
    The Royal Insurance Company v. Ries.
    
      Condition in insurance policy — That disagreement as to loss be-determined by appraisers — Insured may sue on disagreement as to appraisement — Cannot recover 'larger amount than appraisenfent, when — Difference between appraisement and arbitration— Effect of appraisers refusing to hear evidence.
    
    1. Where in a policy of insurance it is made a condition precedent that in case of .disagreement as to the amount of loss it shall be determined by appraisement, the insured may bring suit upon the policy, averring' in his petition the performance of all conditions on his part, and when the insurer pleads in 'its. answer the disagreement and the determination of the amount by appraisement, and the provisions of the policy as to concurrent insurance, the amount the plaintiff may recover is limited to a proportionate amount of the loss so determined, and he cannot recover a larger amount unless the appraisement is void or is set aside. • If it is void, he may plead its invalidity in his reply, but if it is only voidable he should in his petition unite a cause of action to set it aside.
    2. The provision in a standard fire insurance policy that “In the event of disagreement as to the amount of loss the same shall, as above provided, be ascertained by two competent and disinterested appraisers, the insured and this company each selecting one, and the two so chosen shall first select a competent and disinterested rtmpire; the appraisers together shall then estimate and appraise the loss, stating, separately sound value- and damage, and, failing to agree, shall submit their differences to the umpire; and the award in writing of any two shall determine the amount of such loss; the parties thereto shall pay the appraiser respectively selected by them and shall beat equally all expenses of the appraiser and umpire,” is a pro.vision for an appraisement and not for an arbitration, and such submission is not to be judged by the strict rules applicable to arbitration and award, and where the appraisers and umpire have before them a list of the property destroyed, and the insured’s statement in detail in respect to his loss, it is not ground for setting aside the appraisement that they refuse to hear evidence.
    (No. 11173
    Decided April 27, 1909.)
    Error to the Circuit Court of Wood county.
    The plaintiff in error insured one Henry Ries for the term of one year, against loss or damage by fire, in the sum of two thousand dollars on agricultural implements and other personal property, while contained in a frame storage building in Bowling Green, ■ Ohio. The building and property were destroyed by fire, and at' the time of the fire there was concurrent insurance in the sum of four thousand dollars. In January, 1905, he commenced this action upon the policy issued by the plaintiff ill error to recover the full amount of the insurance therein specified, averring that he had complied with and performed all of the conditions in the policy of insurance to be by him performed; that immediately after the fire he hád given notice in writing to the plaintiff in error of the loss, and that he had furnished plaintiff in error with due proofs of loss.' The answer, in addition to other matters of defense, averred that the policy provided that in the event of disagreement as to the amount of loss and damage to the property, the same should be determined by three competent and disinterested appraisers, the insured and the insurer each to select one, and that the two’ so chosen should first select a competent and disinterested umpire; that the appraisers should then estimate and appraise the loss, stating separately sound value and damage, and failing to agree should submit their differences to the umpire; and that the award in writing of any two should determine the amount of the loss. It is then averred that the parties disagreed and that they entered into a written agreement for the submission to appraisers of the amount of the loss and damage; that each selected an appraiser and that the two, so selected, selected an umpire, and that the appraisers and the umpire, acting under the agreement, made an award in writing, by which they determined the sound value to be $1312 and the loss and damage to be one thousand dollars. It is also averred that at the time of the loss, Henry Ries had other concurrent insurance in the sum of four thousand dollars; that it was provided by the policy that the plaintiff in error should not be liable for a greater proportion of any loss on the property insured than the amount thereby insured should bear to the whole insurance, and that the plaintiff in error had tendered to Henry Ries the sum of $333.34 in payment and full settlement of all liability under the policy of insurance and the award
    Plaintiff by reply admitted these averments of the answer and averred that the award was unfair to plaintiff, was made improperly, was not in accordance with the terms and provisions of the policy, nor of the submission, and was, therefore, illegal, void and of no effect; that the appraiser selected by the defendant was neither competent nor disinterested, but was partial, biased and prejudiced in favor of the defendant, and that he exercised undue influence and control over the umpire and the other appraiser; that the appraisers did not permit the plaintiff to offer evidence or to be heard, although he had requested of them that he be permitted to do so before said appraisers began the appraisement; that neither of the appraisers had seen the property destroyed, that the property was wholly destroyed and that they never had before them any proper evidence of its value; that neither of said appraisers, nor said umpire, ever viewed the property, nor were they disinterested or competent, and that immediately upon the return of said award, plaintiff notified defendant that the award was void. The plaintiff further avers that if he had been permitted to offer proof of the amount of his loss to the parties making said award that he would have proven his loss and damage in the sum of ten thousand dollars.
    At the close of the evidence the trial judge said:
    “After the close of all the evidence and before argument, the court holds that the defense to the appraisement and award set up in the answer is invalid on account of the incompetency of one appraiser, C. H. Draper, and the umpire, and misconduct of the company in submitting to the appraisers and umpire the sworn statement of the plaintiff made upon the application of the company after the alleged loss. Also for the reason that the umpire never viewed the remains of the loss, but inquired of newspaper men as to the amount of the loss, whom he said he supposed knew everything, and had no special knowledge as to the fire or the matters in controversy. Also the award is not based upon proper evidence, and that the umpire and appraisers were dominated by the company’s appraiser, Fred Storm. This award being invalid for the reasons stated, I decline to submit the question to the jury.”
    
