SHEARER v. ANDREWS et al
MEMORANDUM AND ORDER that Defendant's 10 Motion to Compel Appraisal and Stay Case is granted. This action is stayed pending the appraisal to be conducted pursuant to the policy. Defendant's 17 Motion to Strike Class Allegations in Plain tiffs' Amended Complaint is denied as moot. Defendant's 18 Motion to Dismiss Plaintiffs' Amended Complaint is denied as moot. The parties are to file a status report within sixty (60) days to update the Court on the appraisal process. Signed by Judge Freda L. Wolfson on 8/22/2017. (mps)
*NOT FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
JAMES SHEARER AND JOYCE ANDREWS, :
individually, and on behalf of all others
STATE FARM FIRE AND CASUALTY
Civil Action No. 16-09469(FLW)(LHG)
MEMORANDUM AND ORDER
WOLFSON, United States District Judge:
This matter is a diversity suit brought pursuant to the Class Action Fairness Act, 28
U.S.C. § 1332(d). Plaintiffs James Shearer and Joyce Andrews (collectively, “Plaintiffs”) assert
that Defendant State Farm Fire and Casualty Company (“State Farm” or “Defendant”) breached
their all-risk property insurance policy by applying a “new construction” formula rather than a
“repair/restoration” formula when determining the replacement value of their fire-damaged
property. The Amended Complaint asserts claims for breach of contract and insurance bad faith.
Presently before the Court are three motions filed by Defendant: (1) Motion to Compel
Appraisal and Stay Case (ECF No. 10); (2) Motion to Strike Class Allegations in Plaintiffs’
Amended Complaint (ECF No. 17); and (3) Motion to Dismiss Plaintiffs’ Amended Complaint
(ECF No. 18). For the reasons set forth below, Defendant’s Motion to Compel Appraisal and
Stay Case is granted. Defendant’s Motion to Strike Class Allegations in Plaintiffs’ Amended
Complaint and Motion to Dismiss Plaintiffs’ Amended Complaint are denied as moot.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs are the owners of property located in Princeton, New Jersey (the “Property”).
See Am. Compl. ¶ 9, ECF No. 12. Plaintiffs’ Property was damaged by fire on July 11, 2015.
Id. at ¶ 12. Plaintiffs submitted a claim to their insurer, State Farm, under their homeowners’
insurance policy (the “Policy”). Id. at ¶ 13.1 Plaintiffs allege that State Farm used an incorrect
formula to estimate the replacement damage for their property, resulting in a devaluation of their
claim by over $50,000. See id. at ¶¶ 15-20, 22-23. Specifically, Plaintiffs allege that State Farm
applied a “new construction formula,” which is used after a total loss and full demolition of the
property, rather than a “repair formula,” which is used when the property remains intact but the
damaged portion is replaced. See id. at ¶¶ 16, 20. According to Plaintiffs, “the replacement cost
estimate for the damage to the property under the repair formula is higher than under the new
construction formula . . . because the contractor incurs additional expense in working around an
existing structure.” Id. at ¶ 17. Thus, Plaintiffs allege that they have received a lesser payment
of the actual cash value of the loss, based on State Farm’s incorrect calculation.
Unsatisfied with State Farm’s calculation of the actual cash value of their loss, Plaintiffs
filed a Complaint against State Farm on December 21, 2016. Plaintiffs bring claims on behalf of
a nationwide class of policyholders who, “following a property loss that did not require a total
rebuild, have had their loss adjusted by State Farm using the new construction formulas . . . as
opposed to recovery and restoration formulas.” Id. at ¶ 29.
Plaintiffs attached a copy of their Policy to their initial complaint as Exhibit A. See ECF No.
1-1. State Farm has also filed a copy of the subject Policy. See ECF No. 7-2. Neither party
disputes the authenticity of the Policy.
On March 7, 2017, State Farm invoked an “appraisal” provision contained in the Policy
by sending a letter to Plaintiffs’ counsel. See ECF No. 10-2 at 6-8. The appraisal provision
provides a method for resolving disputes over the amount of a loss, which may be invoked by
either the policyholder or State Farm. Specifically, the appraisal provision of the Policy states:
If you and we fail to agree on the amount of loss,
either one can demand that the amount of the loss be set by appraisal.
If either makes a written demand for appraisal, each shall select a
competent, disinterested appraiser. Each shall notify the other of the
appraiser’s identity within 20 days of receipt of the written demand.
The two appraisers shall then select a competent, impartial umpire.
