Ice City, Inc. v. Insurance Co. of North America

• Decision Date: 24 January 1974
• Citation: Ice City, Inc. v. Insurance Co. of North America, 456 Pa. 210, 314 A.2d 236 (Pa. 1974)
• Parties: ICE CITY, INC., a corporation and Ice City Christmas, Inc., a corporation, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, a corporation.
• Court: Pennsylvania Supreme Court

Page 236

314 A.2d 236

456 Pa. 210

ICE CITY, INC., a corporation and Ice City Christmas, Inc. a corporation, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, a corporation.

Supreme Court of Pennsylvania.

Jan. 24, 1974.

Harold Caplan, C. Tracy Taylor, Stamberg, Caplan, Calnan & Behrle, Allentown, for appellants.

Richard W. Hopkins, White & Williams, Philadelphia, for appellee.

Andrew F. Giffin and Barton Isenberg Asst. Attys. Gen. of Pa., Harrisburg, for Ins. Dept., Commonwealth of Pennsylvania.

Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.

OPINION OF THE COURT

ROBERTS, Justice.

On November 13, 1971, the business premises of appellants, Ice City, Inc., and Ice City Christmas, Inc., were damaged by fire. Fire insurance coverage was provided by appellee, the Insurance Company of North America (INA). The parties, while able to agree on the amount of losses to real and personal property, were unable after protracted negotiations, to agree on the amount of lost income. Appellee admits liability for this loss, but disputes the amount of loss.

On July 10, 1972, appellants, pursuant to the terms of the insurance policy, demanded in writing the appointment of independent appraisers qualified to determine the extent and amount of lost income. INA, however, refused to comply with the procedures set forth in its policy, and declined to nominate an appraiser. The policy, as statutorily mandated, ¹ provides:

'APPRAISAL. In case the Insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the Insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.'

Appellants instituted this action in equity seeking a decree of specific performance requiring appellee to appoint 'a competent and disinterested appraiser.' INA filed preliminary objections in the nature of a demurrer, which were sustained. This appeal ensued. ² We reverse. ³

The single question for our determination is whether the appraisal provision is enforceable. In support of the chancellor's conclusion that the clause is unenforceable, appellee relies on our decision in Mentz v. Armenia Fire Insurance Co., 79 Pa. 478 (1876), and several other early cases following it. ⁴ We believe appellee's reliance misplaced, and its reading of our precedents erroneous.

Mentz involved a suit for fire loss. The insurance contract, as here, contained a provision for referring disagreements 'touching the amount of any loss or damage sustained' to 'the judgment of arbitrators.' Id. at 479. Neither party 'offered or asked for' appraisal, and consequently Mentz brought an action on the policy for damages. The trial court sustained the insurer's motion for a nonsuit for failure to submit the controversy to appraisers.

This Court reversed and remanded the case for trial because the insurer-appellee had not shown that the only question was the amount of loss. A condition precedent to appraisal, a showing that the dispute was one 'touching the amount of any loss or damage,' was not satisfied. ⁵ In reversing, the Mentz court commented, 'Such an agreement . . . is revocable, though the party may subject himself to an action of damages for the revocation.' Id., 79 Pa. at 480. Appellee relies on this isolated phrase to support its position that the appraisal clause is unenforceable. Appellee, however, reads the single word 'revocable' as though it represents the court's entire decision.

The insurance contract in Mentz in addition to providing for appraisal, required that 'no action, suit or proceedings at law or in equity shall be maintained on this policy, unless the amount of loss or damage in case of difference or dispute shall be first thus (by appraisal) ascertained.' ⁶ The insurer contended that this contractual provision totally divested the courts of any and all jurisdiction over the controversy. It was in response to this argument, which was rejected, that this Court said that the appraisal was 'revocable.' The Mentz court reasoned that if the insurer did not admit liability, thereby precluding appraisal, and if the appraisal provision remained binding upon the insured, then the insured would have been unable to bring suit to recover his losses.

By 'revocable' this Court did not, as the chancellor here erroneously concluded, mean that the appraisal provision is unenforceable when the insured requests appraisement. 'Revocable' was used only in the sense that, when the conditions precedent to appraisal are not satisfied, the party preventing appraisal, as INA here, may not assert the existence of the appraisal clause despite its own failure to comply with the clause as a defense to the innocent party's action on the policy. When the insured is prevented from submitting the controversy to appraisement by the insurance carrier's refusal to name an appraiser, then the insured may not be denied his right to seek enforcement of the appraisal clause or to sue for damages.

