Illinois Appellate Courts Address Appraisal Issues
January, 2003
Dispute Not Covered by Appraisal Clause
In Travis v. American Manufacturers Mut. Ins. Co., 782 N.E.2d 322 (Ill. App. 5th Dist.), the Illinois Appellate Court, Fifth District, found that an auto insurance policy’s appraisal clause was not applicable to the particular dispute. The insured’s complaint alleged that the insurer was engaged in a fraudulent scheme to undervalue its insured’s vehicles that were declared a total loss in order to increase its own profits. In response to the plaintiff’s class action lawsuit, the insurer filed a motion to compel an appraisal and to dismiss the lawsuit or stay the lawsuit pending the appraisal.
The appellate court found that the complaint concerned more than a dispute over the actual cash value of the insured’s vehicle and raised issues that did not fall within the scope of the auto policy’s appraisal clause and could not have been resolved through the appraisal process. The court accordingly concluded that the insurer’s motion to compel an appraisal and dismiss or stay the proceedings was properly denied. See also Hanke v. American Int’l South Ins. Co., 782 N.E.2d 328 (Ill. App. 5th Dist.).
Learning Point:
The appraisal process provided for in the policy was designed to resolve disputes over the amount of the loss. Where the dispute arguably presents more than a disagreement between the parties concerning the amount of loss, the court may hold the dispute is not solely covered by the appraisal clause and deny an insurer’s motion to compel an appraisal.
Appraisal Not Binding Unless Policy Expressly So States
The Illinois Appellate Court, Third District, addressed whether an appraisal award was binding on the parties in Stratford West Homeowner’s Ass’n v. Country Mut. Ins. Co., 2003 Ill. App. LEXIS 438 (3d Dist. Apr. 4, 2003). Stratford filed a claim with Country Mutual for damages sustained to Stratford’s condominium buildings during a hail storm. The parties agreed to participate in an appraisal to determine the amount of loss. Stratford disagreed with the appraisal and brought suit against Country Mutual, which filed affirmative defenses claiming that Stratford was bound by the appraiser’s evaluation. Stratford moved to strike the affirmative defenses and the trial court granted the motion. The trial court certified the question for appeal.
The policy stated: “The appraisers will set the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agreed on will be the amount of the loss. If the appraisers fail to agree within a reasonable time, they will submit their 4differences to the umpire. A written agreement signed by any two (2) of these three (3) will set the amount of loss.”
The appellate court held the appraisal does not operate as a final and binding resolution of the parties’ dispute over the amount of the loss and does not foreclose either party from maintaining an action in a court of law. The insured did not give up his right to file suit and the trial court properly struck Country Mutual’s defenses.
The court reasoned that the policy language regarding appraisal is essentially an arbitration clause. Under the Uniform Arbitration Act, a written agreement to submit an issue to arbitration is valid and enforceable and irrevocable. However, non-binding arbitration exists in Illinois as a means of resolving disputes, and neither the Act nor Illinois case law mandates that all arbitration must be binding. Any waiver of the right to file suit must be clear and unambiguous. Without language requiring binding arbitration, a policy will be construed as an agreement to submit to non-binding arbitration.
Learning Point:
If it is the underwriter’s intention that an appraisal governed by Illinois law be final and binding, the policy should explicitly so provide.
Back to CM Report of Recent Decisions (2003v1) 2003 Volume 1 Table of Contents
