School Dist. No. 1 of Silver Bow County v. Globe & Republic Ins. Co. of America

• Decision Date: 23 August 1965
• Docket Number: No. 10837,10837
• Citation: 14 A.L.R.3d 666,404 P.2d 889,146 Mont. 208
• Parties: , 14 A.L.R.3d 666 SCHOOL DISTRICT NO 1 OF SILVER BOW COUNTY, Montana, A Public Corporation, Plaintiff and Respondent, v. GLOBE AND REPUBLIC INSURANCE COMPANY OF AMERICA, A Corporation, Insurance Company of North America, A Corporation, Western Life Insurance Company, A Corporation, New Zealand Insurance Company, A Corporation, United States Fidelity & Guaranty Company, A Corporation, and New York Underwriters Insurance Company, A Corporation, Defendants and Appellants.
• Court: Montana Supreme Court

Page 889

404 P.2d 889

146 Mont. 208, 14 A.L.R.3d 666

SCHOOL DISTRICT NO 1 OF SILVER BOW COUNTY, Montana, A Public Corporation, Plaintiff and Respondent, v. GLOBE AND REPUBLIC INSURANCE COMPANY OF AMERICA, A Corporation, Insurance Company of North America, A Corporation, Western Life Insurance Company, A Corporation New Zealand Insurance Company, A Corporation, United States Fidelity & Guaranty Company, A Corporation, and New York Underwriters Insurance Company, A Corporation, Defendants and Appellants.

No. 10837.

Supreme Court of Montana.

Submitted June 10, 1965.

Decided Aug. 23, 1965.

Poore, Poore & McKenzie, Butte, Anderson, Symmes, Forbes, Peete & Brown, Billings, James A. Poore, Jr., Butte (argued), Weymouth Symmes, Billings (argued), for defendants and appellants.

Holland & Holland, David L. Holland, Butte (argued), for plaintiff and respondent.

CASTLES, Justice.

This is an appeal from a judgment entered upon a jury verdict finding appellant insurance companies liable for $202,821 upon fire insurance policies issued to respondent school district. Hereinafter the appellants will be referred to as the 'insurers', and the respondent as the 'insured'.

Insured's Franklin School, which had been abandoned following Montana's 1959 earthquake, was damage by fire on January 21, 1961. The insurers' agent was notified of the loss, and proofs of loss were submitted on forms furnished by the insurers. Differences arose concerning the amount of loss suffered, as the parties could not agree upon the amount of damage directly attributable to the fire, as opposed to that caused by the 1959 earthquake and vandalism subsequent to the abandonment of the school. It is not disputed that at all times prior to this suit the parties were engaged in good-faith negotiations looking to a settlement of their differences.

On January 12, 1962, the insured instituted this action. On January 18, 1962, prior to service of summons, the insurers served written demand for an appraisal according to the terms of the policies. The insured refused this course of action, and the case proceeded to trial.

The insurers have alleged nine specifications of error. However, our disposition of this appeal requires that we need only discuss two of the issues presented. The pertinent specifications of error concern the effect of the policies appraisal provisions, and the date fixed by the district court from which interest was to run upon the amount of the verdict.

As to the first specification of error, insurers contend that under the appraisal provisions of the policy, the plaintiff (insured was obligated to submit the question of the extent of the loss to appraisers before filing this action to recover the loss. The applicable policy provisions are as follows:

'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 * * *. The appraisers shall first select a competent and disinterested umpire * * *. 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 not determine the amount of actual cash value and loss.

'When loss payable. The amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company and ascertainment of the loss is made either by agreement between the insured and this Company expressed in writing of by the filing with this Company of an award as herein provided.

'Suit. No suit or action in this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss.'

The insured's answer to this contention is two-fold: First, it is argued that section 13-806, R.C.M.1947, voids appraisal agreements, and second, that, in any event, the insurers waived compliance with the appraisal provisions by failing to demand appraisal prior to the insured's initiation of this suit.

R.C.M.1947, Sec. 13-806, provides:

'Every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract, by the usual proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void.'

Enacted in 1895, this section is a statutory expression of the common-law rule. Wortman v. Montana Central Ry., 22 Mont. 266, 278, 56 P. 316, 321 (1899). The common law regarding arbitration agreements was set forth by this court in Randall v. American Fire Ins. Co., 10 Mont. 340, 25 P. 953 (1891), and prior to enactment of R.C.M.1947, Sec. 13-806, above.

'* * * The question as to how far courts will be governed by a provision in the contract requiring that controversies arising as to the rights and liabilities of parties thereunder be submitted to arbitration has engaged the profound consideration of both American and English courts of last resort. The conclusion reached, and probably settled beyond further controversy, is that a provision in a contract requiring all differences or controversies arising between the parties as to their rights and liabilities thereunder to be submitted to arbitration, will not be allowed to interfere with or bar the litigation of such controversies when brought into court. To enforce such provisions would be to allow parties to barter away the jurisdiction of courts to determine the rights of parties and redress their wrongs. Therefore such provisions are disregarded, as against public policy. But many of the same eminent authorities hold that a provision in a contract requiring that the value or quantity of a thing which might be involved in a controversy thereunder be ascertained and determined by arbitration, or in some other possible and reasonable manner, does not oust the jurisdiction of the courts, but only requires a certain character of evidence of a fact in controversy. Therefore a provision in a contract like the one under consideration in the case at bar, requiring that the value of the assured property, under certain conditions, shall be ascertained by appraisal, is not disregarded as against public policy, but is upheld as valid.' 10 Mont. at 353, 25 P. at 956-957.

The common-law distinction between arbitration and appraisal was expressly applied in Wortman v. Montana Cent. Ry., supra, wherein a construction contract requiring that both questions of law and fact be submitted to an arbitrator was held void as to the submission of questions of law, but valid as to questions of fact. See also, Clifton-Applegate-Toole v. Drainage Dist., No. 1, 82 Mont. 312, 267 P. 207 (1928); Polley's Lumber Co. v. United States, 115 F.2d 751 (9th Cir. 1940); Note, 24 Mont. L.Rev. 77 (1962). The distinction between arbitration and appraisal has also been relied upon by an overwhelming majority of courts in other jurisdictions in upholding, similar insurance policy appraisal provisions. See, e. g., Miller v. British America Assur. Co., 238 S.C. 94, 119 S.E.2d 527 (1961); 14 Couch on Insurance (2d ed.), Sec. 50.29.

In view of the foregoing, we hold that the appraisal provisions of the policies here involved, looking to an extrajudicial resolution of possible future disputes in specified factual areas, are not in contravention of section 13-806. Compare Green v. Wolff, 140 Mont. 413, 372 P.2d 427 (1962), (provision that 'any differences' be submitted to arbitration held invalid); cf., Dominici v. State Farm Mutual Auto Ins. Co., 143 Mont. 406, 390 P.2d 806 (1964).

We turn to the insured's argument that the insurers waived their right to demand appraisal.

While diversity of opinion exists on the point, (29A. Am.Jur., Insurance, Sec. 1614 (1960)), we think it clear that under the above-quoted policy provisions the insured was not bound to comply with the appraisal clause prior to instituting this action on the policies, absent a demand for appraisal by the insurers. This follows from both a practical consideration of the policies' provisions (Randall v. American Fire Ins. Co., supra) and also a sound application of the rules governing the...