Bell v. Liberty Mutual Fire Insurance Company

Court of Appeals of Georgia, decided November 30, 2012 (Phipps, Presiding Judge; Ellington, C.J., and Dillard, J., concurring). Docket No. A12A1094, reported at 319 Ga. App. 302, 734 S.E.2d 894. The complete opinion appears below, transcribed from the reported decision; only print artifacts (the reporter’s citation block, page headers and footers) have been removed. We could not verify a free public link to the full text of this decision, so no authority link is listed above — the reporter citation is the reference.

The full opinion

BELL et al. v. LIBERTY MUTUAL FIRE INSURANCE COMPANY. Court of Appeals of Georgia (Nov. 30, 2012). Docket No. A12A1094. 319 Ga. App. 302, 734 S.E.2d 894.

Carletta Elaine Sims, Mableton, and Simon Jack Weinstein, for Appellant. Brent J. Kaplan and Hilary Alison Wayne, Atlanta, for Appellee.

Phipps, Presiding Judge.

Ernest and Iris Bell appeal from a trial court order granting Liberty Mutual Fire Insurance Company’s motion for entry and approval of certain appraisal awards determined by an umpire and denying the Bells’ motion to set aside those same awards, which were for less than the limits of their homeowner’s insurance policy with Liberty Mutual. The Bells contend that the trial court should have set aside the awards because the forms of the awards were improper, and thus, there was irregularity, a palpable mistake of law, or fraud in the issuance of the awards. The Bells also contend that the trial court erred in not finding that they were entitled to the maximum amount of coverage set forth in their insurance policy pursuant to a particular statute, and in not finding that Liberty Mutual denied their claim in bad faith. Finding no error, we affirm.

After their home was damaged by fire on April 26, 2008, the Bells submitted a claim to Liberty Mutual to recover the policy limits for the loss of their dwelling and personal property. Liberty Mutual disputed the amount of the claim. Pursuant to the terms of the policy, the matter was submitted to two appraisers and to an umpire, to determine the actual value and amount of loss.

While the appraisal process was ongoing, the Bells filed in superior court a complaint for damages, seeking, among other things, to be paid the policy limits of their fire insurance policy for the loss of their dwelling and loss of personal property. Liberty Mutual filed an answer and asserted defenses, denying liability and disputing the amount of the claim. Litigation was stayed pending the completion of the appraisal process.

In August 2010, the umpire issued awards for the loss of the dwelling and the loss of personal property in amounts less than the policy limits, and Liberty Mutual assented to the awards. The stay on the litigation was lifted. Liberty Mutual filed in the trial court a motion for entry and approval of the awards; the Bells filed a motion to set aside the awards for the loss of the dwelling and the loss of personal property. The trial court issued an order granting Liberty Mutual’s motion; denying the Bells’ motion; and ordering that the umpire’s awards constituted the appropriate measure of damages. From this order, the Bells appeal.

The umpire also issued an award for additional living expenses. The Bells do not dispute the award for additional expenses, which, according to the policy, covered the necessary increase in living expenses they incurred so that their household could maintain its normal standard of living.

An appraisement award is the result of a contractual method of ascertaining the amount of loss, and it is binding on the parties as to the amount of loss unless the award is set aside. There exists a presumption in favor of the regularity and fairness of appraisement awards, and it is difficult to set them aside. While an award may be attacked for any reason that would void a contract, as well as for fraud in the arbitration or in either party in obtaining the award, for a palpable mistake of law or for deciding any matter by chance or lot, where there is no evidence of fraud, oppression, irregularity, or unfairness, other than on the disputed issue of value, and no other circumstances tending to raise the issue, a verdict in the amount of the award is demanded. An appellate court will not interfere with the report of appraisers when the question of quantum of the judgment is the subject of review, to correct the amounts reported, except in case of gross error showing prejudice, corruption or plain mistake.

Southern Gen. Ins. Co. v. Kent, 187 Ga.App. 496, 497(1), 370 S.E.2d 663 (1988) (citations omitted); see Pacific Nat. Fire Ins. Co. v. Beavers, 87 Ga.App. 294, 298–301(4), 73 S.E.2d 765 (1952).

Dept. of Transp. v. Driggers, 150 Ga.App. 270, 274, 257 S.E.2d 294 (1979).

1. The Bells contend that the forms of the umpire’s awards were improper because the umpire failed to include in the awards a list of damage or loss to any specific articles of personal property or components of the house. They argue that because that was not done, there was irregularity, a palpable mistake of law, or fraud committed by the umpire in his entry of the awards.

