JANET T. NEFF, United States District Judge.
This is a diversity action for breach of contract brought by Plaintiff Allied Mechanical Services, Inc. ("Allied") against Defendant National Fire and Marine Insurance Company ("NFMIC"). Allied sues NFMIC for breach of an insurance contract. Count I of the complaint seeks an order compelling NFMIC to participate in the appraisal process described in the contract. NFMIC has filed a counterclaim alleging
Rule 56 of the Federal Rules of Civil Procedure requires the Court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In evaluating a motion for summary judgment the Court must look beyond the pleadings and assess the proof to determine whether there is a genuine need for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "[T]he district court must construe the evidence and draw all reasonable inferences in favor of the nonmoving party." Martin v. Cincinnati Gas & Elec. Co., 561 F.3d 439, 443 (6th Cir. 2009). The proper inquiry is whether the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see generally Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476-80 (6th Cir. 1989).
NFMIC issued Allied an insurance policy (the "Policy") covering a vacant building located at 2211 Miller Road, Kalamazoo, Michigan. The building was destroyed in a fire. The Policy provides that NFMIC will pay the "actual cash value" for damaged or lost property, which is defined as follows in paragraph E.6:
(Policy, ECF No. 12-1, PageID.136.) The parties agree that paragraph (1) does not apply because the damage to Allied's property created a "total loss." However, the parties disagree about whether paragraph (2) or paragraph (3) applies.
After Allied submitted a claim for coverage, NFMIC hired an appraiser who determined that the market value of the property was $279,000. The appraiser determined this value by comparing the property to "actual sales of similar properties," and then making adjustments based on "time, location, physical characteristics, and any other factors affecting value[.]" (Brown Letter, ECF 12-4, PageID.208.) After further research, the appraiser also determined that other properties "in a condition equal" to the destroyed property were available for sale on April 6, 2015, the date of Allied's loss. (Brown Aff. ¶¶ 10-11, ECF No. 16-1, PageID.371-72.)
Allied disagreed with NFMIC's valuation of the property. It maintained that there were no properties "in a condition equal to that of the destroyed property ... reasonably available on the used market,"
(Policy ¶ E.2, PageID.135.) NFMIC declined to participate in the appraisal process, arguing that the appraisal process was premature because there were "coverage questions" that needed to be resolved, including the proper method to value the property. (NFMIC's Response to Appraisal Demand, ECF No. 12-6, PageID.216.) Allied then brought this action to compel appraisal. In response, NFMIC filed its counterclaim.
Michigan law requires fire insurance contracts to contain an appraisal provision like the one in the Policy. See Mich. Comp. Laws § 500.2833(1)(m). The purpose of this provision is to "resolve the `amount of the loss' in insurance disputes when liability has already been admitted." The D Boys, LLC v. Mid-Century Ins. Co., 644 Fed.Appx. 574, 579 (6th Cir. 2016) (citing Auto-Owners Ins. Co. v. Kwaiser, 190 Mich.App. 482, 476 N.W.2d 467, 467-68 (1991)). The appraisal process is a "`substitute for judicial determination of a dispute concerning the amount of a loss,' [and] is `a simple and inexpensive method for the prompt adjustment and settlement of claims.'" Kwaiser, 476 N.W.2d at 469 (quoting Thermo-Plastics R & D, Inc. v. General Accident Fire & Life Assurance Corp., Ltd., 42 Mich.App. 418, 202 N.W.2d 703, 706 (1972)). However, "[w]here the parties cannot agree on coverage, a court is to determine coverage in a declaratory action before an appraisal of the damage to the property." Id. at 469-70. "Matters of an insurance policy's coverage are generally for a court and not for appraisers." Id. at 469. In short, because the appraisal process is a substitute for a judicial determination concerning the amount of loss, "any disputes between the parties other than the amount of loss must be resolved through judicial determination." Luke v. Home-Owners Ins. Co., No. 329433, 2017 WL 239459, at *3 (Mich. Ct. App. Jan. 19, 2017).
