Hester v. Certain Underwriters of Lloyd's et al
Filing
65
OPINION AND ORDER by Magistrate Judge Steven P. Shreder denying defendant's motion to compel appraisal ( 9 Motion to Compel) (law, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
TERRY HESTER,
Plaintiff,
v.
CERTAIN UNDERWRITERS OF
LLOYD’S, et al.,
Defendants.
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Case No. CIV-12-57-SPS
OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO COMPEL APPRAISAL
Plaintiff Terry Hester sued Defendant Certain Underwriters of Lloyd’s (“Lloyd’s”)
for breach of an insurance contract and bad faith in connection with Mr. Hester’s loss of
property due to theft. Lloyd’s responded, inter alia, with a Motion to Compel Appraisal
[Docket No. 9], arguing that Hester improperly filed suit before completing the appraisal
process mandated by his insurance policy. For the reasons set forth below, the motions
filed by Lloyd’s are hereby DENIED.
Lloyd’s issued a policy to Mr. Hester providing $400,000.00 coverage for certain
collectible personal property. On July 25, 2010, collectibles specifically identified by the
policy were stolen from Mr. Hester’s home, and he filed a claim. Lloyd’s responded that
it was “investigating Mr. Hester’s Loss and insurance claim under a full reservation of
rights under the Policy and applicable law” and valued his loss at $32,500. See Docket
No. 9, Ex. B. Lloyd’s expected “that Mr. Hester will likely be in agreement with the
adjustment of this Loss,” see id., but nevertheless invoked the following appraisal clause
in his policy:
If you and we fail to agree on the amount of loss, either may demand that
the amount of loss be set by appraisal. In this event, each party will choose
a competent, independent appraiser within 20 days after receiving a written
request from the other. The two appraisers will choose an umpire. If they
cannot agree upon an umpire within 15 days, you or we may request that
the choice be made by a judge of a court of record in the state of your
residence. The appraisers will separately set the amount of loss.
If the appraisers submit a written report of an agreement to us, the amount
agreed upon will be the amount of loss. If they fail to agree, they will
submit their differences to the umpire. A decision agreed to by any two
will set the amount of loss. . . . If there is an appraisal, we will still retain
our right to deny the claim.
Collector’s Insurance Policy (Collectible Property), D(2) “Appraisal,” Docket No. 9, Ex.
A, at p. 4 [emphasis added]. Mr. Hester did in fact disagree with Lloyd’s estimate of his
loss, and appointed his own appraiser who evaluated the loss at $441,000. The parties
discussed choosing an umpire to complete the appraisal process, but Mr. Hester elected to
file suit instead. Lloyd’s seeks by its motions to enforce the policy’s appraisal clause and
urges the Court: (i) to compel completion of the appraisal process previously commenced
by the parties; (ii) to declare the result of the appraisal process binding upon both parties;
(iii) to declare that the appraisers may consider the authenticity of the stolen collectibles
in making their determinations; (iv) to reserve jurisdiction only to appoint an umpire in
the event the parties make such a motion; and (v) to stay or abate these proceedings while
the appraisal process is completed.
This is a diversity case, so Oklahoma substantive law applies. See Erie Railroad
Co. v. Tompkins, 304 U.S. 64, 78-79 (1938). Under Oklahoma law, appraisal awards are
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“binding upon the party invoking the appraisal process [but] non-binding upon the party
compelled to participate due to the other party’s demand.” Massey v. Farmers Insurance
Co., 1992 OK 80, 837 P.2d 880, 884, citing 36 Okla. Stat. § 4803(G). Thus, an insured is
not required to await the completion of the appraisal process to file suit whenever the
insurer reserves the right to deny the claim. See, e. g., JJB Properties, L.L.C. v. Certain
Underwriters at Lloyd’s London, 2010 WL 2196574, at *6 (N.D. Okla. May 26, 2010)
(“Defendant’s claim that its demand for appraisal precludes suit is contrary to longstanding Oklahoma law. In 1925, the Oklahoma Supreme Court held that when an
insurer denies liability, it waives the appraisal right of defendant. In 1965, the Oklahoma
Supreme Court re-visited this issue . . . The Court made it clear than an appraisal
provision is not a condition precedent to a lawsuit by the insured, if the insurer has
demanded the appraisal but reserved the right to litigate liability.”) [unpublished
opinion], citing Concordia Fire Insurance Co. v. Barkett, 110 Okla. 177, 236 P. 890
(1925) and Fidelity-Phenix Fire Insurance Co. of New York v. Penick, 401 P.2d 514
(Okla. 1965); LeBlanc v. The Travelers Home and Marine Insurance Co., 2011 WL
1107126 (W.D. Okla. March 23, 2011) (“Massey makes clear that an appraisal provision
in an insurance policy like [the homeowner’s policy] involved here is binding on the
party who invokes the process. The non-invoking party is not bound at all.”), citing
Trinity Baptist Church v. GuideOne Elite Insurance Co., 2009 WL 2972502, at *3 n.5
(W.D. Okla. Sept. 14, 2009) [unpublished opinion]. See also Massey, 1992 OK 80, 837
P.2d at 890 (Opala, J., concurring) (“A loss-appraisal procedure may be viewed as an
efficient or desirable method of resolving the amount of a contested fire claim if both
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parties are agreeable.
But because [Okla. Const. art. 23, §8 (“Any provision of a
contract, express or implied, made by any person, by which any of the benefits of this
Constitution is sought to be waived, shall be null and void.”)], absolutely interdicts
judicial enforcement of executory ex contractu commitments to relinquish constitutional
rights that may be available in disputes to arise in futuro, the appraisal clause is infirm.”).
Lloyd’s contends these authorities are inapposite to this case because it accepted
coverage of Mr. Hester’s claim notwithstanding the language of the appraisal clause to
the contrary. Whether Lloyd’s unequivocally accepted coverage is debatable, e. g., the
above-mentioned letter to Mr. Hester indicates that Lloyd’s was investigating his claim
“under a full reservation of rights under the Policy and applicable law,” but in any event
the Court is persuaded that it is the language of the agreement between the parties that is
controlling in this regard. Because it reserved the right to deny Mr. Hester claim after an
appraisal according to the terms of the Policy, Lloyd’s “waived the [appraisal] clause as a
condition precedent to suit.” JJB Properties, 2010 WL 2196574, at *6 [quotations
omitted], citing Fidelity-Phenix Fire Insurance Co., 401 P.2d at 520. The Court therefore
declines to compel completion of the appraisal process, and likewise declines to stay or
abate these proceedings pending such completion.
Accordingly, IT IS ORDERED that the Defendant’s Motion to Compel Appraisal
[Docket No. 9] is hereby DENIED. To the extent the parties are currently observing any
stay in connection with the Defendant’s Motion to Stay and/or Abate the Proceedings
Pending Completion of the Appraisal Process [Docket No. 10] previously granted herein,
such stay is hereby LIFTED.
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DATED this 5th day of March, 2013.
_____________________________________
STEVEN P. SHREDER
UNITED STATES MAGISTRATE JUDGE
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