(a) The Bells do not contest that the insurance policy between them and Liberty Mutual (“homeowner’s policy”) did not require such itemization. They assert that their policy must be construed so as to conform to the state standard fire policy. In that regard, the Bells argue that the standard policy applied to this case and required such itemization, and that the umpire’s failure to itemize in accordance with the standard policy rendered the forms of the awards improper and invalid due to irregularity, a palpable mistake of law, or fraud committed by the umpire in his entry of the awards.

See OCGA § 33–32–1(a); Ga. Comp. R. & Regs. r. 120–2–19–.01.

The standard policy pertinently provides:

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 [umpire and one appraiser] when filed with [Liberty Mutual] shall determine the amount of actual cash value and loss.

Ga. Comp. R. & Regs. r. 120–2–19–.01.

The term “item” is not defined in the standard policy. And the parties have not cited, nor have we discovered, any Georgia authority interpreting the requirement to itemize. The Bells assert that because the standard policy specifies that an insured must “furnish a complete inventory of destroyed, damaged and undamaged personal property, showing in detail quantities, costs, actual cash value and amount of loss claimed,” then “[n]o lesser burden can possibly be placed on the umpire.” But we are not convinced that the language of the standard policy in Georgia requires that the umpire itemize as the Bells describe. The pertinent language in the standard policy concerning what the umpire must do simply does not explicitly place such a duty on the umpire as it does on the insured; nor does the policy between the Bells and Liberty Mutual require such itemization.

See Ga. Comp. R. & Regs. r. 120–2–19–.01.

To support their position, the Bells rely on Kacha v. Allstate Ins. Co., but that case is distinguishable. There, the judge instructed the homeowners (whose house had been damaged by heat and smoke in a wildfire) and the company that insured the home to agree as to a form for the award, and the parties agreed that the award would include a listing of specific items, e.g. kitchen cabinets, flooring, garage cabinets, carpet, and interior walls. Liberty Mutual, however, relies upon cases from multiple jurisdictions, interpreting in its favor clauses similar to the one at issue in this case. In those cases, the courts held that the term “item” in the appraisal provisions referred to the “items” listed on the faces of the policies, rather than to all the constituent elements of damage giving rise to the total loss. For instance, in Commercial Union Ins. Co. v. Ryals, the appraisal panel looked to the “Coverage” provision of the policy and determined that since there was only one item referred to —“Building(s)”— an itemized account of the components which made up the damaged building was unnecessary; it was proper for the appraisers to compute the loss to the building as one item.

140 Cal.App.4th 1023, 45 Cal.Rptr.3d 92 (2006).

Id. at 1027–1028, 45 Cal.Rptr.3d 92.

Mitchell v. Aetna Casualty & Surety Co., 579 F.2d 342, 351 (5th Cir.Miss.1978); Arkin Distributing Co. v. American Ins. Co., 85 Mich.App. 359, 363 – 364, 271 N.W.2d 430 (1978); Commercial Union Ins. Co. v. Ryals, 355 So.2d 684, 686–687 (Ala.1978); Phoenix Assurance Co. v. Singer, 331 F.2d 10, 12 (8th Cir.Mo.1964).

Supra.

Id.

Here, the umpire entered three awards — for additional living expenses, for personal property, and for real property. As to the personal property and real property awards, the umpire stated separately the actual cost value, the total depreciation, and the replacement cost value. Indeed, in the “Coverage” section of the homeowner’s policy, personal property and real property (dwelling) were items for which coverage was provided.

Competent parties are free to choose and insert whatever provisions they desire in a contract, unless prohibited by statute or public policy … Yet a contract of insurance should follow the cardinal rule of construction so as to carry out the true intention of the parties, and their rights are to be determined by the terms of the contract. Its language should receive a reasonable construction and not be extended beyond what is fairly within its plain terms … It is the function of an appellate court to construe the contract as written, and we will not, by construction, create a liability not assumed by the insurer, nor delete a coverage contracted for, and we are not authorized to make a new contract for the parties, or one different from that plainly intended.

Donaldson v. Pilot Life Ins. Co., 177 Ga.App. 748, 749, 341 S.E.2d 279 (1986) (citation and punctuation omitted).

In the absence of an explicit provision in the standard policy directing the umpire to perform the same itemization as the insured is directed to perform under the standard policy, we see no error in the trial court’s failure to impose upon the umpire a duty for which the parties had not specifically contracted.

See id.

(b) The Bells’ contention that there was irregularity, palpable mistake of law, or fraud committed by the umpire in his issuance of the awards is based on their claim that the forms of the umpire’s awards were improper. Based on our holding in Division (1)(a), that contention is moot.

Supra.

2. The Bells contend that the trial court erred in not finding that, pursuant to OCGA § 33–32–5, they were entitled to the maximum amount of coverage set forth in their policy because their home was wholly destroyed.