Mentz and the cases following it hold only that if appraisal is not requested, ⁷ or the request is fruitless, ⁸ or appraisal proceedings are inclusive ⁹ or abandoned by the parties' joint consent, ¹⁰ or liability is denied, ¹¹ then the appraisal provision in the contract may not bar the insured from bringing an action for relief in the courts. When appraisal is rejected by the insurance carrier, or is otherwise made unavailable to the insured, the insured's appraisal obligation is satisfied and he is entitled to bring suit. Appraisal, therefore, or the attempt at appraisal 'would be at the most a condition precedent to an action by the insured . . ..' Gratz v. Insurance Co. of North America, 282 Pa. 224, 233, 127 A. 620, 623 (1925) (quoting Penn Plate Glass Co. ex rel. Wertheimer v. Spring Garden Insurance Co., 189 Pa. 255, 261, 42 A. 138, 139 (1899)).

As this Court held in Chauvin v. Superior Fire Insurance Co., 283 Pa. 397, 400--401, 129 A. 326, 327 (1925):

'(T)he appraisement or a bona fide effort to join therein, was merely a condition precedent to an action by the insured . . . and where an attempt was made in good faith to carry out its provisions, and appraisement prevented . . ., plaintiff (the insured) had fully performed his obligation and is entitled to bring suit. . ..'

Here, appellants fully performed their appraisal obligations and established their entitlement to bring an action for the recovery of the loss. Appellants, in pursuit of their right of recovery, elected to bring an action in equity seeking specific performance of the statutorily-mandated appraisal agreement. None of our earlier decisions deals with an action for specific performance of an insurance appraisal agreement. In the earlier cases, the insured parties sought only recovery of monetary damages.

This Court, however, has recently examined the analogous question of specific performance of a contractual right to arbitration. In Mendelson v. Shrager, 432 Pa. 383, 248 A.2d 234 (1968), appellants sought enforcement of a contractual provision calling for arbitration of disputes arising under an employment agreement. As here, the chancellor sustained appellee's preliminary objections and dismissed the complaint. We unanimously reversed and ordered reinstatement of the complaint, rejecting both the contention that the arbitration agreement was unenforceable and the argument that the availability of an action at law for breach of contract precluded specific performance.

For purposes of enforceability, we see no distinction between arbitration and appraisal. ¹² It must be concluded that contracts providing for appraisal, like those providing for arbitration, 'are valid, enforceable and irrevocable, save upon such grounds as exist in law or in equity for the revocation of any other type of contract.' Id. at 385, 248 A.2d at 235. When, as here the conditions precedent to appraisal are satisfied, i.e., the admission of liability but a dispute only as to the dollar value of the loss, appraisal is an entirely appropriate means for settling the dispute, and is indeed the favored practice. Cf. Yost v. McKee, 179 Pa. 381, 36 A. 317 (1897). A decree of specific performance may issue to require its enforcement. Accord, Hala Cleaners, Inc. v. Sussex Mutual Insurance Co., 115 N.J.Super. 11, 277 A.2d 897 (Ch.Div.1971); Saba v. Homeland Insurance Co. of America, 159 Ohio St. 237, 112 N.E.2d 1 (1953). ¹³

It is beyond cavil that settlement of disputes by arbitration or appraisal is the approved public policy of this Commonwealth. Mendelson v. Shrager, supra; Capecci v. Capecci, Inc., 11 Pa.D. & C.2d 459, 461 (C.P.Phila.1957), aff'd, 392 Pa. 32, 139 A.2d 563 (1958); Hussey Metal Division v. Lectromelt Furnace Division, 471 F.2d 556, 558 (3d Cir. 1973); United States Fidelity & Guar. Co. v. Bangor Area Joint School Authority, 355 F.Supp. 913 (E.D.Pa.1973).

The procedures of arbitration and appraisal are not new to Pennsylvania jurisprudence. Indeed almost a century ago, this Court in Mentz v. Armenia Fire Insurance Co., supra, the very case upon which INA relies in arguing a contrary proposition, specifically approved the...