If the two appraisers are unable to agree upon an umpire within 15
days, you or we can ask a judge of a court of record in the state
where the residence premises is located to select an umpire. The
appraisers shall then set the amount of the loss. If the appraisers
submit a written report of an agreement to us, the amount agreed
upon shall be the amount of the loss. If the appraisers fail to agree
within a reasonable time, they shall submit their differences to the
umpire. Written agreement signed by any two of these three shall
set the amount of the loss. Each appraiser shall be paid by the party
selecting that appraiser. Other expenses of the appraisal and the
compensation of the umpire shall be paid equally by you and us.
ECF No. 1-1 at 29; ECF No. 7-2 at 20.2
On March 10, 2017, Defendant moved to compel appraisal and stay this case pending
completion of the appraisal process. ECF No. 10. On April 10, 2017, State Farm filed two
additional motions, a motion to dismiss Plaintiffs’ Amended Complaint and a motion to strike
Plaintiffs’ class allegations.
The state of New Jersey requires that a basic fire insurance policy contain certain clauses.
See N.J. Stat. Ann. § 17:36-5.20. One such clause is the “appraisal” clause. See id. The purpose
The appraisal provision closely tracks New Jersey’s standard appraisal clause for fire insurance
policies mandated by statute. See N.J. Stat. Ann. § 17:36-5.20.
of an appraisal is “to submit disputes to third parties and effect their speedy and efficient
resolution without recourse to the courts.” Elberon Bathing Co., Inc. v. Ambassador Ins. Co.,
Inc., 389 A.2d 439, 446 (N.J. 1978). “Like any contract, when its terms are clear the court must
enforce the contract as it finds it.” Flint Frozen Foods v. Firemen’s Ins. Co. of Newark, 86 A.2d
673, 674 (N.J. 1952). Federal and state courts in New Jersey have held that appraisal clauses in
fire insurance policies are enforceable against both insurers and their insured. See Drescher v.
Excelsior Ins. Co. of N.Y, 188 F.Supp. 158, 159 (D.N.J. 1960); Hala Cleaners, Inc. v. Sussex
Mut. Ins. Co., 277 A.2d 897, 898 (N.J. Super. Ct. Ch. Div. 1971) (“an insured as well as an
insurance company can insist that the appraisal procedures described in the standard form of fire
policy be followed”).
State Farm argues that it has properly invoked its right to appraisal to resolve the dispute
over the amount of the loss to Plaintiffs’ property and that the Court should compel an appraisal
and stay this action pending the completion of the appraisal process. See ECF No. 10-1 at 7.
Plaintiffs raise three arguments in opposition. First, Plaintiffs argue that the matter is not ripe for
appraisal because there is a dispute over the proper formula to apply in valuing the loss. See
ECF No. 15 at 5. Next, Plaintiffs argue that even if appraisal is applicable, Plaintiffs do not have
to comply with that provision because State Farm breached the Policy. Id. at 5-6. Finally,
Plaintiffs argue that State Farm’s motion should be denied because State Farm did not exercise
its appraisal rights within a reasonable period of time. Id. at 6.
Plaintiffs’ arguments in opposition are not persuasive. Under the Policy, appraisal may
be invoked by either party, at any time, to resolve disputes over the amount of the loss. It is clear
to the Court that the parties’ dispute is over the amount of the loss to the property. For example,
the Policy states that “until actual repair or replacement is completed, [State Farm] will pay only
the actual cash value at the time of the loss of the damaged part of the property” and that “when
the repair or replacement is actually completed, [State Farm] will pay the covered additional
amount [the insured] actually and necessarily spend[s] to repair or replace the damaged part of
the property . . . .” ECF No. 1-1 at 26-27; ECF No. 7-2 at 17-18. Because there is no allegation
that Plaintiffs have repaired or replaced the property, Plaintiffs’ issue is with the amount that
they received from State Farm attributable to the actual cash value of the loss. See Am. Compl.
at ¶¶ 22-23 (“As a result of State Farm’s improper interpretation of its Policy, it has devalued
Named Plaintiffs’ claim by over $50,000.00. This devaluation of Name[d] Plaintiffs’ claim has
resulted in a lesser payment to the named Plaintiffs of the actual cash value of the loss.”