OCGA § 33–32–5 pertinently provides:

(a) Whenever any policy of insurance is issued to a natural person or persons insuring a specifically described one or two family residential building or structure located in this state against loss by fire and the building or structure is wholly destroyed by fire without fraudulent or criminal fault on the part of the insured or one acting in his behalf, the amount of insurance set forth in the policy relative to the building or structure shall be taken conclusively to be the value of the property … (b) Subsection (a) of this Code section shall not apply where: (1) The building or structure is not wholly destroyed by fire…

In their appellate brief, the Bells assert that “unquestionably, [their] house has now been wholly destroyed as a result of the fire, as a result of Liberty Mutual’s refusal and failure to timely pay their claims and the Bell’s inability to rebuild or protect the property ruins.” The umpire, however, determined that the house was not wholly destroyed during the fire. But the trial court did not rule on this issue, and therefore nothing is presented for our review.

See Willingham v. Willingham, 261 Ga. 674, 675(2), 410 S.E.2d 98 (1991).

3. The Bells contend that the trial court erred in not finding that Liberty Mutual denied their claim in bad faith, pursuant to OCGA § 33–4–6. The Bells assert that the record shows that Liberty Mutual chose to omit a “statutorily and contractually required provision in its homeowners’ insurance policy, to the detriment and unfair prejudice of the holders of its policy,” and that “[a]n award of bad faith damages and penalties by a jury would be authorized.”

To support a cause of action under OCGA § 33–4–6, the insured bears the burden of proving that the refusal to pay the claim was made in bad faith. A defense going far enough to show reasonable and probable cause for making it, would vindicate the good faith of the company as effectually as would a complete defense to the action. Penalties for bad faith [and attorney fees] are not authorized where the insurance company has any reasonable ground to contest the claim and where there is a disputed question of fact. The trial court did not rule on this issue, and therefore nothing is presented for our review.

Rice v. State Farm Fire & Casualty Co., 208 Ga.App. 166, 169(1), 430 S.E.2d 75 (1993) (citation and punctuation omitted).

Willingham, supra.

In any event, the Bells fail to state the particular statutory or contractual provision they contend Liberty Mutual intentionally omitted from the homeowner’s policy. To the extent that they are referring to the provision in the standard policy that called for an award to be itemized, based on our holding in Division (1) (a), we discern no detriment or unfair prejudice to the Bells because the homeowner’s policy did not include that provision.

Judgment affirmed. ELLINGTON, C.J., and DILLARD, J., concur.

What it decided

Ernest and Iris Bell’s home burned on April 26, 2008. They claimed their policy limits for the dwelling and for personal property. Liberty Mutual disputed the amount, and the claim went to two appraisers and an umpire. While the appraisal was still running, the Bells sued for the policy limits; the litigation was stayed until the appraisal finished. In August 2010 the umpire issued awards for the dwelling and for personal property in amounts below the policy limits, Liberty Mutual assented, and the trial court entered the awards over the Bells’ motion to set them aside.

The Bells’ lead argument was about the form of the awards: the umpire had not listed the loss to specific articles of personal property or to specific components of the house, and that failure, they said, was an irregularity, a palpable mistake of law, or fraud. They conceded their own policy required no such itemization, and argued instead that the policy had to be read to match Georgia’s standard fire policy, which says the appraisers “shall then appraise the loss, stating separately actual cash value and loss to each item.”

The Court of Appeals affirmed. Its reasoning, in order:

1. Awards are hard to unwind. “There exists a presumption in favor of the regularity and fairness of appraisement awards, and it is difficult to set them aside.” Absent evidence of “fraud, oppression, irregularity, or unfairness, other than on the disputed issue of value,” a verdict in the amount of the award “is demanded,” and an appellate court will not correct the amounts “except in case of gross error showing prejudice, corruption or plain mistake.”
2. “Item” is not defined, and no Georgia case had construed it. The court said so plainly: “the parties have not cited, nor have we discovered, any Georgia authority interpreting the requirement to itemize.”
3. The duty to itemize falls on the insured, not on the umpire. The standard policy tells the insured to “furnish a complete inventory,” but “[t]he pertinent language in the standard policy concerning what the umpire must do simply does not explicitly place such a duty on the umpire as it does on the insured; nor does the policy between the Bells and Liberty Mutual require such itemization.”
4. “Item” means what the face of the policy insures. Following decisions from other states and federal circuits, the court described Commercial Union Ins. Co. v. Ryals, where the panel looked to the policy’s coverage provision and found only one item — “Building(s)” — so that “an itemized account of the components which made up the damaged building was unnecessary; it was proper for the appraisers to compute the loss to the building as one item.” Here the umpire issued three awards matching the coverage sections — additional living expenses, personal property, and real property — and for each stated the actual cost value, the total depreciation, and the replacement cost value.
5. Two more arguments died on preservation, not on the merits. The Bells’ claim to the full policy limits under O.C.G.A. § 33-32-5 (the total-loss provision) and their bad-faith claim under O.C.G.A. § 33-4-6 were both matters “the trial court did not rule on,” so “nothing is presented for our review.” The umpire had found the house was not wholly destroyed in the fire.

