Harwell v. Home Mutual Fire Insurance Co.

Supreme Court of South Carolina, No. 17115, decided February 6, 1956 (Oxner, J., for the Court; Stukes, Taylor and Legge, JJ., and Joseph R. Moss, Acting Associate Justice, concurring). The complete opinion appears below, transcribed from the official reporter via the Caselaw Access Project — Harvard Law School’s open archive of published U.S. case law at case.law. The authority link points to Justia’s copy of the same decision, which is freely readable without an account. The source carries no reporter syllabus or headnotes; the caption, docket number, counsel listing, and filing date printed above the opinion are included here as the reporter printed them. Only print and scanning artifacts have been touched: page headers, star-page markers, hyphens that came from line breaks, spaces the old typesetting left before colons and question marks, and a handful of plainly mis-scanned letters. No word of the Court’s has been changed, condensed, or paraphrased.

The full opinion

LACY RANKIN HARWELL, Respondent, v. HOME MUTUAL FIRE INSURANCE COMPANY, Appellant. Supreme Court of South Carolina. No. 17115. (91 S.E. (2d) 273.) February 6, 1956.

Messrs. Royall & Wright and Emil T. Cannon, of Florence, for Appellants. George W. Keels, Esq., of Florence, for Respondent.

Oxner, Justice.

This is a suit on a fire insurance policy covering a house in Florence, South Carolina, owned by respondent. The question for determination is whether the action is barred by the refusal of the insured to comply with the following provision in the policy relating to the method of determining the amount of the loss:

“Appraisal. In the 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.”

It is further stipulated in the policy:

“When Loss Payable. The amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company and ascertainment of the loss is made either by agreement between the insured and this Company expressed in writing or by the filing with this Company of an award as herein provided.

“Suit. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss.”

One room of the house insured was damaged by fire on or about December 2, 1953. It is admitted that the policy was then in full force and effect. Shortly thereafter a disagreement arose as to the amount of the loss. Insured claimed that the damage was $475.64, while the Company asserted that it only amounted to $105.05. By letter dated December 29, 1953, the Company requested that the amount of the loss or damage be submitted to appraisers in accordance with the terms of the policy, named the appraiser which it had selected and asked insured to nominate her appraiser. Insured flatly refused on January 2, 1954 to engage in such appraisal procedure. In this letter her attorney stated: “It is my opinion that the appraisal clause in this policy cannot oust the jurisdiction of this Court, and I have advised her (his client) that it is not necessary that she go to the expense of paying someone to appraise this damage.” Insurer’s demand for an appraisal was repeated on January 4th and again refused on January 8, 1954, upon the ground that the “appraisal clause cannot oust the Court of jurisdiction.”

On April 9, 1954, the insured instituted this action for the recovery of the sum of $475.64 which she alleged to be the amount of her loss. An answer was duly filed by the Company in which it denied the amount of damage claimed, and set up as an affirmative defense the refusal of the insured to submit the amount of the loss to appraisers as stipulated in the policy, which provision it asserted was a condition precedent to the right of maintaining the action.

The case was tried in April, 1955. It appears from the evidence that a fire had previously occurred in the same room of this house on January 31, 1948, and a factual issue arose as to how much of the existing damage was attributable to the fire of December 2, 1953 and how much to the previous fire of January 31, 1948. The Company moved for a directed verdict upon the ground that the insured refused to comply with the policy provision for determining the amount of the loss. The motion was overruled and the case submitted to the jury, resulting in a verdict for the insured in the sum of $241.80. Later the Company made a motion for judgment non obstante veredicto upon the same ground upon which it made the motion for a directed verdict. This motion was overruled. The trial Judge held that the appraisal clause was void as contrary to public policy in that it constituted an attempt by contract to oust the courts of jurisdiction. From the judgment entered on the verdict found by the jury, the Company has appealed.

We think the validity of the appraisal provision in the policy is fully sustained by the well-considered case of Jones v. Enoree Power Co., 92 S. C. 263, 75 S. E. 452, 454. There the plaintiff agreed that the amount of any damage to his land caused by the raising of defendant’s dam should be settled by arbitration. Thereafter, disregarding the agreement, he brought an action for damages and asserted that the arbitration agreement was invalid. In holding that he was bound by such agreement, the Court said:

“As to the validity of such contracts, the authorities with entire unanimity now lay down this rule. An agreement to submit to arbitration all questions of law and fact that may arise under a contract is contrary to the public policy and void, as an attempt to oust the courts of their jurisdiction and establish in their place a contract tribunal. But an agreement that any particular issues of fact that may arise, such as quality of goods or amount of loss or damage, or the like, shall be submitted to arbitration, leaves the question of ultimate liability open for the decision of the courts and is valid; and if the contract expressly or by necessary implication makes the ascertainment of such fact by arbitration a condition precedent to a right of action, it is a good defense to a suit on the contract that the plaintiff has, without such good excuse, failed to arbitrate. Freedom to contract for arbitration to this extent imports no invasion of the province of the courts, and there is no ground upon which a right so essential to the convenient transaction of modern business affairs can be denied.”

