Southeast Nursing Home, Inc. v. St. Paul Fire and Marine Ins. Co.

• Decision Date: 24 January 1985
• Docket Number: No. 83-7131,83-7131
• Citation: 750 F.2d 1531
• Parties: SOUTHEAST NURSING HOME, INC., a corporation, Plaintiff-Appellant, v. The ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1531

750 F.2d 1531

SOUTHEAST NURSING HOME, INC., a corporation, Plaintiff-Appellant, v. The ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellee.

No. 83-7131.

United States Court of Appeals Eleventh Circuit.

Jan. 24, 1985.

James E. Clark, London, Yancey, Calrk & Allen, Birmingham, Ala., for plaintiff-appellant.

Marshall H. Fitzpatrick, Norman, Fitzpatrick & Wood, Robert D. Norman, Birmingham, Ala., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before TJOFLAT, HILL and JOHNSON, Circuit Judges.

TJOFLAT, Circuit Judge:

This is a diversity action by an insured, Southeast Nursing Homes, Inc., against its insurer, The St. Paul Fire and Marine Insurance Company, to recover damages under an insurance policy for an insured fire loss and, in addition, punitive damages for the allegedly tortious manner in which the insurer dealt with the loss. The district court, following a pretrial hearing, concluded that the insured's suit on the policy was premature, because the claim was subject to arbitration which had not taken place, and that its tort allegations were unfounded; the court therefore gave the insurer summary judgment. We conclude that summary judgment was called for in this case and accordingly affirm.

I.

In August 1978, Southeast Nursing Homes, Inc. purchased an insurance policy from The St. Paul Fire and Marine Insurance Company which provided Southeast with protection against numerous perils, including fire damage to its nursing home and contents located in Lineville, Alabama. The nursing home was insured for $513,000, its contents for $50,000. In December of that year, the nursing home and a portion of its contents were partially destroyed by fire. Southeast notified St. Paul of the loss and St. Paul, admitting that the loss was covered, promptly referred the matter to its adjuster, General Adjustment Bureau (GAB).

The insurance policy required St. Paul to pay Southeast the cost of repairing the nursing home and its contents or replacing the damaged portions with property of like kind and quality. GAB obtained an estimate to repair the building for $67,639.75 and another estimate of $34,739.20 to replace the damaged contents. Dissatisfied with these estimates, Southeast obtained its own estimates, which totaled $209,656.00. St. Paul, considering the disparity between these estimates, requested GAB to obtain another repair bid. GAB obtained a second estimate to repair the building of $71,077.67; it stood by its original $34,739.20 appraisal of the contents loss. Southeast refused to accept either of these amounts in settlement of its loss and demanded that the dispute be settled by "arbitration," as provided for in its policy. ¹ The policy's arbitration clause, written in "plain English," read:

Arbitration of property disputes

If agreement can't be reached on the amount of your loss, the following procedure will be used:

1. One of us will make a written demand for arbitration.

2. Each will select an appraiser and decide on a reasonable time and place for an appraisal of the loss and damage.

3. The appraisers will agree on a competent and impartial umpire. If they can't agree on an umpire within 15 days, a judge in the state where the appraisal is to be held will be asked to pick one.

4. The appraisers will each compute the loss and state the actual cash value of the property at the time of loss and the amount of loss. If they don't agree, they'll submit their appraisals to the umpire. Agreement of two out of three will decide the amount of the loss.

You'll pay your appraiser and we'll pay ours. And other costs of the appraisal and the umpire will be equally divided between us.

We won't be held to have waived any of our rights under this policy because of the appraisal.

Suits against us

You agree not to sue us to recover under this policy unless you've lived up to all its terms.

When it received Southeast's demand for arbitration, St. Paul, acting in accordance with this provision, selected an appraiser, John Vinsant, who assessed the damage to the building at $72,669.02. (He did not reassess the damage to the contents, previously estimated, as we have indicated, at $34,739.20.) Southeast did not appoint an appraiser; instead, it decided to forego arbitration and to bring this suit against St. Paul.

Southeast's complaint contained a simple contract claim; it alleged that St. Paul had breached the insuring provisions of its policy by refusing to pay a covered loss, in the amount of $275,000. St. Paul moved to dismiss the action as premature on the ground that Southeast, having sought arbitration of its claim, had to complete the arbitration process before it could bring suit under the policy. To avoid this problem, Southeast amended its complaint to allege that St. Paul had waived its right to arbitration because it had unconditionally refused to pay Southeast, as required by the policy, the cost of repairing the nursing home and its contents or replacing the damaged portions with property of like kind and quality.

