Dworkin v. Caledonian Insurance , 285 Mo. 342 ( 1920 )

This appeal requires us to decide whether the statute, presently to be quoted, annuls the clause in a contract of insurance for the ascertainment by appraisement of the amount of the damage done by a fire to the property insured if the insured and the company could not agree as to the amount of the loss. The policy is not set out in full in the record, and we must get at the intention of the parties to it by what is before us, part of which we abridge and copy a part.

The policy provided regarding a loss by fire, that it should be ascertained or estimated according to the cash value of the property consumed or damaged, with a proper deduction for depreciation; that the amount of the loss should not exceed what it would cost the company to repair or replace the property with material of like kind and quality, that the estimate of the damages should be made by the insured and the company, and if they should differ, by appraisers; that the amount of the loss having been thus ascertained, it should be payable sixty days after the estimate and satisfactory proof of the loss had been received by the company; but that the company should have the option "to take all, or any part, of the articles at such ascertained or appraised value," or to repair or replace what were lost or damaged, with orders of like kind and quality, on giving notice of the intention to do so within thirty days after proof of loss was received. This clause follows those terms:

"In the event of disagreement as to the amount of loss the same shall, as above provided, be ascertained by two competent and disinterested appraisers, the insured and this company each selecting one, and the two so chosen shall first select a competent and disinterested umpire; the appraisers together shall then estimate and appraise the loss, stating separately sound value and damage, and, failing to agree, shall submit their differences to the umpire; and the award in writing of any two shall determine the amount of such loss; the parties thereto shall pay the appraiser respectively selected by them and shall bear equally the expenses of the appraisal and umpire.

The policy covered a stock of merchandise and also the furniture and fixtures in the storeroom. There was a policy written by another company covering the same property, and the defendant is only liable for one-half of the loss.

The first count of the petition was for the loss on the merchandise, which plaintiffs alleged was in excess of $2400, that being the total amount of insurance on the stock, wherefore they asked judgment against the defendant for $1200. In the second count the loss on the furniture and fixtures was alleged to be in excess of $600, or the total insurance on the property, and judgment was demanded against the defendant for $300.

I. The only dispute between the parties was regarding the amount of the loss, and to have this ascertained by the method provided in the policy the company demanded an appraisement, which demand, for the purpose of this case, we may say was refused by the plaintiffs. One of the instructions to the jury was "that the plaintiffs were not required to enter into an appraisal with the defendant as to the amount of the loss." The full amount of damages prayed for in each count was assessed by the jury, and judgment having been entered on the verdict, this apppeal was taken.

The statute to be interpreted is Section 868 and is contained in the revision under the title "Arbitration," and in the Session Laws of 1909 under the title "Contracts and Promises," it having been enacted as an amendment to Chapter 10, Revised Statutes 1899, relating to Contracts and Promises, by adding thereto "a new section to be known as Section 899a." [R. 354 So. 1909, sec. 868; Laws 1909, p. 347.] As found in the Session Laws, omitting the title, the enactment reads as follows:

"Section 1. Contract to arbitrate not to preclude filing of suit.

Be it enacted by the General Assembly of the State ofMissouri, as follows:

"Section 1. Contract to arbitrate not to preclude fling ofsuit. — That Chapter 10 of the Revised Statutes of Missouri, 1899, relating to contracts and promises, be and the same is hereby amended by adding thereto a new section, to be known as Section 899a, said section to read as follows: Section 899a. Any contract or agreement hereafter entered into containing any clause or provision providing for an adjustment by arbitration shall not preclude any party or beneficiary under such contract or agreement from instituting suit or other legal action on such contract at any time, and the compliance with such clause or provision shall not be a condition precedent to the right to bring or recover in such action.

"Approved June 14, 1909."

The defendant contends the statute does not operate to annul a stipulation in an insurance policy that, in case the parties do not agree on the amount of the loss, it shall be estimated by two appraisers and an umpire. In support of this position it is argued the statute was intended only to annul a stipulation in a contract for an arbitration; which is a method of settling controversies so long in use that the word "arbitration" has acquired a settled technical meaning different from a mere appraisement or estimate of losses and value — in short, that an appraisement is not an arbitration.

