A federal district court in Connecticut has ruled that an insurance policy’s appraisal clause did not require arbitration of a dispute over coverage of the insured’s claim but only the amount of damage the insured asserted had gone unpaid once the court determined that there was coverage.
The Case Ice Cube Building, LLC, alleged that a building it owned in Groton, Connecticut, was damaged when snow and ice caused the roof to begin to leak and water to come into the building. Ice Cube submitted a claim to its commercial property insurer, Scottsdale Insurance Company. After Scottsdale accepted coverage in part and denied coverage in part, Ice Cub sued the insurer. In response, Scottsdale asserted a counterclaim against Ice Cube and sought a declaration as to whether its policy covered Ice Cube’s alleged losses. Ice Cube then moved to compel appraisal of its alleged losses and to stay the lawsuit until appraisal had concluded. Ice Cube argued that there was a disagreement on the amount of loss it had suffered, it had made a written demand for an appraisal of the loss, and, therefore, Connecticut law, Section 52-410, and the terms of its insurance policy required that Scottsdale appoint an appraiser to assess Ice Cube’s uncompensated losses. Scottsdale argued that an appraisal was premature because there were outstanding coverage issues that the court had to address as a condition predicate to the appraisal process.
The Scottsdale Policy The Scottsdale policy provided: “If we and you disagree on the value of the property or the amount of loss, either may make a written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction.”
Connecticut Law Section 52-410(a) of Connecticut General Statutes provides: A party to a written agreement for arbitration claiming the neglect or refusal of another to proceed with an arbitration thereunder may make application to the superior court for the judicial district in which one of the parties resides . . . for an order directing the parties to proceed with the arbitration in compliance with their agreement.
The District Court’s Decision The district court denied Ice Cube’s motion. In its decision, the district court acknowledged that the Scottsdale insurance policy required that the parties arbitrate certain disputes arising from the policy. In particular, the court said, the Scottsdale policy provided for arbitration of disagreements relating to the “value of the property” or the “amount of loss” suffered by Ice Cube.
The court then noted that Scottsdale sought a declaratory judgment as to its rights and liabilities under the policy and, in particular, that it alleged that Ice Cube sought “to appraise damages that [were] not covered by the [p]olicy.”
According to the court, because the Scottsdale policy expressly provided for the arbitration of disputes related to the value or quantum of a loss suffered—not the rights and liabilities of the parties under the policy—and because it only could compel the parties to arbitrate matters “which they have agreed to arbitrate under the provisions of their insurance policy,” it could not compel the parties to arbitrate the question of coverage under Section 52-410.
Where, as in this case, coverage was in dispute, the issue was “an antecedent question for the court” and not an issue for arbitration, the court ruled. Accordingly, it concluded that Ice Cube’s motion was “premature.”
The case is Ice Cube Building, LLC v. Scottsdale Ins. Co., No. 3:17-cv-00973 (VAB) (D. Conn. June 18, 2018).
Steven A. Meyerowitz, Esq., is director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc.