decided: January 24, 1974.
ICE CITY, INC. ET AL., APPELLANTS,
INSURANCE COMPANY OF NORTH AMERICA
Appeal from decree of Court of Common Pleas of Lehigh County, June T., 1972, No. 22, in case of Ice City, Inc., a corporation and Ice City Christmas, Inc., a corporation v. Insurance Company of North America, a corporation.
Harold Caplan, with him C. Tracy Taylor, and Stamberg, Caplan, Calnan & Behrle, for appellants.
Richard W. Hopkins, with him White and Williams, for appellee.
Andrew F. Giffin and Barton Isenberg, Assistant Attorneys General, for Pennsylvania Insurance Department, amicus curiae.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Roberts.
[ 456 Pa. Page 211]
On November 13, 1971, the business premises of appellants, Ice City, Inc., and Ice City Christmas, Inc., were damaged by fire. Fire insurance coverage was provided by appellee, the Insurance Company of North America (INA). The parties, while able to agree on the amount of losses to real and personal property, were unable after protracted negotiations, to agree on the amount of lost income. Appellee admits liability for this loss, but disputes the amount of loss.
On July 10, 1972, appellants, pursuant to the terms of the insurance policy, demanded in writing the appointment of independent appraisers qualified to determine the extent and amount of lost income. INA, however, refused to comply with the procedures set forth in its policy, and declined to nominate an appraiser. The policy, as statutorily mandated,*fn1 provides: "Appraisal.
[ 456 Pa. Page 212]
In case the Insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the Insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally."
Appellants instituted this action in equity seeking a decree of specific performance requiring appellee to appoint "a competent and disinterested appraiser." INA filed preliminary objections in the nature of a demurrer, which were sustained. This appeal ensued.*fn2 We reverse.*fn3
The single question for our determination is whether the appraisal provision is enforceable. In support of the chancellor's conclusion that the clause is unenforceable, appellee relies on our decision in Mentz v. Armenia Fire Insurance Co., 79 Pa. 478 (1876), and several other
[ 456 Pa. Page 213]
early cases following it.*fn4 We believe appellee's reliance misplaced, and its reading of our precedents erroneous.
Mentz involved a suit for fire loss. The insurance contract, as here, contained a provision for referring disagreements "touching the amount of any loss or damage sustained" to "the judgment of arbitrators." Id. at 479. Neither party "offered or asked for" appraisal, and consequently Mentz brought an action on the policy for damages. The trial court sustained the insurer's motion for a non-suit for failure to submit the controversy to appraisers.
This Court reversed and remanded the case for trial because the insurer-appellee had not shown that the only question was the amount of loss. A condition precedent to appraisal, a showing that the dispute was one "touching the amount of any loss or damage," was not satisfied.*fn5
[ 456 Pa. Page 214]
In reversing, the Mentz court commented, "Such an agreement . . . is revocable, though the party may subject himself to an action of damages for the revocation." Id. at 480. Appellee relies on this isolated phrase to support its position that the appraisal clause is unenforceable. Appellee, however, reads the single word "revocable" as though it represents the court's entire decision.
The insurance contract in Mentz, in addition to providing for appraisal, required that "no action, suit or proceedings at law or in equity shall be maintained on this policy, unless the amount of loss or damage in case of difference or dispute shall be first thus [by appraisal] ascertained."*fn6 The insurer contended that this contractual provision totally divested the courts of any and all jurisdiction over the controversy. It was in response to this argument, which was rejected, that this Court said that the appraisal was "revocable." The Mentz court reasoned that if the insurer did not admit liability, thereby precluding appraisal, and if the appraisal provision remained binding upon the insured, then the insured would have been unable to bring suit to recover his losses.
By "revocable" this Court did not, as the chancellor here erroneously concluded, mean that the appraisal provision is unenforceable when the insured requests appraisement. "Revocable" was used only in the sense that, when the conditions precedent to appraisal are not satisfied, the party preventing appraisal, as INA here, may not assert the existence of the appraisal clause despite
[ 456 Pa. Page 215]
its own failure to comply with the clause as a defense to the innocent party's action on the policy. When the insured is prevented from submitting the controversy to appraisement by the insurance carrier's refusal to name an appraiser, then the insured may not be denied his right to seek enforcement of the appraisal clause or to sue for damages.