What it did NOT decide

• It did not decide what an appraisal panel may take up. The only question was the form of an award the process had already produced. The opinion never touches the line between value and liability drawn in McGowan v. Progressive, and it says nothing about what a panel may do when the carrier has denied part of the loss.
• It did not announce a Georgia definition of “item.” The court said the word “is not defined in the standard policy” and that “the parties have not cited, nor have we discovered, any Georgia authority interpreting the requirement to itemize.” Its holding is stated in the negative — the standard policy’s language “does not explicitly place such a duty on the umpire as it does on the insured,” so there was “no error in the trial court’s failure to impose upon the umpire a duty for which the parties had not specifically contracted.” The line about computing “the loss to the building as one item” is the court’s account of an out-of-state decision it found persuasive, not a rule it laid down for Georgia.
• It did not decide whether the standard fire policy is read into a homeowner’s policy. The Bells’ whole argument depended on it: they “assert that their policy must be construed so as to conform to the state standard fire policy.” The court answered without resolving that question, holding instead that even the standard policy’s own words impose no itemization duty on an umpire.
• It did not decide the total-loss or the bad-faith question. The claim to policy limits under O.C.G.A. § 33-32-5 and the claim under O.C.G.A. § 33-4-6 both died the same procedural death: “The trial court did not rule on this issue, and therefore nothing is presented for our review.” Neither was decided on the merits, and the opinion does not review the umpire’s finding that the house was not wholly destroyed in the fire. For the valued-policy statute itself, see Georgia Farm Bureau v. Brown and Georgia Farm Bureau v. Franks.
• It did not hold that an award is unreviewable. The opinion recites the routes that stay open — an award “may be attacked for any reason that would void a contract, as well as for fraud in the arbitration or in either party in obtaining the award, for a palpable mistake of law or for deciding any matter by chance or lot,” and an appellate court will correct the amount “in case of gross error showing prejudice, corruption or plain mistake.” The Bells offered nothing of that kind beyond their argument about the form, so none of those routes was tested.
• It did not bless a bare number. Each award here separately stated “the actual cost value, the total depreciation, and the replacement cost value,” and each matched a coverage section on the face of the policy. An award consisting of one undifferentiated figure with no breakdown at all is not the document this court approved.

Why it matters to policyholders

The Bells lost, and the proposition cuts both ways depending on who wants the detail. Read Bell the way a carrier reads it and it stands for this: an appraisal award enjoys a presumption of regularity, a low award is close to unappealable without fraud or gross error, and courts will not add duties to an appraisal clause that the contract does not contain. Every word of that is accurate, and it is the reason the fight worth having is over the choice of appraiser and the evidence put in front of the panel, not over the award afterward.

The policyholder use of Bell comes from the same sentence read from the other side. When an insurer argues that a panel may value only the fragments the carrier has conceded — these shingles, that room, this slope — Bell is the answer that the covered “item” in a property policy is the thing the coverage section names. Where that item is the building, the appraisers may “compute the loss to the building as one item.” A panel that prices the whole dwelling is doing what the policy asks, not exceeding its assignment. That reading sits alongside Clary v. Allstate, where the panel priced all repairs needed to restore the property, and Omni v. Zurich, where the panel set the amount of loss and coverage was applied afterward.

Two cautions so this page is not over-read:

• Bell is about the form of an award, not about what a panel may decide. It does not touch the boundary McGowan v. Progressive drew between value and liability, and it does not overrule the pleading-stage result in Lam v. Allstate.
• The itemization discussion rests on out-of-state authority. The court said no Georgia case had construed the requirement, distinguished the California decision the Bells relied on, and then followed Alabama, Michigan, and federal decisions. Persuasive reasoning adopted by a Georgia court is worth citing; it is not the same as a Georgia rule with a long line behind it.

Three things a policyholder can do with this, before an appraisal starts:

• If you want the award broken out, agree to the form up front. Bell distinguished Kacha v. Allstate on exactly that ground — there, the parties had agreed the award would list specific items. Nothing stops the two sides from agreeing to a format; the contract just does not impose one.
• Ask for the estimate behind the number. A one-line award is valid, but it is difficult to apply later. In Omni, a signed award said $886,795.57 and the parties spent years fighting over what that figure included; what settled it was the summary attached to the award.
• Get the trial court to rule on everything you raise. Two of the Bells’ three arguments were never decided below, so the Court of Appeals could not reach them.

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