Agreements for the two proceedings have been regarded by the courts well nigh universally as agreements for separate and distinct proceedings, and this for various reasons. Sometimes it has been pointed out that an agreement for an arbitration implies a controversy between the parties at the time of the submission, which is to be the subject-matter of the arbitration; whereas a stipulation for an appraisement of values does not presuppose a controversy. [Garred v. Macey, 10 Mo. 161, 164; Curry v. Lackey, 35 Mo. 389, 394.] No one would say a contract between two persons which contemplated the fixing by a third person of the value of property or the amount of the damages suffered by a breach of the contract, without regard to whether the parties might differ on the question, would constitute an agreement to arbitrate. For example, if the parties to a lease should stipulate, as has often happened, that at the end of a given period the future rental should be a certain per cent of the value of the leasehold, to be determined by some one else. [Holmes v. Shepard, 49 Mo. 600; Sholz v. Mills, 176 Mo. App. 352.] The policy we are dealing with looked to an appraisement only in the contingency of a controversy arising between the parties over the amount of a loss, thus carrying into their stipulation one essential element of an arbitration.

But there have been many cases in which the courts held there was not an agreement to arbitrate, although, as in this case, the stipulation for an appraisal was to come into play only in case the parties disagreed about values or the amount of a loss. [Paint Co. v. Aetna Ins. Co., 165 Mo. App. 30; Harmon v. Ins. Co., 170 Mo. App. 309; Non-Royalty Shoe Co. v. Phoenix Assurance Co., 178 S.W. 246, 210 S.W. 37.]

It has been held, too, that an appraisal of values or losses does not amount to an arbitration, because it leaves the question of ultimate liability under the contract open, and therefore does not oust the jurisdiction of the court. [Methodist Episcopal Church v. Seitz, 74 Cal. 287, 291; Guild v. Railroad Co.,57 Kan. 70; Hamilton v. Ins. Co., 136 U.S. 242, 255.] But when the only dispute about a party's liability is as to the amount he ought to pay, which was the fact in the present case, an agreement to determine it by appraisers, if enforced, does operate to take away from the courts the decision of a controversy; and the distinction last mentioned is not valid in such a case, and the validity of the agreement will depend on whether the rule of public policy which renders an agreement to arbitrate not binding, ought to be extended to one for an appraisal of an amount in dispute.

Again it has been held an appraisal was not an arbitration or an agreement for an appraisal equivalent to an agreement to arbitrate, because the appraisers appointed by the respective parties were their agents instead of impartial judges; but that would not often be true. [Bottomly v. Ambler, 38 L.T. (N.S.) 545.]

The two proceedings have been distinguished by the fact that an appraisal settles a subsidiary and incidental matter and not the main controversy. [Black v. Rogers, 75 Mo. 441, 449; Noble v. Grandin, 125 Mich. 383; Garr v. Gomez, 9 Wend. 649.] But in the case under examination the amount of the loss is the substance of the controversy between the parties and not a subsidiary or incidental matter.

In our opinion the fundamental difference between the two proceedings lies in the procedure to be followed, and the effect of the findings. [Sebree v. Board of Education, 254 Ill. 438, 453.] An agreement to arbitrate is really an agreement between parties who are in a controversy, or look forward to the possibility of being in one, to substitute a tribunal other than the courts of the land to determine their rights. [Bennett's Admr. v. Russell, 34 Mo. 524, 528; Green Ry. Co. v. Moore, 64 Pa. 79; Gordon v. United States, 7 Wall. 188; Boyden v. Lamb,152 Mass. 416.] Arbitrators, like a judicial tribunal, must give notice to the parties of the time and place of the hearing of the controversy, and must listen to and decide upon the evidence offered by the parties; and the original cause of action becomes merged in the award, which may be declared upon at common law as a new demand, or, under our statute, judgment may be entered upon it by the court designated. [1 Bouvier's Law Dict. (Rawles, 3 Rev.) p. 235; Morse on Arbitration and Award, p. 490; Sadler v. Olmstead, 79 Iowa 121; Averill v. Buckingham, 36 Conn. 359; R.S. 1909, sec. 875.] In the case of a simple appraisal of values or the amount of a loss, the appraisers, if they wish, may hear what others have to say on the question they are to determine but unless the reference so provides, they are not bound to take testimony and may decide from their own knowledge or opinion. [James v. Schroeder,61 Mich. 28; Royal Ins. Co. v. Ries, 80 Ohio St. 272; Palmer v. Clark, 106 Mass. 389.] Neither does their award create a new cause of action, but the liability of one party to the other is still upon the contract. [Brink v. New Amsterdam Fire Ins. Co., 5 Robertson (N.Y.) 104, 123.]