Allied maintains that appraisal is appropriate because there is no "coverage" dispute to be resolved by the Court. The parties do not dispute that the destroyed building is covered by the Policy. According to Allied, the only dispute concerns the amount of loss, which is for an appraiser to decide. Allied contends that an appraiser will determine whether property "in a condition equal to that of the destroyed property" is reasonably available on the used market, and after doing so, will be able to determine whether to apply paragraph (2) or paragraph (3) in the definition of actual cash value. Allied further contends that
NFMIC, on the other hand, maintains that the appraisal process is premature because there is a dispute about which definition of actual cash value applies, the one in paragraph (2) or the one in paragraph (3). NFMIC asks for a declaration from the Court that paragraph (2) applies based on its evidence that properties "in a condition equal" to the destroyed property were available for sale on the date of Allied's loss. NFMIC believes that "in a condition equal" means an equivalent physical state. Thus, the dispute in this case boils down to a disagreement about what must be "reasonably available on the used market" in order for paragraph (2) to apply. Allied contends that a property that is essentially identical to the destroyed property must have been reasonably available, whereas NFMIC contends that a comparable property of an equivalent physical state must have been reasonably available. This is not strictly a dispute about the amount of loss. This is a dispute about the interpretation of the contract.
The Court agrees with Allied that the Policy can be applied according to its ordinary meaning, but disagrees with Allied as to what that meaning is. And insofar as the parties disagree about this meaning, the Court can adjudicate this dispute before requiring the parties to participate in the appraisal process. Although it is not a "coverage" dispute in the ordinary sense of that term, it is a dispute that calls for a judicial determination of the meaning of the Policy rather than a determination of the amount of loss. Allied implies that all disputes that are not "coverage" disputes should be addressed by the appraisal process, but the appraisal process has a specific purpose: to determine the amount of loss. Kwaiser, 476 N.W.2d at 469. All other disputes must be resolved by a court. See Luke, 2017 WL 239459, at *3. A dispute about how a contract should be interpreted concerns "a question of law for a court to determine[.]" Henderson v. State Farm Fire & Cas. Co., 460 Mich. 348, 596 N.W.2d 190, 193 (1999) (describing the standard for appellate review). It is not a dispute that can or should be resolved by an appraiser.
When interpreting a contract in a diversity case, the court applies the law, including the choice-of-law rules, of the forum state. Uhl v. Komatsu Forklift Co., 512 F.3d 294, 302 (6th Cir. 2008). The insurance policy here has no choice-of-law provision, so the Court must consider the following five factors: place of contracting, place of negotiation, place of performance, location of the subject-matter of the contract, and place of incorporation of the parties. Id. (citing Chrysler Corp. v. Skyline Indus. Servs., 448 Mich. 113, 528 N.W.2d 698,
Insurance policies are governed by the same principles of contract construction as any other type of contract. Hastings Mut. Ins. Co. v. Safety King, Inc., 286 Mich.App. 287, 778 N.W.2d 275, 278 (2009). The policy must be read as a whole to determine and effectuate the parties' intent. McKusick v. Travelers Indemnity Co., 246 Mich.App. 329, 632 N.W.2d 525, 528 (2001). The terms of a contract are accorded their "plain and ordinary meaning that would be apparent to a reader of the instrument." Rory v. Continental Ins. Co., 473 Mich. 457, 703 N.W.2d 23, 28 (2005). A court may rely on dictionary definitions to determine the plain and ordinary meaning of a term. Hastings Mut., 778 N.W.2d at 279. "But contract terms should not be considered in isolation and contracts are to be interpreted to avoid absurd or unreasonable conditions and results." Id. at 281.
Allied believes that "condition equal" means, in essence, "identical"; that is, having the same characteristics, including: age, size, construction, location, and features. This interpretation does not comport with the ordinary meaning of these terms. With regard to objects, "equal" means "[h]aving the same measure; identical in magnitude, number, value, intensity, etc." or "[p]ossessing a like degree of a (specified or implied) quality or attribute[.]" Oxford English Dictionary, http:// www.oed.com/; see also Merriam-Webster, http://www.merriam-webster.com/ dictionary/equal (defining "equal" as "of the same measure, quantity, amount or number as another" or "like in quality, nature, or status"). In other words, equal means the same with regard to a specific quality or attribute. It does not necessarily mean the same in all respects.