      The defendant requested the court to submit this issue to the jury and objected and excepted to the ruling of the court. The court then instructed the jury that the proofs of loss were sufficient, and the sole question submitted to the jury was the amount of plaintiff’s loss. The jury found the cash value of the property before the fire to be $5015.98, and its value after the fire to be $312, and assessed the amount due plaintiff from the defendant at $1567.66 with $185.77 interest on the same.'
    The court found the amount of the verdict • ever and above $1336 excessive, and the plaintiff having remitted all in excess of that amount, the court overruled the motion for a new trial and entered judgment for $1336 with interest thereon from September 26, 1906. On error the judgment was affirmed in the circuit court, the defendant in error having remitted all in excess of $1010 with interest
    
      Mr. J. W. Mooney and Mr. Guy C. Nearing, for plaintiff in error.
    Having sought to avoid the award on the grounds of fraud it became á question for the jury. If the award was voidable and riot void, then the award would have to be set aside by a court of chancery before a recovery could be had in excess of the award. These propositions have been settled by this court in the recent case of Perry v. O’Neil & Co., 78 Ohio St., 200.
    Under the provisions of the policy of insurance providing for an appraisal and under which the award was rendered in this case, the appraisers may examine witnesses under oath, or they may not examine witnesses at all. They may seek information from any source which commends itself to their judgment. They may inspect books. They may examine 'the premises and remains of' the property, and they may base their judgment on the physical appearance of the prop7 erty, or oral statement, or both.
    The appraisers may pursue any method which. their judgment approve, and the court, in the absence of fraud, can not set aside the award. The appraisers are the tribunal which the parties have chosen and under whose findings they are concluded. Th~ appraisers may over or under . estimate the loss and the court can not control their judgment, nor, in the absence of fraud, change 'or annul what they have done. Clement on Fire Insurance, 177; Paper Co. v. Assurance Co., 12 App. Div., 218, 43 N. Y. Supp., 431; Stenvmer v. Insurance Co., 33 Ore., 65, 53 Pac. Rep., 498, 27 Ins. Law Journal, 972; Insurance Co. v. Traub, 80 Md„ 214, 30 Atl. Rep., 904; Brush v. Fisher, 70 Mich., 469; Insurance Co. v. Drackett, 63 Ohio St., 41; Kerr on Fraud and Mistake, 446; Sweet v. Morrison, 116 N. -Y., 19; Tucker v. Allen, 47 Mo., 490; 2 Pomeroy Eq. Jur., 349; Thornton v. McCormick, 75 la., 285; Masury v. 'Whiton, 111 N. Y-, 679; Joyce on Insurance, Section 3247; Dun v: Insurance Co., 10 O. D., 667, 52 Ohio St., 639; Ostrander on Fire Insurance, Section 282; De Groot v. Insurance Co., 4 Rob. (N. Y.), 504; Hall v. Insurance Co., 57 Cor-n 105, 17 Atl. Rep., 356, 18 Ins. Law Tournal. 518; Fleming v.' Insurance Co., 75 Hun, 530; Goddard v. King, 40 Minn., 164.
    If their award must 'be made comformable to what would have been the iudgment of this court in the case, it would render arbitration useless and vexatious and a source of great litigation. They (the courts) have only looked to see if the proceedings were honestly and fairly conducted, and, if that appears to be the case, they uniformly and universally refused to interfere with the judgment of the arbitrators. 4 Joyce on Insurance, Section 3247; Brink v. Insurance Co., 5 Rob. (N. Y.), 104; Vincent v. Insurance Co., 120 la., 272, 94 N. W. Rep., 458; Insurance Co. v. Goehring, 99 Pa. St., 13; Goddard v. King, 40 Minn., 164; Bates v. Assurance Co., 100 Ga., 249, 28 S. E. Rep.,. 155; Insurance Co. v. Landeau, 62 N. J. Eq., 73; Insurance Co. v. Brehm, 88 Ind., 578; Insurance Co. v. Mercantile Co., 56 Fed. Rep., 378; Robertson v. Insurance Co., 73 Fed. Rep., 928; Barnard v. Insurance Co., 101 Fed. Rep., 36; Thornton v. McCormick, 75 la., 285; 4 Cooley’s Briefs on .Insurance, 3631, 3650, 3651.
    