Mentz and the cases following it hold only that if appraisal is not requested,*fn7 or the request is fruitless,*fn8 or appraisal proceedings are inconclusive*fn9 or abandoned by the parties' joint consent,*fn10 or liability is denied,*fn11 then the appraisal provision in the contract may not bar the insured from bringing an action for relief in the courts. When appraisal is rejected by the insurance carrier, or is otherwise made unavailable to the insured, the insured's appraisal obligation is satisfied and he is entitled to bring suit. Appraisal, therefore, or the attempt at appraisal "would be at the most a condition precedent to an action by the insured . . . ." Gratz v. Insurance Co. of North America, 282 Pa. 224, 233, 127 A. 620, 623 (1925) (quoting Penn Plate Glass Co. ex rel. Wertheimer v. Spring Garden Insurance Co., 189 Pa. 255, 261, 42 A. 138, 139 (1899)).
As this Court held in Chauvin v. Superior Fire Insurance Co., 283 Pa. 397, 400-01, 129 A. 326, 327 (1925): "[T]he appraisement or a bona fide effort to join therein, was merely a condition precedent to an action by the
[ 456 Pa. Page 216]
insured . . . and where an attempt was made in good faith to carry out its provisions, and appraisement prevented . . ., plaintiff [the insured] had fully performed his obligation and is entitled to bring suit . . . ."
Here, appellants fully performed their appraisal obligations and established their entitlement to bring an action for the recovery of the loss. Appellants, in pursuit of their right of recovery, elected to bring an action in equity seeking specific performance of the statutorily-mandated appraisal agreement. None of our earlier decisions deals with an action for specific performance of an insurance appraisal agreement. In the earlier cases, the insured parties sought only recovery of monetary damages.
This Court, however, has recently examined the analogous question of specific performance of a contractual right to arbitration. In Mendelson v. Shrager, 432 Pa. 383, 248 A.2d 234 (1968), appellants sought enforcement of a contractual provision calling for arbitration of disputes arising under an employment agreement. As here, the chancellor sustained appellee's preliminary objections and dismissed the complaint. We unanimously reversed and ordered reinstatement of the complaint, rejecting both the contention that the arbitration agreement was unenforceable and the argument that the availability of an action at law for breach of contract precluded specific performance.
For purposes of enforceability, we see no distinction between arbitration and appraisal.*fn12 It must be concluded
[ 456 Pa. Page 217]
that contracts providing for appraisal, like those providing for arbitration, "are valid, enforceable and irrevocable, save upon such grounds as exist in law or in equity for the revocation of any other type of contract." Id. at 385, 248 A.2d at 235. When, as here, the conditions precedent to appraisal are satisfied, i.e., the admission of liability but a dispute only as to the dollar value of the loss, appraisal is an entirely appropriate means for settling the dispute, and is indeed the favored practice. Cf. Yost v. McKee, 179 Pa. 381, 36 A. 317 (1897). A decree of specific performance may issue to require its enforcement. Accord, Hala Cleaners, Inc. v. Sussex Mutual Insurance Co., 115 N.J. Super. 11, 277 A.2d 897 (Ch. Div. 1971); Saba v. Homeland Insurance Co. of America, 159 Ohio St. 237, 112 N.E.2d 1 (1953).*fn13
It is beyond cavil that settlement of disputes by arbitration or appraisal is the approved public policy of this Commonwealth. Mendelson v. Shrager, supra; Capecci v. Capecci, Inc., 11 Pa. D. & C.2d 459, 461 (C.P. Phila. 1957), aff'd, 392 Pa. 32, 139 A.2d 563 (1958);
[ 456 Pa. Page 218]
have without the benefit of our insurance statutes -- would effectively render void the mandatory appraisal procedures.*fn16 Failure to grant specific performance would repudiate the policy expressed by both the Legislature and the prior decisions of this Court.
Moreover, as the Department of Insurance of the Commonwealth of Pennsylvania has argued as amicus curiae urging reversal,
"The appraisal clause clearly and unambiguously provides for certain benefits and obligations on the parties . . . .
"The insured had a right to understand what he is buying . . . . The Plaintiff-Appellant in this action has a right to include the advantage of the appraisal provisions as part of what its premium dollars paid for. It is entitled to whatever savings may be had through the use of the appraisers' determination . . . as compared with the cost of judicial determination. This is an important contract value which should not be denied."*fn17
[ 456 Pa. Page 220]
This Court shares these views, and recognizes the real value of the appraisal clause to the insured. The clause affords a more convenient and less burdensome method for resolving the dispute over the amount of the loss than leaving the entire controversy to more costly and time-consuming court litigation. Our Court may not deny an insured the right to enforce this benefit, paid for by premiums, any more than we could deny an insurance carrier its right to receive the premiums. The legislatively-mandated appraisal clause, an early recognition of what currently is known as consumerism, may not be discarded by the insurer. This Court cannot agree that the insurer may unilaterally free itself from its statutorily-imposed and contractually-required appraisal obligations.
Decree reversed and the record remanded for further proceedings consistent with this opinion. Costs on appellee.
Decree reversed and record remanded for further proceedings.