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Home / Insurance / The Supreme Court has ruled that the assessment clause in the standard fire policy is constitutional | Property Insurance Law Team Blog

The Supreme Court has ruled that the assessment clause in the standard fire policy is constitutional | Property Insurance Law Team Blog



In the 1931 case, the Supreme Court of the United States ruled Hardware Dealers Mutual Fire Insurance Company v. Glidden Company,1 that the assessment clause contained in Minnesota’s standard fire insurance is constitutional. This post follows the most recent post, Does the assessment process violate the Constitution?where I analyzed an ongoing case where the insurance company claims that the assessment “process” is unconstitutional.

The Supreme Court’s decision is a bit confusing as it discusses “assessment” as an “arbitration”. Nevertheless, the Court noted the question as follows:

In the present action, brought for the recovery of the amount of the arbitration, the appellant stated in defense, the only point made here, that so much of Minnesota̵

7;s statutes requiring the appellant to use the arbitration provisions of the standard policy violate due process and equal protection clauses in the Fourteenth Amendment. By dismissing that claim and seeking to recover the amount of the arbitration award, the Supreme Court of Minnesota ruled, in accordance with its previous rulings, that the arbitrators’ jurisdiction was not limited to determining liability under the policy, which was a matter for the courts. but that their decision on the amount of the loss is decisive for the parties unless it is grossly excessive or insufficient, or has been provoked by fraud.

The Supreme Court found that the assessment clause had long been common in fire insurance. I found one in an American shipping contract that preceded the United States, which was noted in Evaluation clause in the 1761 maritime policy and reflections on the rapid resolution of controversies.

IN Does the assessment process violate the Constitution?I made the following observation:

The crazy thing about the position is that Empire Indemnity wrote the assessment clause in the policy. Empire Indemnity has gone to judgment without arbitration or a formal process in many judgments long before this policy was written. So I do not know how much of an argument in good faith this can really be of Empire Indemnity.

The policyholder made the same claim before the Supreme Court, but the language must be in the insurance because it was required by law:

The appellant insists that the use of the clause here was voluntary, as the appellant did not have to write the insurance, and that the appellant in any case, through long-term consent to the charter, is stopped from questioning the right of the insured to trust it after the loss. Without pausing to examine these allegations, we assume that the appellant’s freedom of contract was restricted by the application of the Statute, and proceed directly to the question decided by the Land Court whether the Fourteenth Amendment precludes the exercise of such coercion by the legislature.

To further analyze the constitutional issue, the Supreme Court noted:

The present statute replaces a decision by arbitration for a court of law on the only question of the size of the loss suffered during a fire insurance. Since the appellant’s objection to this specifically concerns the State’s power to replace one remedy with another, rather than the constitutionality of the special procedure prescribed or followed before the arbitrators, suffice it to say that the procedure by which rights can be enforced and wronged is remedied is specifically subject to state regulation and control. The Fourteenth Amendment does not imply that all trials must be by jury, nor does it guarantee any particular form or method of state proceedings … In the exercise of this power and to meet a general need, a State may choose the remedy which is most appropriate. , in the opinion of the legislator, in order to protect the interests concerned, provided that its choice is not unreasonable or arbitrary and the procedure it adopts meets the constitutional requirements of reasonable notice and the opportunity to be heard.

Without the help of the presumption, we know that the arbitration clause has long been voluntarily introduced by insurers in fire insurance, and we share the general knowledge that the amount of damages is a fruitful and often the only subject of controversy between insured and insurer. ; that a rapid determination of the insurance liability that can be secured by arbitration in this matter is a matter of great concern … that expert knowledge and rapid inspection of the damaged property can be used to an extent in assessing the loss through arbitration normally not possible under the more intentional the proceedings in a legal proceeding. These considerations are sufficient to support the exercise of the legislative judgment in requiring a more summary approach to determining the amount of the loss than that provided by traditional forms. Therefore, the requirement that disputes of this type arising under this particular class of insurance contracts be submitted to arbitrators cannot be considered as a denial of either litigation or equal protection of the laws.

The court then considered that the assessment clause was constitutional:

[W]If we now consider that the State, in the present circumstances, has the power to prescribe a summary method for determining the amount of the loss, the requirements of the Fourteenth Amendment, as far as they have now been invoked, are met if the compensation measure is significant and effective.

Everyone in the real estate insurance industry should read the opinion carefully as it seems to presuppose that the parties will choose experts and that it will move forward quickly. This is often not the case. Members may have little expertise. Speed ​​is often lacking, but usually not in line with either formal arbitration or legal proceedings.

I wanted to answer the question in the previous post. But there is much more in this important subject that I will write about in the future.

Today’s thoughts

In any case, arbitration is more rational, fair and humane than resorting to the sword.
—Richard Cobden
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1 Hardware Dealers Mutual Fire Ins. Co. v. Glidden Co., 284 U.S. 151, 52 S. Ct. 69, 76 L. Ed. 214 (1931).


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