These differences have been pointed out and acted upon in litigation of different kinds, perhaps more frequently in actions on insurance policies than in any other class of cases. We have cited above several Missouri decisions given upon the difference between an arbitration and an appraisal of loss, and cite the following similar cases from other jurisdictions, some of which determine the effect of a stipulation identical with the one before us: American Steel Co. v. Ins. Co., 187 F. 730; Fleming v. Phoenix Assur. Co., 75 Hun, 530, 27 N.Y.S. 488; Royal Ins. Co. v. Ries, 80 Ohio St. 272; Brink v. Ins. Co., 5 Robertson (N.Y.) l.c. 109; Morgan v. Ins. Co., 64 N.Y.S. 873; Hamilton v. Ins. Co., 136 U.S. 242.

Nowhere has the distinction been more recognized and acted upon than in this State from an early day. [Zallee v. Ins. Co.,44 Mo. 530.] In the cited case, which is a leading one in the country, the insurance company and the person insured disagreed about the amount of a loss under a policy, and pursuant to its provisions agreed in writing on a board of appraisers to determine the amount, but the plaintiff ignored the award or estimate of the board and filed an action. His contention was the valuation was void because the appraisers were not sworn, as they must have been if there was an arbitration. This court held the submission was not to an arbitration, but to an appraisal, which was something less. The opinion commented on the fact that the award of the appraisers would not of itself afford a cause of action in court, but would leave the prior cause intact, and would be only proof at a trial of the amount of the damages done by the fire. Stress was laid, too, on the circumstance that there was no controversy between the parties when the agreement in the policy for an appraisement was made. The court held the persons to whom the amount of the loss was referred acted as appraisers, and not as arbitrators; that the reference to them was not a submission to arbitration in the legal sense, but a just and reasonable mode of fixing values — the values of the damaged goods before and after the fire, the difference representing the amount of loss. The court referred to the cases of Garred v. Macey and Curry v. Lackey, supra, and said they clearly distinguished between the "submission for arbitration for the purposes of an appraisal and the submission to arbitration for the purpose of settling and extinguishing causes of action. Only the latter are technically and strictly arbitrations." The decision in the Zallee case has been accepted as sound and followed by the courts of this State to this day, as the cases we have cited show.

In Harmon v. Ins. Co., ELLISON, J., pointed out the radical differences between an appraisal and an arbitration, namely: appraisers may act on their own judgment without a hearing, whereas arbitrators must act upon testimony; and the award of the latter extinguishes the original cause of action and becomes a new cause, whereas, an appraisal leaves the right of action on the contract unimpaired. Similar views were expressed by the courts of most of the States of the Union and by the Supreme Court of the United States in the cases cited supra. The same distinction has been drawn in litigation involving a controversy identical in principle with the one at bar, but over contracts not relating to insurance. [Holmes v. Shepard, 49 Mo. 600; Sholz v. Mills,176 Mo. App. 352; Railway v. Moore, 64 Pa. l.c. 91; Sebree v. Board of Education, 254 Ill. 438; Willingham v. Veal, 74 Ga. 755; Bierly v. Williams, 5 Leigh 700; Wurster v. Armfield,175 N.Y. 256; Thompson v. Newman, 171 P. 982; The Glencairn, 78 F. 379; Omaha Water Co. v. City of Omaha, 147 F. 1.] The English courts have recognized the distinction; and, in fact, the weight of authority is heavy in favor of the proposition that an agreement to submit to appraisers the amount of a loss or the value of property, even if the parties have disagreed about the matter, does not provide for an arbitration. We consider the principle on which the decisions are founded sound, for the method by which the conclusion of appraisers may be reached and the procedure which arbitrators must follow make the two proceedings unlike both in form and effect.