In line with the foregoing principles, this Court has in numerous cases recognized the validity of a provision in an insurance policy for arbitration or appraisal as to the amount of the loss. In Orenstein v. New Jersey Insurance Co., 131 S. C. 500, 127 S. E. 570, 574, it was held that not only the insured but a creditor to whom the policy had been delivered as collateral security for a debt and in whose favor there was attached to the policy a short form of “loss payable” clause, was bound by an appraisal made under the terms and conditions of the policy. The Court said “that in cases where the policy provides a method for determining the amount of loss, such provisions are binding upon the parties thereto.”

The overwhelming weight of authority elsewhere likewise sustains the validity of a stipulation in a policy requiring that any difference of opinion as to the amount of loss shall be submitted to appraisers to be chosen in accordance with the policy provisions. 29 Am. Jur., Insurance, Section 1240; 45 C. J. S., Insurance, § 1110; Appleman, Insurance Law and Practice, Volume 6, Section 3921; Restatement, Contracts, Section 551. One of the leading cases on this question is Hamilton v. Liverpool & London & Globe Insurance Co., 136 U. S. 242, 10 S. Ct. 945, 949, 34 L. Ed. 419. It was there stated: “Such a stipulation, not ousting the jurisdiction of the courts, but leaving the general question of liability to be judicially determined, and simply providing a reasonable method of estimating and ascertaining the amount of the loss, is unquestionably valid, according to the uniform current of authority in England and in this country.”

Where a policy provides that in case of any difference of opinion as to the amount of loss it shall be submitted to arbitrators to be chosen as therein directed, but does not make compliance with such provision a condition precedent to an action on the policy, the provision is simply a collateral condition, compliance with which is not necessary before a suit can be maintained on the policy; and a breach of such agreement, while it will support a separate action, cannot be pleaded in bar to an action on the policy. Hamilton v. Home Insurance Co., 137 U. S. 370, 11 S. Ct. 133, 34 L. Ed. 708. But where the policy expressly or by necessary implication forbids the insured from bringing suit until after the amount of the loss has been submitted to arbitration or appraisal, compliance with such provision, if demanded by the insurer, is a condition precedent to the right of insured to maintain an action on the policy unless arbitration or appraisal is waived by the insurer or there is a legal excuse for non-compliance. Hamilton v. Liverpool & London & Globe Insurance Co., supra; Appleman, Insurance Law and Practice, Volume 20, Section 11431; 29 Am. Jur., Insurance, Section 1242; 46 C. J. S., Insurance, § 1247.

The following cases hold that provisions similar to those contained in the policy before us constitute a condition precedent and no action can be maintained on the policy where the insured has refused to comply with a demand for arbitration. Ford v. Grocers’ Mut. Ins. Co., D. C., 4 F. Supp. 911; Western Assur. Co. v. Hall, 112 Ala. 318, 20 So. 447; Southern Home Ins. Co. v. Faulkner, 57 Fla. 194, 49 So. 542, 113 Am. St. Rep. 1098; National Fire Ins. Co. v. Lam, 34 Ga. App. 246, 129 S. E. 116; Zalesky v. Home Ins. Co., 102 Iowa 613, 71 N. W. 566; North British & Mercantile Insurance Co. v. Robinett & Green, 112 Va. 754, 72 S. E. 668.

The Constitution of this State, Article VI, Section 1, directs the General Assembly to enact laws providing for arbitration. This has been done. Sections 10-1901 to 10-1905, inclusive, of the 1952 Code. But such a statute does not abrogate the common-law right to make an agreement for arbitration and as pointed out in Jones v. Enoree Power Co., supra, 92 S. C. 263, 75 S. E. 452, 453, an arbitration under such agreement falls “entirely without the statute enacted by the General Assembly under the mandate of the Constitution.”

There is some suggestion in the order of the trial Judge that an agreement for an arbitration or appraisal of this kind may be revoked by either party at any time before the award. A similar contention was made and overruled in Jones v. Enoree Power Company, supra.

It follows that this action was prematurely brought and that the Court erred in refusing appellant’s motion for a directed verdict. This conclusion is without prejudice to the right, if any, of respondent to bring another action on the policy after compliance with the stipulation as to appraisal.

Judgment reversed and case remanded for entry of judgment in favor of appellant under Rule 27.

Stukes, Taylor and Legge, JJ., and Joseph R. Moss, Acting Associate Justice, concur.

What it decided

A fire damaged one room of Lacy Rankin Harwell’s house in Florence on December 2, 1953. She put her loss at $475.64. Home Mutual put it at $105.05. On December 29 the company demanded appraisal under the policy, named its own appraiser, and asked her to name hers. Her lawyer wrote back on January 2, 1954 that “the appraisal clause in this policy cannot oust the jurisdiction of this Court” and that she would not pay someone to appraise the damage. The company demanded again on January 4. She refused again on January 8. She sued on April 9, and in April 1955 a jury awarded her $241.80.

The Supreme Court took the verdict away. Not because she was wrong about the fire. Because she had sued too soon.