      Messrs. lames & Kelly, for defendant in error.
    If the award was invalid because of fraud, incompetency or otherwise it was not the duty of the plaintiff to set forth in his petition two causes of action, one an equitable cause of action setting forth this fraud, and a second cause of action to recover the amount due on the policy. Insurance Co. v. Romeis, 15 C. C., 679; Davis v. Assurance Co., 16 Wash., 232; Kahnweiler v. Insurance Co., 67 Fed. Rep., 483; Soars v. Insurance Co., 5 N. E. Rep., 149, 140 Mass., 343.
    If the arbitration covers only the amount of the loss, and not the liability of the company under the policy, such objection is not available. Insurance Co. v. Badger, 53 Wis., 283, 10 N. W. Rep., 504; Insurance Co. v. Hull, 51 Ohio St., 270.
    In an action upon a policy of insurance to which a plea of release or settlement has been interposed by the defendant, the plaintiff may, under the code system set up in his reply that the release or settlement was procured by fraud, and is not required first to obtain a decree in equity cancelling the release before instituting an action upon the policy. Sanford v. Insurance Co., 11 Wash., 652, 40 Pac. Rep., 609; O’Brien v. Railway Co., 57 N. W. Rep., 425; Pipe & Steel Co. v. Copple, 22 S. W. Rep., 323; Butler v. Railroad Co., 88 Ga., 594; Sheanon v. Insurance Co., 83 Wis., 507, 53 N. W. Rep., 878; Bean v. Railroad Co., 107 N. Car., 731; Railway Co. v. Higgins, 44 Ark., 293; Lusted v. Railway Co., 71 Wis., 391; Railway Co. v. Lewis, 109 111., 120; Railroad Co. v. Doyle, 18 Kans., 58; Packet Co. v. Defries, 94 111., 598, 34 Am. Rep., 245; Bussian v. Railway Co., 56 Wis., 325, 14 N. W. Rep., 452; O’Neil v. Iron Co., 63 Mich., 690, 30 N. W. Rep., 688; Clough v. Holden, 115 Mo., 336, 37 Am. St. Rep., 393; Girard v. Wheel Co., 27 S. W. Rep., 648; Davis v. Assiirance Co., 16 Wash., 232.
    Two arbitrators, after hearing the evidence and arguments, being unable to agree, chose an umpire to act as third arbitrator, and the three met without notifying the parties of the appointment of the third arbitrator, or of the time and place of meeting, giving no opportunity to the parties to be heard, held, that their action, though believed by themselves to be lawful and proper, was misconduct in the sense of the law and fatal to the- validity of the award. Thomas v. Railroad Co., 24 N. J. Eq., 567; 6 C. E. Green, 205; 8 C. E. Green, 431.
    In the determination of the dispute and differences between parties by arbitration, while it is a sort of quasi judicial proceeding, the rules governing proceedings before a judicial tribune must be recognized so far as an opportunity and the • right to be heard by the parties beiore such arbitrators are concerned.
    The submission of the differences and disputes to arbitration takes the place of a hearing before a court, but the parties are entitled to submit their proofs and to be heard upon such differences and disputes. And the proceedings before arbitrators without notice to the parties and without production of evidence would be a libel upon justice and the determination would be without any force or effect, so far as to bind the parties interested in any such award. 6 Waite’s Actions and Defenses, 522; Wood & Co. v. Helme, 14 R. L, 325.
    Whether it be a statutory or a common law arbitration, the exclusion of proper testimony is fatal to the award. Van Courtland v. Under-hill, 17 John. (N. Y.), 405; Ostrander on Fire Insurance, 462; Vessell Owners Co. v. Taylor, 126 111., 250.
    When the prevailing party in an arbitration proceeding after announcing his case as closed, and after the arbitrators have stated that no further testimony will be heard, produces evidence which is received without notice to, or any opportunity afforded to the losing party to hear ■ or reply to such evidence, this is sufficient ground for setting aside the award without any charge or evidence by the unsuccessful party that he is injured thereby. Jackson v. Roane, 90 Ga., 669, 35 Am. St. Rep., 238; Day v. Hammond, 57 N. Y., 479; Luts v. ■ Linthicum, 8 Pet., 178.
    The duties of an umpire are the same as the duties of an arbitrator, and when the arbitrators and umpire meet to determine upon the reward, the parties are entitled to a notice and' to a rehearing of the entire matter, the same as in proceedings before arbitrators alone. Day v. Hammond, 57 N. Y., 479; Elmendorf v. Elarris, 23 Wend., 628; Russell on Power and Duty of Arbitrators, 228; Coons v. Coons, 95 Va., 434.
    The refusal of an arbitrator to hear testimony which is pertinent and material, is sufficient misconduct to authorize the setting aside of his award, although he may think he has sufficient other evidence. Halstead v. Seaman, 82 N. Y., 27.
    It was necessary for the arbitrators and umpire to fix a time of hearing and give notice to both parties and that the parties should give evidence before them. It was also necessary that the arbitrators and umpire should make a personal examination of the premises and get all the light that they could in reference to the loss and damage sustained by the insured; and if they make up their award without hearing evidence and using other reasonable means to ascertain the extent and amount of the loss, they are guilty of misconduct which renders the award invalid and void. Insurance Co. v. Mercantile Co., 44 Fed. Rep., 131; Insurance Co. v. Romies, 15 C. C, 697; Adams v. Insurance Co., 85 la., 6:
    
