Meyer v. State Farm Fire & Caualty Co.
85 Md. App. 83, 582 A.2d 275 (1990)
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Rule of Law:
An appraisal clause in an insurance policy, which requires disputes over the amount of loss to be resolved by appraisers rather than a jury, is a valid and enforceable form of arbitration that does not unconstitutionally deprive the insured of their right to a jury trial, even within a contract of adhesion.
Facts:
- Appellants purchased a fire insurance policy from the appellee insurance company.
- The policy contained a clause requiring that if the parties could not agree on the amount of a loss, the amount would be determined by a three-person appraisal panel.
- The policy also stated that no lawsuit could be brought unless the policy's provisions, including the appraisal clause, were complied with.
- A fire occurred at the appellants' home, resulting in a covered loss.
- Appellants and the insurance company were unable to agree on the amount of the loss.
Procedural Posture:
- The insurance company sought to invoke the policy's appraisal process to resolve the dispute over the amount of loss.
- Appellants filed a lawsuit for damages against the insurance company in the Circuit Court for Wicomico County, a state trial court, seeking to bypass the appraisal process.
- The company filed a motion to dismiss, arguing that the appellants failed to state a claim upon which relief could be granted because they had not complied with the appraisal clause, which was a condition precedent to filing suit.
- The trial court granted the company's motion and dismissed the action.
- Appellants, the insureds, filed this appeal to the Court of Special Appeals of Maryland, an intermediate appellate court.
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Issue:
Is an appraisal clause in a fire insurance policy, which makes appraisal a condition precedent to a lawsuit, an unconstitutional deprivation of the insured's right to a jury trial when the policy is a contract of adhesion and the insured was allegedly unaware of the provision?
Opinions:
Majority - Wilner, Chief Judge
No. Enforcement of a standard appraisal clause in an insurance policy is not an unconstitutional deprivation of the right to a trial by jury. Maryland courts and the U.S. Supreme Court have long upheld such clauses as valid and enforceable conditions precedent to a lawsuit. The clause is considered a form of arbitration, which is a favored method of dispute resolution that does not oust the jurisdiction of the courts entirely but provides a reasonable method for determining the amount of loss, leaving the question of general liability for judicial determination. While the policy is a contract of adhesion, the appraisal clause is not unconscionable, ambiguous, or hidden, and the fact that a contract is one of adhesion does not automatically invalidate its terms. Allowing a party to escape an arbitration or appraisal clause by claiming unawareness would undermine the viability of this favored dispute resolution method in numerous common contracts, which is contrary to public policy.
Analysis:
This decision reinforces the strong public policy favoring arbitration and alternative dispute resolution, even within contracts of adhesion like insurance policies. It clarifies that a constitutional right, such as the right to a jury trial, can be validly waived through a contractual clause without the party's specific, subjective awareness of that clause, provided the clause itself is not unconscionable, fraudulent, or ambiguous. This ruling makes it very difficult for parties to adhesion contracts to evade arbitration clauses by simply claiming they didn't read or understand the contract's terms, thereby strengthening the enforceability of standard-form arbitration agreements.
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