In the Policy, the term "equal" modifies the word "condition." Consequently, equality is required with respect to the condition of the property. "Condition" means a "particular mode of being"; e.g., whether something is "[p]roper ... for work, market, etc." Oxford English Dictionary, http://www.oed.com/; see also Merriam-Webster, http://www.merriamwebster.com/dictionary/condition (defining "condition" as "a state of being" or "a state of physical fitness or readiness for use"). Thus, a property in a condition equal to another likely means one that has an equivalent state of readiness or fitness for use. Paragraphs (1) and (3) in the definition of actual cash value provide an additional clue as to what is meant by "condition" in paragraph (2). They provide for a reasonable reduction in the cost of repairs, or in the calculation of the value of new property of like kind and quality, to account for "wear and tear, deterioration, and obsolescence" in the covered property. (Policy, PageID.136.) Wear and tear, deterioration, and obsolescence are attributes relating to the condition of a property. They also impact its market value. In contrast, one does not ordinarily associate features like age, size, location, and construction, with a property's condition. The condition of a property can decline over time, even though its size, location, and construction remain the same. Likewise, if a property is well-maintained and cared for, its condition can remain relatively constant, even as its age increases. Put another way, one property is not necessarily in a "better" condition than another simply because it is newer, larger, made from higher quality materials, or is located in a particular area. Thus, interpreted according
Finally, the phrase "in a condition equal to that of the destroyed property" modifies the phrase "the property," which ostensibly refers to the covered property. So construed, the entire phrase, "the market value of the property in a condition equal to that of the destroyed property," serves to clarify that the market value of the covered property should take into account the condition of that property before it was destroyed. Thus, the answer to the question of what needs to be reasonably available on the used market is not "[a] property in a condition equal to that of the destroyed property," it is this: "the market value of the [covered] property." This interpretation is different from the one proposed by Allied, but not significantly different from the one proposed by NFMIC. The Court's interpretation does not require an appraiser to identify a specific property that was available for sale on the date of the loss. However, determining a property's market value through the used market necessarily requires that there be information (e.g., sales, listings) about similar properties such that a reasonable comparison can be made. If the covered property is so unique, or the market for similar properties so scarce, that the property's market value is not "reasonably available," i.e., it cannot reasonably be ascertained from the used market, then the Policy allows the appraiser to determine actual cash value by another means: estimating the market value of new property "of like kind and quality" under paragraph (3).
Adopting Allied's interpretation would mean that paragraph (2) would almost never apply. Rarely, if ever, would there exist another property with all the same attributes as the covered property, let alone one that is reasonably available on the used market on the date of the loss. The Court will not interpret the Policy in a way that would effectively eliminate this paragraph and lead to an absurd result. See Hastings Mut., 778 N.W.2d at 281.
Moreover, Allied's interpretation is inconsistent with the purpose of the Policy, which is to cover the insured for the value of the destroyed property. The Policy gives NFMIC the option to either pay the value of the lost property or pay the cost of repairing or replacing it. (Policy ¶ E.4, PageID. 136.) It does not require NFMIC to provide a suitable replacement. Under paragraph (2), value is determined by examining the "market value" of the destroyed property. The market value of real property is often determined by looking at the value of comparable properties and making appropriate adjustments based on the differences between those properties and the property being appraised. It does not require a comparison to an identical property, let alone one that is currently available for sale on the market. Indeed, if a comparable property was sold shortly before the date of the loss, that sale would be useful for determining the market value of the covered property, even though the property that was sold is no longer available. It makes little sense for a policy covering the value of destroyed property to require that a property with essentially identical features, or in the same condition, as the destroyed property exist for sale on the used market on the date of the loss.
Having addressed the dispute over interpretation of the Policy, the Court must consider the specific relief requested by the parties in their respective motions. Allied asks for an order to compel NFMIC to
NFMIC's motion will be denied because the Court cannot determine whether paragraph (2) or paragraph (3) applies without resolving a factual issue that is squarely within the ambit of the appraisal process. An appraiser is in a better position than the Court to determine whether the market value of the destroyed property can be ascertained from the used market. This is not a coverage issue or a matter for judicial determination. The parties agreed to submit to an appraisal process to resolve this type of issue, and their agreement will be enforced. To the extent that the parties disagree about the meaning of paragraph (2), this Opinion provides guidance on that issue.
NFMIC also asserts that it is not required to participate in the appraisal process because Allied has not submitted an adequate proof of loss. NFMIC contends that Allied's proof of loss is based on an improper assessment of actual cash value under paragraph (3) rather than paragraph (2); thus, according to NFMIC, there is no dispute to submit to an umpire. The Court rejects this argument because the parties clearly disagree about the amount of loss and Allied has requested an appraisal. Any further disputes about the amount of loss should be resolved through the appraisal process.
Finally, Allied's motion will be granted because an appraiser is capable of determining actual cash value based on the ordinary meaning of the terms in the Policy. There is, thus, no genuine dispute that Allied is entitled to an order compelling appraisal.
An order will enter consistent with this Opinion.