Two rules did the work. The first is about validity. An agreement to send every question of law and fact to a private tribunal is void in South Carolina as an attempt to oust the courts. An agreement to send one class of fact question — “quality of goods or amount of loss or damage, or the like” — is valid, because it “leaves the question of ultimate liability open for the decision of the courts.” An appraisal clause is the second kind, so the trial judge was wrong to strike it down.

The second rule is about timing, and it is the one that decided the case. Where a policy “expressly or by necessary implication forbids the insured from bringing suit until after the amount of the loss has been submitted to arbitration or appraisal, compliance with such provision, if demanded by the insurer, is a condition precedent to the right of insured to maintain an action on the policy unless arbitration or appraisal is waived by the insurer or there is a legal excuse for non-compliance.” Harwell’s policy said no suit “unless all the requirements of this policy shall have been complied with.” The insurer had demanded. She had refused. So the action “was prematurely brought,” and the directed verdict should have been granted.

The Court then added the sentence policyholders should read twice: the reversal was “without prejudice to the right, if any, of respondent to bring another action on the policy after compliance with the stipulation as to appraisal.” Her claim was not killed. Her lawsuit was.

What it did NOT decide

• It did not hold that every appraisal clause blocks a lawsuit. Harwell draws a hard line between two kinds of policies. Where the policy does not make appraisal a condition precedent, the clause is “simply a collateral condition, compliance with which is not necessary before a suit can be maintained on the policy,” and a breach of it “cannot be pleaded in bar to an action on the policy.” The result turns on the words in your policy, not on the word “appraisal.”
• It did not let appraisers decide coverage. The clause survives only because it is confined to a fact question. The whole authority the Court relied on rests on the distinction between “particular issues of fact” and “the question of ultimate liability,” which stays with the courts. Nothing in Harwell converts an appraisal panel into a coverage tribunal.
• It did not decide whether appraisers could separate the two fires. The same room had burned once before, on January 31, 1948, and the trial raised a real question about how much of the damage belonged to which fire. The jury heard that issue. The Supreme Court never reached it — the holding is that the suit was premature. Harwell is not authority on what a panel may do with a causation dispute between two events.
• It did not decide waiver or excuse. The Court wrote both escape hatches into the rule — appraisal “waived by the insurer” or “a legal excuse for non-compliance” — and applied neither, because Harwell had not argued either. She argued the clause was void.
• It did not touch the policy’s twelve-month suit deadline. The opinion quotes the clause requiring suit “within twelve months next after inception of the loss,” then says nothing about how that deadline interacts with the months an appraisal consumes. Georgia has answered its own version of that question — see Peeples v. Western Fire, decided in 1957 — but that is Georgia law, not South Carolina law, and Harwell left the South Carolina question open.
• It said nothing about bad faith, penalties, or fees. No such claim was pleaded, and South Carolina’s attorney’s-fee statute did not yet exist in this form — the History note on § 38-59-40 traces it to a 1972 act.

Why it matters to policyholders

If your carrier makes a written appraisal demand on a South Carolina property policy, do not ignore it. Harwell’s lawyer had a theory, argued it twice in writing, won a jury verdict with it, and lost the whole judgment on appeal. Naming an appraiser costs a fee. Refusing to name one cost her the case.

The clause cuts both ways, and the policy usually says so. The provision quoted in Harwell lets either party make the written demand. When an insurer concedes the fire, the wind, or the water, and simply writes a number far below the cost to repair, that gap over the amount is exactly what the clause was written to resolve — and Harwell is the decision that says South Carolina enforces it.

An award fixes the number. It does not decide whether you are owed. That limit is not a policyholder talking point; it is the reason the clause is legal at all. Coverage disputes, exclusions, and the insurer’s conduct stay where the Court said they stay.

Read Harwell as the 1956 decision it is. It is the Supreme Court of South Carolina speaking on appraisal validity, and its two rules are stated plainly enough to quote. It was also decided before the General Assembly built the modern claim-practices machinery, so it is the beginning of the analysis and not the end of it. Today a South Carolina policyholder facing an unreasonable insurer also has § 38-59-20, which lists eight prohibited claim practices — including “not attempting in good faith to effect prompt, fair, and equitable settlement of claims … in which liability has become reasonably clear” — and § 38-59-40, which after a 90-day demand can add attorney’s fees of up to one-third of the judgment when a judge finds the refusal to pay was “without reasonable cause or in bad faith.” Subsection (3) of that statute expressly preserves the doctrine of Tyger River Pine Co. v. Maryland Casualty Co..

Where a public adjuster fits. We document the damage, build the estimate the carrier has to answer, negotiate, and handle appraisal — naming and working with a competent and disinterested appraiser, and taking differences to the umpire when the appraisers cannot agree. Suing an insurer, pleading bad faith, and claiming fees under § 38-59-40 are lawyer work; when a claim needs that, we refer it out. More South Carolina law, in full text, is on the South Carolina claim-law page.

Now you know the rule. Enforcing it against a carrier is a different job — and it's ours. A free, confidential case review by a licensed public adjuster takes three taps.

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