North Glenn Homeowners Association v. State Farm Fire & Casualty Company

IN THE COURT OF APPEALS OF IOWA
No. 13-0859
Filed July 16, 2014
NORTH GLENN HOMEOWNERS
ASSOCIATION,
Plaintiff-Appellee,
vs.
STATE FARM FIRE & CASUALTY
COMPANY,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Carla T. Schemmel,
Judge.
State Farm Fire and Casualty Company appeals the district court order
granting North Glenn Homeowners Association’s motion to compel appraisal.
AFFIRMED.
Mark W. Thomas of Grefe & Sidney, P.L.C., Des Moines, for appellant.
Travis Burk and Shannon M. Henson of Hope Law Firm P.L.C., West Des
Moines, for appellee.
Heard by Doyle, P.J., and Tabor and Bower, JJ.
2
BOWER, J.
State Farm Fire and Casualty Company appeals the district court order
granting North Glenn Homeowners Association’s motion to compel appraisal.
State Farm claims the district court erred in ordering an appraisal as an issue of
causation exists which cannot be determined by an appraisal. State Farm also
claims the appraisal should not consider wind and hail damage claims together.
North Glenn contends the case should be remanded as the district court order
was not a final order, making this appeal interlocutory. We find the district court
order was interlocutory but it affects the substantial rights of the parties, which
allows us to decide the appeal. We also find, by triggering the appraisal process,
North Glenn made the appraisal a condition precedent to any further action in the
matter; accordingly the district court correctly ordered the appraisal. The
appraisal does not determine issues of coverage but simply causation. We
affirm.
I. Background Facts and Proceedings
North Glenn is an association of property owners in Johnston, Iowa. On
July 15, 2009, North Glenn submitted a claim under a policy issued by State
Farm for hail damage sustained to a roof. The claim, in excess of $125,000, was
paid. North Glenn did not repair all of the damage, electing instead to use some
of the money to make other repairs and improvements to the property.
On March 22, 2011, a second storm hit the development. North Glenn
filed an additional claim for wind and hail damage. A State Farm employee
inspected the property and determined the hail damage was from the 2009 storm
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and was not covered. The wind damage was estimated to be less than the policy
deductible. A second roofing expert agreed with State Farm’s assessment.
On November 11, 2011, North Glenn made a demand for appraisal, as
provided for in the policy. State Farm agreed to an appraisal of the wind
damage, but refused an appraisal of the hail damage. North Glenn filed a
petition for declaratory judgment on March 19, 2012, requesting a determination
of coverage issues, seeking an order for appraisal, and alleging a breach of
contract. On March 11, 2013, North Glenn filed a motion to compel appraisal,
which was granted. In its ruling, the district court analyzed the appraisal clause
of the insurance contract and found the clause requires appraisers to examine
the loss, which necessitates consideration of any prior loss which occurred or is
no longer covered. The order does not clearly explain what the posture of the
case will be after the appraisal is complete, and leaves open the question of
whether the appraisers are to determine issues of causation and coverage or
whether the court will make those findings as part of a later proceeding.
II. Scope and Standard of Review
In an action for a declaratory judgment, the standard of review depends
upon the nature of the action. Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174,
178 (Iowa 2010). The nature of the requested relief is often most informative. Id.
Contract actions are treated as one at law. Id. In such a case, our review is for
errors at law. Id.
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III. Discussion
A. Jurisdiction
North Glenn claims we lack jurisdiction to hear this appeal because it is
interlocutory in nature and State Farm failed to seek permission from our
supreme court to file an interlocutory appeal.1 Iowa Rule of Appellate Procedure
6.104(1) requires a party aggrieved by an interlocutory ruling to seek permission
from our supreme court before they may appeal the ruling prior to a final
judgment. Absent such permission, no interlocutory order may be appealed until
after the final judgment has been entered. Iowa R. App. P. 6.103(3). Whether
an interlocutory appeal shall be granted depends upon whether the decision
impacts substantial rights and materially affects the final decision in such a
manner that examination of it before the final judgment is issued will better serve
the interests of justice. IBP, Inc. v. Al-Gharib, 604 N.W.2d 621, 628 (Iowa 2000).
We find the district court’s ruling to be interlocutory. The petition asked for
both an order for appraisal and a determination of issues of causation and
coverage; the latter two remain unresolved. After the appraisal, further judicial
action on the petition will be necessary. Accordingly, we grant the interlocutory
appeal. We find determination of the present issues serves the interests of
justice. The decision rendered by this court will have a substantial impact on the
future of this case. Without a ruling from this court, it will be difficult for the
appraisers to properly assess the property.