(emphasis added)). The Policy unambiguously provides that when the parties fail to agree on the
amount of the loss, either party may demand that the amount of the loss be determined by
appraisal. Plaintiffs’ position regarding the proper valuation method is immaterial to whether
State Farm may seek an appraisal under the Policy. See Enger v. Allstate Ins. Co., 407 F. App’x
191, 193 (9th Cir. 2010) (“By the plain language of the insurance policy, it is immaterial that
Enger believes the cause of the disagreement concerning the actual cash value is Allstate’s
alleged use of an improper valuation method. The contract makes no exception where the source
of the dispute is the valuation method used . . . .”) Here, State Farm has the right to demand an
appraisal under the Policy, and Plaintiffs have provided no legal or contractual basis for an
exception to the appraisal provision due to disputes about appraisal methodology. Moreover, an
appraisal will determine the amount of the loss and has the potential to resolve the dispute
between the parties.
Plaintiffs’ argument that they do not have to comply with the appraisal provision because
of State Farm’s alleged breach of contract is also not persuasive. The alleged breach concerns
State Farm’s determination of the amount of loss, with which Plaintiffs disagree. The appraisal
provision clearly deals with these disagreements by enabling the parties to compel appraisal
where the amount of loss is disputed. ECF No. 1-1 at 29; ECF No. 7-2 at 20. Excusing
compliance with this provision now, when the parties directly dispute the amount of loss, would
nullify it entirely. See Porreca v. City of Millville, 16 A.3d 1057, 1070 (N.J. Super. Ct. App.
Div. 2011) (“A contract ‘should not be interpreted to render one of its terms meaningless.’”
With respect to the timeliness of State Farm’s demand for appraisal, Plaintiffs have
identified no law or provision of the parties’ agreement limiting the time for Defendant to
enforce the appraisal provision, and the Court finds that, regardless, State Farm’s demand was
made within a reasonable time. State Farm requested appraisal approximately two-and-a-half
months after Plaintiffs filed their initial complaint in this matter.3 See ECF No. 10-2 at 6-8. This
two-and-a-half month time period is well within the range in which other courts have ordered an
appraisal. See, e.g., Rock-N-Rolls Auto Salon, Inc. v. U.S. Fid. & Guar. Co., No. A-6150-04T2,
2006 WL 1675699, at *2 (N.J. Super. Ct. App. Div. June 20, 2006) (trial court below compelled
appraisal almost two years after filing of the complaint); Dike v. Valley Forge Ins. Co., 797 F.
Supp. 2d 777, 784 (S.D. Tex. 2011) (compelling appraisal where defendant insurer made initial
appraisal demand four months after complaint was filed); Caudros v. State Farm Fire and Cas.
Co., No. 14-1247, 2014 WL 7338945, at *1 (D. Nev. Dec. 23, 2014) (compelling appraisal
where defendant insurer made initial appraisal demand approximately three months after class
action complaint was filed). Furthermore, this litigation is in its infancy –State Farm has yet to
Plaintiffs argue, in briefing, that the filing of the Complaint on December 21, 2016, was the
point at which State Farm should have known that the parties had reached an impasse in
answer Plaintiffs’ Amended Complaint and the parties have not started discovery. An appraisal
is also timely here because it has the potential to resolve the dispute between the parties, or, at
minimum, to provide a factual basis for further discussion between the parties to determine if
resolution is possible.
Accordingly, State Farm’s demand for an appraisal was proper under the Policy, and the
Court will grant State Farm’s motion compelling appraisal and stay the case pending the
outcome of the appraisal process. See Landis v. North Am. Co., 299 U.S. 248, 254 (1936) (“the
power to stay proceedings is incidental to the power inherent in every court to control the
disposition of the causes on its docket with economy of time and effort for itself, for counsel, and
The Court will not address Defendant’s Motion to Strike Class Allegations in Plaintiffs’
Amended Complaint (ECF No. 17) or Motion to Dismiss Plaintiffs’ Amended Complaint (ECF
No. 18) on the merits in light of its ruling on Defendant’s Motion to Compel. If the appraisal
does not resolve the dispute between the parties and the stay is lifted, Defendant may renew its
IT IS, THEREFORE, on this 22nd day of August, 2017,
ORDERED that Defendant’s Motion to Compel Appraisal and Stay Case (ECF No. 10)
is GRANTED; and it is further
ORDERED that this action is stayed pending the appraisal to be conducted pursuant to
the Policy; and it is further
ORDERED that Defendant’s Motion to Strike Class Allegations in Plaintiffs’ Amended
Complaint (ECF No. 17) is DENIED as moot; and it is further
ORDERED that Defendant’s Motion to Dismiss Plaintiffs’ Amended Complaint (ECF
No. 18) is DENIED as moot; and it is further
ORDERED that the parties are to file a status report within sixty (60) days to update the
Court on the appraisal process.
/s/ Freda L. Wolfson
Freda L. Wolfson
United States District Judge
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