In its amended complaint, Southeast also presented two additional claims. First, it alleged that St. Paul's conduct in refusing to pay the loss amounted to fraud and deceit and that St. Paul was liable for punitive damages in addition to the amount due under the policy. Second, it alleged that St. Paul, in refusing to pay the loss, had committed, and was continuing to commit, the tort of "bad faith." Again, Southeast sought to recover the full amount of its loss plus punitive damages.

After Southeast amended its complaint, the district court, treating St. Paul's earlier motion to dismiss as a motion for summary judgment under Fed.R.Civ.P. 12(c), ² gave St. Paul summary judgment on Southeast's policy claim. ³ The court agreed with St. Paul that this claim was premature because the arbitration called for by the policy had not run its course. The fact that St. Paul's estimates were much lower than Southeast's did not, in the court's view, permit the inference, urged by Southeast, that St. Paul did not intend to honor its contractual obligations to Southeast and had, consequently, waived its right to arbitration.

Following this ruling, St. Paul moved the court to dismiss Southeast's fraud and deceit and bad faith claims. The court denied the motion as to the fraud and deceit claim, concluding that the facts Southeast alleged stated a prima facie case, but granted it as to the bad faith claim, since Alabama law ⁴ did not recognize the tort of bad faith.

With the case in this procedural posture, Southeast made several attempts to resurrect its claim under the insurance policy. First, Southeast moved the court to retain jurisdiction over that claim while it was in arbitration, so that the court could resolve any dispute that might arise out of the arbitration process. The court granted the motion, stating that it would hold the claim "in abeyance" pending arbitration.

Second, Southeast moved the court to disqualify St. Paul's appraiser, Vinsant, arguing that he "would have difficulty being impartial," as he had previously performed work for GAB and allegedly had made a proposal to St. Paul to repair Southeast's property. The court denied the motion. The court concluded that it could not determine from the language of the insurance policy's arbitration clause whether the parties' appraisers had to be impartial and that Southeast could raise the issue of Vinsant's bias later, if, after receiving the arbitration award, it decided to challenge that award judicially, on the ground that the insurer's appraiser was partial.

Third, Southeast moved the court to vacate its summary judgment on the policy claim and to determine the amount St. Paul owed it under the policy. Southeast tendered an amended complaint which restated its original policy claim and alleged, in addition, that the claim was ripe for adjudication because St. Paul, in selecting a partial appraiser, Vinsant, had waived its right to arbitration. Southeast pointed to a number of Alabama cases and Alabama Code Sec. 6-6-6 (1975), ⁵ not previously cited to the court, which, it contended, required that all appraisers be impartial. Southeast also requested the court to reconsider its previous ruling that Alabama did not recognize the tort of bad faith, citing an intervening decision of the Alabama Supreme Court, Chavers v. National Security Fire & Casualty Co., 405 So.2d 1 (Ala.1981), which acknowledged such a cause of action. According to Southeast, St. Paul's selection of a biased appraiser and its refusal to pay at least the amount of the loss not in dispute constituted bad faith.

The district court denied Southeast's motion to relitigate its claim on the insurance policy by amending its complaint. In doing so, the court nevertheless considered and rejected the merits of Southeast's proposed amendment. The court assumed that Vinsant was biased, as Southeast alleged, and that Alabama law proscribed biased appraisers, but concluded that St. Paul's appointment of a biased appraiser could not have constituted a breach of the insurance contract and thus a waiver of its right to arbitration. Simonetti v. Niagara Fire Insurance Co., 74 F.Supp. 726, 729 (N.D.Ala.), aff'd, 164 F.2d 878 (5th Cir.1947). The court did, however, reinstate Southeast's bad faith claim in light of the Alabama Supreme Court's Chavers decision.

Southeast's final attempt to resurrect its claim under the insurance policy came when it moved the court to enter a partial summary judgment for $109,145.81, the amount, with interest, which, apparently, St. Paul had previously offered to pay. Southeast argued that St. Paul's right to arbitration applied only to the portion of damages in dispute; it did not apply to the uncontested portion. The court granted Southeast's motion and entered a partial summary judgment in that sum.

At this point, the district court judge presiding over the case, Chief...