1
North Glenn’s challenge to the nature of the appeal was untimely because it failed to
raise the issue before filing its brief on the merits. By an order of our supreme court
dated January 24, 2014, we have been instructed to consider the issue of whether the
district court ruling is interlocutory along with the merits of the appeal.
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B. Order for Appraisal
State Farm claims the district court erred in ordering an appraisal that
requires the appraisers to make causation determinations, beyond their authority.
The dispute is whether causation and coverage issues are to be determined by
the appraisers, or by the court. State Farm also claims the motion to compel the
appraisal should have been denied as there is no loss for the appraisers to
examine. What State Farm actually sought was for the district court to decide
there was no damage caused by the second storm, or the present damage was
not covered by the policy. Accordingly, we are faced with two questions: first, are
issues of coverage and causation reserved for judicial determination, and
second, if so, must those issues be determined before an appraisal is ordered.
1. Causation and Coverage
“An appraisal is a supplementary arrangement to arrive at a resolution of a
dispute without a formal lawsuit. Provisions for appraisal of an insurance loss,
whether under policy terms or pursuant to independent agreement, are valid and
binding on the parties.” Cent. Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d
257, 260 (Iowa 1991). The appraisal clause in this case reads:
Appraisal: If we and you disagree on the value of the property or
the amount of loss, either may make written demand for an
appraisal of the loss. In this event, each party will select a
competent and impartial appraiser. Each party will notify the other
of the selected appraiser’s identity within 20 days after receipt of
the written demand for an appraisal. The two appraisers will select
an umpire. If the appraisers cannot agree upon an umpire within
15 days, either may request that selection be made by a judge of a
court having jurisdiction. The appraisers will state separately the
value of the property and amount of loss. If they fail to agree, they
will submit their differences to the umpire. A decision agreed to by
any two will be binding. Each party will:
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a. pay its chosen appraiser; and
b. bear the other expenses of the appraisal and umpire
equally.
If we submit to an appraisal, we will still retain our right to
deny the claim.
As an initial matter, the dispute before us is a mixed issue of coverage and
causation. Construction and interpretation of the contract is for the courts. See
Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 206 (Iowa 1995).
Causation is the thing that produces a particular effect. Black’s Law Dictionary
249 (9th ed. 2009). Coverage is the “inclusion of a risk under an insurance
policy; the risks within the scope of an insurance policy.” Id. at 422. The dispute
in this case is over both what caused damage to the roof and whether that
damage is covered under the policy or excluded because of North Glenn’s prior
compensation.
Whether an appraiser has the authority to determine causation or issues
of coverage has never been fully considered by the courts of this state. Several
other states have considered the issue, reaching different conclusions. A
number of states have decided appraisers have no authority to consider issues of
causation. State Farm primarily relies upon Johnson v. Nationwide Mutual
Insurance Company, 828 So. 2d 1021, 1025–26 (Fla. 2002). In Johnson, the
Florida Supreme Court considered an appraisal dispute and determined
coverage decisions were to be decided by the court. The Johnson court also
held causation is a question for the court when an insurer “wholly denies that
there is a covered loss.” Johnson, 828 So. 2d at 1022. Years earlier, the
Mississippi Supreme Court limited the role of appraisers to determining the value
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of the property damage. See Munn v. Nat’l Fire Ins. Co. of Hartford, 115 So. 2d
54, 56 (Miss. 1959). Relying principally on Johnson, the Alabama Supreme
Court also limited the role of appraisers to determining the “amount of loss,”
interpreted to exclude coverage and causation questions. See Rogers v. State
Farm Fire & Cas. Co., 984 So. 2d 382, 391–92 (Ala. 2007).
Several other states have disagreed and held appraisers may, under
certain circumstances, consider causation. Most recently, the Minnesota
Supreme Court considered the question and, recognizing “the line between
liability and damage questions is not always clear,” held “a determination of the
‘amount of loss’ under the appraisal clause necessarily includes a determination
of causation.” Quade v. Secura Ins., 814 N.W.2d 703, 706–07 (Minn. 2012).
However, the Minnesota court retained questions of coverage for judicial
determination. “Coverage questions, such as whether damage is excluded
because it was not caused by wind, are legal questions for the court as this case
goes forward.” Id. at 707. Minnesota is not alone. Considering Delaware law
and the split between the states, the United States District Court for the District of
Delaware reached the same conclusion as the Quade court, finding the
“determination of amount of loss under the appraisal clause includes a
determination of causation.” CIGNA Ins. Co. v. Didimoi Prop. Holdings, N.V.,
110 F. Supp. 2d 259, 268 (D. Del. 2000). The Texas Supreme Court similarly
agrees. See State Farm Lloyds v. Johnson, 290 S.W.3d 886, 893 (Tex. 2009)
(“Indeed, appraisers must always consider causation, at least as an initial
matter.”). Courts in other states have reached the same conclusion. See St.
