Standard Fire Ins. Co. v. Fraiman, 1015

• Citation: 514 S.W.2d 343
• Decision Date: 18 September 1974
• Docket Number: No. 1015,1015
• Parties: STANDARD FIRE INSURANCE COMPANY, Appellant, v. Melvin L. FRAIMAN d/b/a Jamaican Apartments, Appellee. (14th Dist.)
• Court: Court of Appeals of Texas. Court of Civil Appeals of Texas

Page 343

514 S.W.2d 343

STANDARD FIRE INSURANCE COMPANY, Appellant, v. Melvin L. FRAIMAN d/b/a Jamaican Apartments, Appellee.

No. 1015.

Court of Civil Appeals of Texas Houston (14th Dist.).

Sept. 18, 1974.

Tom A. Connally, Fulbright & Crooker, Houston, for appellant.

Julius Glickman, Houston, for appellee.

TUNKS, Chief Justice.

In this suit for declaratory judgment, the principal issue is whether an insured can enforce the appraisal provision of the Texas Standard Fire policy against an unwilling insurer.

Appellant, Standard Fire Insurance Company, had issued to the appellee, Melvin Fraiman, a Texas Standard policy, which insured Fraiman's apartments against fire and other perils. The apartments were damaged by fire on December 4, 1972, and January 29, 1973. Fraiman timely filed proofs of loss for each fire and demanded that appellant insurer appoint an appraiser to determine the replacement cost of the damaged apartments. Appellant refused to do so, and Fraiman filed this declaratory judgment action to determine the rights of the parties under the appraisal provision. Following pre-trial discovery, Fraiman filed a motion for summary judgment. The insurer admitted that the parties had been unable to agree as to replacement cost of the damaged apartments, and all other facts relevant to the construction of the appraisal clause were established without controversy. Prior to the hearing on the motion for summary judgment, Standard Fire filed a 'Notice' in which it specifically revoked any express or implied consent to enter into an appraisal. On January 31, 1974, the trial court entered its judgment declaring that Fraiman was entitled to an appraisal and that the insurer was legally bound to appoint an appraiser according to the provisions of the policy. The court directed Standard Fire to appoint an appraiser within seven days of the date of the judgment and retained jurisdiction of the cause pending an award in order to appoint an umpire if the appraisers failed to agree as provided in the policy.

The main contention of Standard Fire Insurance Company in this appeal is that the appraisal provided for in the policy is an arbitration proceeding, which is unenforceable in Texas by statute. Vernon's Tex.Rev.Stat.Ann. art. 224 (1973). Hence it is argued that the policy provision is enforceable only according to the common law principle that an agreement to enter into an arbitration may be revoked by a party to it at any time before an award is made. The appellant distinguishes from the case at hand the situation where an insurer asserts as a defense to the insured's cause of action the failure of the insured to first submit his cliam to an appraisal proceeding, which the insurer may insist upon as one of the conditions precedent to the insured's lawsuit on the policy. It is argued that neither party may compel the other to submit to an appraisal proceeding since there is an adequate remedy at law. Standard Fire asserts that it waives the right to raise as a defense Fraiman's failure to seek an appraisal and that he should be relegated to the remedy of filing a lawsuit for money damages.

Standard Fire's second point of error on appeal is that there are issues of fact which the declaratory judgment does not decide and which can only be determined when the lawsuit on the policy is tried . Appellant points out four main areas of dispute which the summary declaratory judgment will not determine: whether the fire policy covers the contents of the apartments, whether Fraiman complied with the policy provision requiring him to protect his property from further loss, whether Fraiman used due diligence in making repairs, and whether Fraiman should suffer a co-insurance penalty.

The legislatively mandated appraisal clause found in the Texas Standard Fire policy is not a provision for arbitration. Therefore, the provision in Article 224 of the Texas Revised Civil Statutes excluding arbitration agreements in insurance contracts from its scope is inapplicable to the facts of this case. The Texas Supreme Court in 1888 noted the distinction between arbitration and appraisement. Scottish Union & Nat. Inc. Co. v. Clancy, 71 Tex. 5, 8 S.W. 630. In that case, the insurer made written demand upon the insured for an appraisal of a fire loss as provided in the terms of the policy. The Texas courts denied the insured recovery in his suit brought on the policy because he had failed to comply with a condition precedent (submission to appraisal) to his right of action. The court stated:

If the stipulation was to deny or repudiate the jurisdiction of the courts to determine the rights and liability of the parties arising upon the contract, we would hold, with the weight of the authority, such stipulation void. But here the stipulation does not divest the courts of jurisdiction, but only binds the parties to have the extent or amount of the loss determined in a particular way, leaving the question of liability for such loss to be determined, if necessary, by the courts. 8 S.W. at 631.

In a more modern case, Huntington Corp. v. Inwood Constr. Co., 348 S.W.2d 442 (Tex.Civ.App.--Dallas 1961, writ ref'd n.r.e.), which involved an appraisal clause in a construction contract, this same distinction between arbitration and appraisal was noted. The court said that agreements to submit future disputes to arbitration are void as against public policy, but that appraisal clauses in contracts will be given effect by the courts. Id. 348 S.W.2d at 444 . Other Texas cases which have held that appraisal clauses in contracts are valid and enforceable include the following: Glens Falls Ins. Co. v. Peters, 386 S.W.2d 529, 532 (Tex.Sup.1965); American Central Ins. Co. v. Terry, 26 S.W.2d 162, 166 (Tex.Comm'n App.1930, holding approved); Fire Ass'n of Philadelphia v. Ballard, 112 S.W.2d 532 (Tex.Civ.App.-Waco 1938, no writ); Boston Ins. Co. v. Kirby, 281 S.W. 275 (Tex.Civ.App.-Eastland 1926, no writ); Florida Athletic Club v. Hope Lumber Co., 18 Tex.Civ.App. 161, 44 S.W. 10, 14 (1898, no writ). See 44 Am.Jur.2d Insurance § 1707 (1969); 32 Tex.Jur.2d Insurance § 386 (1962).

Although the Texas courts have held that the failure of the insured to submit his claim to an appraisal under the terms of the policy before bringing a lawsuit is grounds for sustaining the insurer's plea in abatement, the question of whether the insured may compel appraisal against an insurance company which has waived this condition precedent has never been considered. The appellant insurer insists that the common law principle that a party to an agreement to arbitrate may withdraw from the arbitration up to the time an award is made applies to this case despite the consensus of the courts in Texas and throughout the United States upholding the validity of appraisal clauses and distinguishing them from arbitration agreements. Only a handful of jurisdictions have considered this novel question of law, and the decisions the courts have reached have depended in part upon the applicable insurance statutes. But the majority and better reasoned opinions have held that appraisal provisions in insurance contracts are specifically enforceable by either the insurer or the insured.

In Saba v. Homeland Ins. Co., 159 Ohio St. 237, 112 N.E.2d 1 (1953), the insured demanded an appraisal under a clause in substantially the same language as the one involved in the case at hand; and, upon the insurer's refusal to appoint an appraiser, brought suit to have the court appoint an umpire. After the insured's appraiser and the umpire made an award, suit was brought to recover it against the insurer. The Ohio Supreme...