This case calls for a decision of the point according to the intention of the parties, and the policy, when interpreted according to the natural and legal import of its terms, suggests no intention to submit the determination of the amount of a loss, should one occur, to either a common-law or a statutory arbitration. Manifestly the latter form was not contemplated, for none of the details of procedure presented by the statutes on the subject are required to be observed; for example, a submission in writing, or agreement that some court may enter judgment on the award, or that the arbitrators shall be sworn, etc. [See R.S. 1909, Chap. 7.]

Neither are the terms of the policy suggestive of a common-law submission. Notice to the parties of a hearing is not provided for, or the taking of testimony, or that the award shall extinguish liability in the policy; and plainly this liability was to continue. That the appraisers were free to act on their own opinion without the help of evidence, appears from the provision that the umpire was to decide only when the appraisers disagreed. If witnesses were to be heard, then, by this arrangement, they would be heard first by the two appraisers, and if they did not concur, by the umpire; a plan so complicated that it is unreasonable to suppose the parties to the contract meant to prescribe it. All the details of the scheme indicate that nothing more was intended than what the words used denoted, namely: an estimate according to the opinion of two appraisers, and of an umpire if they differed an opinion reached either from a personal examination alone or an examination plus other evidence as they might prefer.

The parties stipulated for an appraisal in the event of a fire and their inability to concur as to the amount of the loss, and so stipulated for two reasons: first, to have the amount ascertained in that mode and thereby dispense with other evidence on the question if there should be a law suit; a way preferred by them and apparently simple and easy to use; second, the company was accorded the option to take all or any part of the damaged articles at their values when sound, as fixed by the appraisers. This proviso was an integral part of the policy and must be considered part of the consideration for which the company entered into it.

II. What has been said makes clear, we think, the distinction between a stipulation for an appraisal and an agreement to arbitrate, but it does not answer fully the question of whether the statute which undertakes to annul any clause or provision in a contract for "an adjustment by arbitration" applies to the stipulation in the present case. We say "annul," because the effect of the statute is to allow a party to a contract with such a clause in it, to sue on the contract and maintain the action without complying with the condition. It is to be observed that this statute is not leveled at contracts of insurance only, but at all contracts containing the forbidden stipulation. It is wide-ranging, for there are many agreements of the kind in the world of business which relate to other matters than insurance.

The argument that a particular interpretation of a statute will work inconvenience, is not forcible, but may be accorded some influence when the meaning of a law is uncertain, for presumably the Legislature intended to remedy instead of entail mischief. In a case like the present one, an eminent judge (Lord CAMPBELL) decleared concerning a contract for the appraisal, or "arbitration" as the policy said, of the loss under a policy of marine insurance, that instead of the plan being contrary to public policy, "it would be a most inexpedient encroachment upon the liberty of the subject if he were not allowed to enter into such a contract." And the House of Lords, after much consideration of the question, decided such an agreement was not one for an arbitration in the proper sense. [Scott v. Avery, 5 H.L. Cases, *pp. 811, 851.]

The Supreme Court of California said that to apply the rules regulating arbitrations to all the contracts in which parties regulate their actions by the determination of third persons, would "interfere with the ordinary transactions of mankind and put unnecessary clogs upon business." [M.E. Church v. Seitz, 74 Cal. l.c. 292.]

But the principal rule of interpretation to be applied to the act in question, is prescribed by our statutes, to-wit: "Technical words and phrases having a peculiar and appropriate meaning in law shall be understood according to their technical import;" that is to say, in getting at the intention of the Legislature in enacting a law which contains a technical expression, we must presume the expression was used in its technical sense, unless there is something in the context to indicate that it was not. [R.S. 1909, sec. 8057.] In truth, the statute that technical terms "shall be understood in their technical import," on its face is mandatory; but it has been held to mean, and rightly so, that the context of the word may be regarded, and if it shows another than a technical sense was intended, the other meaning will be adopted. [Ex parte Bethurum,

66 Mo. 545, 548; State v. Delay, 93 Mo. 98.] If the word "arbitration" was used in the statute in its legal sense and as a term or art, then beyond a doubt, the stipulation for an appraisement was not one for an arbitration, and so was not affected by the statute.