   Summers, J.

In Phoenix Insurance Company v. Carnahan, 63 Ohio St., 258, it is held that, “A condition in a policy of insurance against fire, that in case of loss and a disagreement or difference between the parties as to the amount of the loss, that amount shall be ascertained by arbitration or appraisal, is a proper and valid condition; and where it is also provided that the condition as to arbitration or appraisal must be complied with before a suit can be brought against the insurer, the condition is thereby made a condition precedent, and to entitle the insured to maintain an action to recover under the policy, he must show that he has either performed the condition or has a legal excuse for non-performance thereof.” To the same effect is Graham v. The German American Insurance Company, 75 Ohio St., 374.

The provision in the policy in the present case is identical. It does not appear by the petition that the parties disagreed as to the amount of the loss, but the plaintiff, as he may do under the code, Section 5091, Revised Statutes, averred , that he had performed all the conditions on his part, and when the defendant pleaded the disagreement as to the amount of the loss, the submission to and the determination of that question by the appraisers, and the provision of the policy as to concurrent insurance, in the absence of a reply, the amount that plaintiff might recover was limited to a proportionate amount of the loss so determined by the' appraisers, and he could not recover a larger amount until he got rid of the appraisement. This he might do, if it was void, by a reply pleading its invalidity; but if the plaintiff could not -aver facts that made the appraisement void, but only facts that made it voidable, he should in his petition have united a cause of action to set aside the appraisement. Perry v. The M. O’Neil & Co., 78 Ohio St., 200.

The plaintiff in his reply avers that the appraisal- is illegal, void and of no effect, but as this is not based upon a statement of facts it is merely a legal conclusion, and the many facts thereafter averred would, if proven, only make the appraisement voidable.

