Most of the leading law school textbooks explain arbitration by describing a case where a party suffers a loss and there is a dispute between the insurance company and the insured. The insured typically places a high value on the subject of the loss, while the insurance company places a lower value. A third party is called in to offer an opinion about the value of the loss and the parties agree to be bound by that third party’s opinion. Sometimes the parties each choose an appraiser and the two appraisers choose a third. While the contract binding the parties may refer to the process as appraisal, courts look past the name and treat the process as if it were arbitration.
For example, in the 1935 case of Fireman’s Insurance Company v. Blount, the Georgia Court of Appeal ruled that arbitration and appraisal could be thought of interchangeably. They wrote, “The purpose of an appraisal and arbitration being to fix the amount of the loss, and this having been done by agreement by the parties here…the award fixed the amount of the loss, and in this case the voluntary agreement fixed the amount of the loss. There is no substantial difference in the two propositions.” The lesson is that you might call something an appraisal, but if the process has the characteristics of arbitration, a court will treat it as if it were arbitration.
But not always.
Recently in Citizens Prop. Ins. Corp. v. Mango Hill |6 Condo. Ass’n, Inc., the Florida Court of Appeal announced that an appraisal is not an arbitration and the two should not be confused. In that case, an HOA and its insurer agreed to an appraisal process that was employed to determine the amount of loss associated with a hurricane. The trial court allowed the HOA to submit the appraisal in court as an arbitral award. The Court of Appeal had a different take. That court found three significant differences between arbitration and appraisal. “First and foremost, while an agreement to arbitrate ordinarily encompasses the disposition of the entire controversy between the parties, an agreement for appraisal extends merely to the resolution of the specific issues of actual cash value and amount of loss. Second, the appraisal process is an informal one. Appraisers generally are expected to act on their own skill and knowledge relating to the matters being appraised. There is no obligation for appraisers to give formal notice of their activities to the parties, counsel or to hear evidence. Finally, all issues other than those contractually assigned to the appraisal panel are reserved for determination in a plenary action.”
In contrast, with respect to arbitration, the Court wrote, ““Arbitrations, on the other hand, are quasi-judicial proceedings. Under the Florida Arbitration Code, each party is entitled to a full hearing in the presence of every other party, unless such right is waived by agreement or conduct. The arbitrators must meet together in each session, and may not engage in independent investigation of the thing in issue. The Arbitration Code guarantees to each party not only the right to notice of each hearing session, but also the right to counsel, the opportunity to present evidence and the right to cross-examine witnesses. Finally, unlike appraisal, the arbitration panel may adjudge the case only on what is presented to them in the course of the proceeding.”
The Court reversed the judgment of the trial court and the case was sent back down for further proceedings.
So it seems that while some courts and some casebooks look past labels to substance, other courts care deeply about the label. What lesson is there for lawyers and their clients? Draft your arbitration clauses carefully because language sometimes matters a lot. A rose by another name may be treated like a daisy, despite its thorns and alluring scent.