Is there anything in the statute which requires us to accept other than the legal meaning of the word "arbitration?" For the plaintiff the argument is that the phrase "adjustment by arbitration," shows another meaning was intended. The word "adjustment" is not a technical term. It means to fit, arrange, settle, equalize, and perhaps has other meanings according to the subject-matter where it is used. We are most familiar with the use of the word in connection with claims for insurance, but there are various other adjustments; for example, the values of leaseholds, of property to be sold at another person's valuation, etc. [Curry v. Lackey, 35 Mo. 389.] That the Legislature did not have in mind in enacting this statute only the adjustments of losses under polices of insurance, is manifest from the fact that it applies to all kinds of contracts. Moreover as provided in the Session Laws it has this line of clear meaning: "Section 1. Contract to arbitrate not to preclude filing of suit." As the difference between an agreement for an arbitration and an agreement for an appraisement had been recognized by the courts of this State many years prior to the enactment of the section in question, we must presume the distinction was known to the members of the Legislature and that they passed the law with it in mind. If they had meant the statute to relate to contracts stipulating for appraisements, it is probable they would have said "adjustment by arbitration or appraisement," instead of saying "adjustment by arbitration." We find nothing in the wording of the act which shows an intention to employ the word "arbitration" in any other meaning that its legal one, and feel constrained to give it the latter meaning.

In a former opinion of this court where the statute was discussed, but in an obiter way because the policy therein involved was issued prior to its enactment, it was remarked that the purpose of the Legislature was to strike at contracts like the one before us. The opinion called attention to the fact that Section 899 of the chapter on contracts provided that all parties to a contract which directly or indirectly tended to limit the time in which an action might be instituted, should be null and void (R.S. 1899, sec. 899); and that the statute in hand was designated by the Legislature as Section 899a and naturally, in the compilation of the Revised Statutes, would have followed Section 899. It was argued that the two sections construed together indicated a purpose on the part of the Legislature to render void provisions to enforce "arbitration or settlement by means of appraisers under insurance policies." [Young v. Ins. Co., 269 Mo. 1.] One of those sections was intended to annul clauses in contracts limiting the time for actions on them and to make the general limitation period, fixed by statute, control. The other section (899a) was intended to annul clauses making "adjustment by arbitration" a condition precedent to the right to bring and maintain an action. The two sections were enacted for different purposes and are unrelated except that both affect actions on contracts.

The legislative purpose in passing the law under examination is not to be conjectured, but must be ascertained from the act itself. The agreements the legislators meant to strike at must be determined from what they said, and not surmised, as a probable intention. This court has declared: "It is our duty merely to interpret it (a statute) exactly as made by the legislative department — we cannot properly add to it a meaning not intended by its terms." [Henry Coatsworth Co. v. Evans, 97 Mo. l.c. 55.] The application of this rule is striking in what is called acasus omissus. The court may feel sure the Legislature meant to include something which by oversight was omitted, yet cannot supply it. [Kehr v. Columbia, 136 Mo. App. l.c. 329; Smith v. State, 66 Md. 215; Woodbury v. Berry, 18 Ohio, 456.] In the Maryland case it was said that even when a court is convinced the Legislature really meant and intended something not expressed by the phraseology of the act, it will not deem itself authorized to depart from the plain meaning of language. If the statute we are considering was meant to embrace an appraisement within its effect, then apt words for that purpose were not employed, and an amendment is needed. In Young v. Ins. Co. the court had no occasion to examine critically the authorities dealing with the distinction between appraisement and arbitration, or their bearing upon the interpretation of the statute under review.

At common law parties have the right to have losses and values affecting liability under a contract appraised by third persons selected by them. It is a right which tends to prevent litigation, and a statute asserted to be in derogation of it should be construed strictly. As the language of the act before us naturally denotes an arbitration in the legal sense, it seems sound to confine its effect to that kind of a proceeding.

Judgment is reversed and the cause remanded.

Walker, C.J., Blair and Williamson, JJ., concur; Graves,J., dissents in separate opinion, in which Woodson, J., concurs; Williams, J., not sitting.