, 98; Rosenwald v. Insurance Co. (Sup.) 3 N.Y. Supp. 215; 11 Am. & Eng. Enc. Law, p. 354; Beach, Ins. § 1244; Boyle v. Insurance Co., 169 Pa. St. 349, 32 A. 553; Insurance Co. v. Putnam, 20 Neb. 331, 30 N.W. 246; Bailey v. Insurance Co. (Wis.) 46 N.W. 440; Insurance

Co. v Etherton, 25 Neb. 505, 41 N.W. 406; Wainer v. Insurance Co. (Mass.) 11 Lawy. Rep. Ann. 599, and note (26 N.E. 877); Farnum v. Insurance Co. (Cal.) 23 P. 869, cited in Savage v. Insurance Co. (Mont.) 33 Am. St. Rep. 591, and note page 599; s. c., 31 P. 66. In Biddle on Insurance (section 1175) it is said: "When the insurer declines to recognize any liability to pay, this does not constitute a dispute, and the arbitration provisions are waived by such refusal." Beach says (section 1244): "If the company denies its liability for the loss, there would be nothing, from its standpoint, to arbitrate. Hence the rule that such a provision is a condition precedent to a right to bring action on the policy does not apply when the company denies its...