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Charles Parish Hosp. Serv. Dist. No. 1 v. United Fire & Cas. Co., 681 F. Supp.
2d 748, 757 (E.D. La. 2010) (finding causation must be considered to determine
the scope of the measured loss, but finding the determinations may be judicially
challenged by either party); Coates v. Erie Ins. Exch., No. CL-2009-1456, 2009
WL 7416039, at *4 (Va. Cir. Ct. Nov. 4, 2009).
After a review of the opinions of the various states, we find the analysis by
the Minnesota court in Quade persuasive. As part of the appraisal process,
appraisers must determine what the amount of “loss” is, which often requires
consideration of causation. As the district court pointed out, loss means the
“financial detriment caused by . . . damage, for which the insurer becomes liable.”
Black’s Law Dictionary 1030 (9th ed. 2009). Causation is an integral part of the
definition of loss, without consideration of which the appraisers cannot perform
their assigned function. During the appraisal process, the appraisers must
consider what damage was caused by hail, and what damage was not, or
damage with which they are unconcerned, such as normal wear and tear. We
are convinced to hold otherwise would improperly limit the appraisal process to
situations where the parties agree on all matters except the final dollar figure.
By law and under the specific terms of the appraisal clause, once the
appraisers conclude their work, the issue of coverage may be further litigated by
State Farm. Additionally, the causation determinations by the appraisers may be
subject to further review by the district court. “This process gives force to the
appraisal process but reserves to the courts the authority to decide coverage
questions.” Quade, 814 N.W.2d at 707–08. We agree with the Quade court that
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“[w]hether the appraisal award will be conclusive on all issues will depend on the
nature of the damage, the possible causes, the parties’ dispute, and the structure
of the appraisal award.” Id. at 708.
2. Order of Appraisal and Coverage Determination
The second question facing us is whether the district court should have
ordered the appraisal process to begin before the coverage disputes were
resolved. Again, no Iowa court has directly answered the question. Our
supreme court held long ago that an outside determination of the amount of loss
is not a condition precedent to further court action, so it is clear the court could
consider coverage issues before an appraisal is complete. Barry v. Farmers Mut.
Hail Ins. Ass’n, 86 N.W. 290, 290 (Iowa 1901).
As other courts have acknowledged, there is logic in determining what the
coverage is before the appraisers set about their work. See Citizens Prop. Ins.
Corp. v. Mango Hill Condo. Ass’n 12 Inc., 54 So. 3d 578, 581 (Fl. Dist. Ct. App.
2011). However, this procedure runs the risk of short-circuiting the benefits of
the appraisal procedure, which is designed to be an expeditious process without
the necessity of judicial intervention. Id. In Terra Indus., Inc. v. Commonwealth
Ins. Co., 981 F. Supp. 581, 593–94 (N.D. Iowa 1997), a federal district court
applying Iowa law examined the question of whether the appraisal process must
be used before other related suits may commence. The plaintiff asserted the
appraisal process was not required until triggered by one of the parties, and the
court agreed. Terra Indus., Inc., 981 F. Supp. at 593-94. After engaging in a
lengthy recitation of authority that need not be repeated here, the court held
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where appraisal is demanded by either party prior to suit, under a
policy with the terms dictated by Iowa Code § 515.138(6) [(1997)],
completion of the appraisal process is a precondition to a suit by
either party. However, where no demand for appraisal is made
before suit is filed, the suit cannot be barred as premature, because
appraisal is not then a precondition to suit.
Id. at 594. In Terra, no party demanded appraisal. We agree, where a party has
demanded an appraisal, the process should go forward with other judicial
determinations waiting until after the process has been completed. The plain
language of the clause in this case supports this conclusion. The clause speaks
in mandatory language and sets forth a strict and limited timeframe which would
be rendered unrealistic, or that could be easily circumvented, if a question of
coverage were to be raised. Additionally, the clause specifically reserves State
Farm’s right to challenge the coverage after the appraisal process is completed.
Accordingly, we find the judicial determination of coverage need not be made
before an appraisal is conducted, a decision that gives life to the terms of the
contract in this case.2
AFFIRMED.
2
Having determined the appraisers must consider causation and engage in the
appraisal process before coverage issues are determined by the district court, we do not
address State Farm’s claim that only the wind damage should be appraised.