District of Maryland Holds Insurance Policy’s Appraisal Provision Constitutes Enforceable Arbitration Clause Under FAA

In Travelers Casualty Insurance Company of America v. Papagiannopoulous, the U.S. District Court for the District of Maryland addressed the issue of whether a real estate “appraisal provision” included in an insurance policy can be considered an enforceable arbitration clause under the Federal Arbitration Act.

The case, a declaratory judgment and insurance coverage dispute, was brought by Travelers, which disputed the qualifications of appraisers selected by the defendants to conduct an appraisal of a commercial building. The building had been damaged by a fire and the defendants submitted a claim for losses incurred as a result of the incident. The insurance policy included an appraisal provision, which set forth the procedures for the selection of appraisers in the event of a loss. The policy provided that each party would select “a competent and impartial appraiser” and the two appraisers would then select an umpire. The defendants selected an appraiser to conduct a site inspection of the property. Travelers retained an estimator to inspect the property. The defendants then made a written demand under the policy for an appraisal, selecting the same appraiser who conducted the prior inspection, as well as another appraiser. Travelers objected to the defendants’ designated appraisers, contending they were not impartial. Travelers refused to designate an appraiser and filed a declaratory judgment action seeking a declaration that defendants’ appraisers were not qualified, and directing the defendants to designate competent appraisers. The defendants filed a motion to compel appraisal and to stay the case pending the appraisal award, and to dismiss for improper venue.

The district court first recognized that, when considering whether an appraisal provision constitutes an arbitration clause under the FAA, it is “irrelevant that the contract language in question does not employ the word ‘arbitration’ as such. Rather, what is important is whether the parties clearly intended to submit some disputes to binding review by a third party.” The court concluded that the insurance policy section that included the appraisal provision was sufficient to qualify as an agreement to submit disagreements to a third-party appraiser and, as such, the FAA governed the dispute. The court then concluded that it lacked subject matter jurisdiction over the dispute, granted the defendants’ motion, and dismissed the action. The court also concluded that Travelers’ request for a declaration that the defendants’ appraisers were not qualified was premature, since objections to an arbitrator’s qualification may not be entertained by the court until after the arbitration has been concluded and an award has been entered.

Travelers Casualty Insurance Company of America v. Papagiannopoulous, No. 8:22-cv-02314 (D. Md. July 27, 2023).