The reply tendered a new issue and was a departure. No objection, however, was made and, after the evidence was in, the trial judge properly held that this issue was not for the jury but for the court.

The remaining contention is, that the policy of insurance does not provide for an arbitration, but only for an appraisal of the property to determine the amount of the -loss, and that it was not the duty of the appraisers to hear evidence, but that they might each for himself and in his own way, ascertain the value of the property destroyed, and that the court erred in setting aside the award.

Since the decision in the leading case Scott v. Avery, 5 H. L. Cases, 811, followed in Hamilton v. The Liverpool and London and Globe Insurance Company, 136 U. S., 242, and Hamilton v. Home Insurance Company, 137 U. S., 370, it has been settled that a provision in a policy of insurance that the amount of damage or loss- shall be submitted to arbitration or appraisement and that suit shall not be brought until after an award has been made is valid.

The distinction between an agreement for appraisement and an agreement to submit to arbi- i t'ration may not always be plain. But when the question of the liability of the company under the policy, and every other question is reserved, and the only submission provided for is an appraisal of the property at and after the time of the fire to determine the single question of the amount of the loss, it would seem to be an agreement for an appraisement and not an arbitration. In Fleming v. Phoenix Assurance Company of London, 75 Hun, 530, where the policy contained an identical provision, Dykman, J., says: “They are appraisers and not arbitrators. Their function is to estimate and appraise the loss by personal examination and observation. They have no power or authority to take testimony, and their doing so is not contemplated.” We' think this must have been what the parties contemplated, and if ■ it was intended that the single question of the amount of the loss should be determined by an arbitration, and not by appraisal by appraisers, that the agreement should have so provided.

In Wadsworth v. Smith, L. R., 6 Q. B., 332, where the question was, whether a stipulation, that the certificate of an architect as to a particular matter should be final was an agreement for a submission to arbitration, Blackburn, J., says: “Where by an agreement the right of one of the parties to have or do a particular thing' is made to depend on the determination of a third person, that is not a submission to arbitration, nor is the determination an award; but where there is an agreement that any dispute about a particular thing shall be inquired of and determined by a person named, that may amount to a submission to arbitration, and the determination, though in the form of a certificate, be an award.” In Kelly v. Crawford, 5 Wall., 785, where some^ thing was owing from an agent to his principal, it was agreed that an accountant, named, should ascertain from the books of- the agent the exact amount, and that the amount so ascertained should be final, it is said by. Mr. Justice Field: “The principal objections urged for a reversal of the judgment rest upon the idea that the agreement of September 13, 1861, was a submission to arbitration and the report or statement of Quigg was the award of an arbitrator; and that both are to be judged by the strict rhles applicable to arbitrators and awards. This is, however, a mistaken view of the agreement and report, As observed by counsel, there was no dispute or controversy between the parties to be submitted to arbitration; nor was anything to be submitted to the judgment or discretion of Quigg. The books of .account of the defendants were to determine the amount due; about these there was no controversy. The only duty of Quigg was to examine them as an accountant and to state what they exhibited.” The mere fact of a difference between the parties as to the amount of the loss we do not think makes the submission an arbitration, if an agreement to submit that question to appraisers in the absence of a difference between the parties as to the amount of the loss would not have amounted to an agreement for a submission to arbitration.

In DeGroot v. Fulton Fire Insurance Company, 4 Rob. (N. Y.), 504, where there was an agreement that two persons named, with a third person to be appointed by them, should appraise and estimate at the true cash value, the damage by fire and water to the property insured and that the appraisement and estimate of any two of them in writing as to the amount of such damage should be binding on both parties, without reference to any other matters of difference between them, it is held that, “The value of articles insured may be determined by appraisers appointed under a policy of insurance merely to estimate the damage by a peril insured against in such mode as they think proper. They are not bound by the same rules of strict judicial investigation as arbitrators.”

This case and Fleming v. Phoenix Assurance Company of London, 75 Hun, 530, supra, are cited with approval in Strome v. London Assurance Corp., 20 App. Div. (N. Y.), 571, which is affirmed without report in 162 N. Y., 627.

The above cases are cited with approval in Kaiser v. Hamburg-Bremen Fire Insurance Company, 59 App. Div. (N. Y.), 525, and in the opinion by Laughlin, J., it is said: “Notwithstanding the observation of the court in Fleming v. Phoenix Assurance Co. (supra), to the effect that insurance appraisers are not authorized to take evidence, it would seem that as to items of property wholly destroyed or otherwise not visible or open to inspection, the appraisers must act upon information or evidence, for otherwise they could not make a just estimate of the loss. We think it is a fact that may be taken judicial notice of that it is usual and customary for the owner or his representative to make statements to the appraisers, and their failure in this instance to listen to such statements is some evidence in support of the contention that Vanderwerf was not an unprejudiced, unbiased and disinterested appraiser.” In Liverpool and London and Globe Insurance Company v. Goehring, 99 Pa. St., 13, where an appraisal was made under a somewhat similar agreement, it is said in-the opinion: “These arbitrators or appraisers were chosen by the parties under an agreement in writing duly and deliberately executed, and by the terms of that agreement they were to appraise and estimate the true cash value of the loss. They were chosen because they were practical builders, and were expected to make their own estimates, and from these estimates form their judgment.

“Therefore, that they went to a planing mill to ascertain the price of lumber, and to a tinsmith to learn the price of roofing tin, so far from being evidence of misconduct, was proof of care and consideration- — -of a disposition to inform themselves of the ruling prices of the materials that had composed the building. They examined the ruins, took what measurements were necessary, listened to what information Goehring had to give them, received from him a plan of the building, and, if he is to be believed, he put into their possession an estimate made for him by Greenawalt, an act that looks more like an attempt to improperly influence the arbitrators than'any other in the case. Then, after they got all the information they thought necessary, and they were the sole and exclusive judges of what was necessary, they retired to a room in the hotel, and there by themselves, both parties being excluded, they made their estimate and award,” and it was held that the appraisers were not guilty of the slightest misconduct.

In Zallee v. The Laclede Mutual Fire and Marine Insurance Company, 44 Mo., 530, it is held that “Where the stipulations of a fire insurance policy have actually been complied with, and appraisal of losses had in conformity thereto, the insurance company and the insured should be bound by the result, notwithstanding that the appraisers were not sworn. They acted as appraisers, and not as arbitrators. The reference to them was not a submission to arbitration, in a legal sense, for the purpose of settling and extinguishing a cause of action, but a just and reasonable mode of fixing values — the value of the injured goods before and after the fire, the difference representing the amount of loss or damage.”

The court erred, therefore, in setting aside the appraisement on the ground that the insured was not given a hearing.

The agreement does not provide that the appraisers and the umpire shall be experts, and there is no evidence warranting the finding that they were incompetent. They were to be competent and disinterested and the evidence fails to show that they were not. There is room for suspicion that the appraiser selected by the insurer was partisan and conceived it to be his duty to obtain a low estimate, but the proof does not show either misconduct or interest. The insured interviewed several persons with a view to the selection of one of them as umpire, and the appraiser learning this may have, merely from a sense of duty, urged the selection of the umpire from Toledo, and the other appraiser after proper inquiry joined in the selection. The appraisers together ■ inspected what was left of the property, old junk or salvage they termed it, and agreed as to its value. The umpire was only required to appraise what they could not agree upon, and as what they did not agree upon was not in existence, his failure to inspect the place of the fire did not warrant the court in setting aside the appraisement.

The insured had submitted to an' examination, as provided in the policy, and this examination was read by the appraiser appointed by the company, and by him submitted to the other appraiser and to the umpire, and it is contended that this was misconduct warranting the setting aside of the appraisement. This examination went at length and in detail into the character and value of the property destroyed, and to that extent at least must be presumed to have been in the interest of the insured, but it is said that it also related to the origin of the fire and tended to cast suspicion upon the insured, and it is said that it was brought to the attention of the umpire for that purpose by the appraiser. This, however, is denied by the appraiser, and under the circumstances the burden being upon the insured, we do not think the evidence warranted the setting aside of the appraisement.

The parties agreed upon this manner of determining the loss. The burden was on the plaintiff to prove grounds for setting it aside, and having failed in this it must stand, and there being corn-current insurance as stated, the plaintiff can recover only the amount tendered, and the judgments will be reversed.

Reversed.

Crew, C. J., Spear, Davis and Shauck, JJ., concur.  