The Appraisal Process – A Fundamental Tool for Resolution
The Ontario Superior Court of Justice recently released its decision in The Dominion of Canada General Insurance Company v. Nelson, 2023 ONSC 386. This decision addresses the issues of jurisdiction and judicial review in the appraisal process.
Context
In October 2017, the Respondent’s home was destroyed in a fire. The Respondent (the “insured”) had a policy of insurance issued by the Appellant (the “insurer”), which covered the cost of repairs to and/or replacement of the insured’s home. The parties could not agree as to the quantum of payment, so they elected to proceed to an appraisal process as provided for in section 128 of the Insurance Act, RSO 1990, c I.8 (the “Act”):
Contracts providing for appraisals
(1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.
Appraisers, appointment
(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
Appraisers, duties
(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.
Costs
(4) Each party to the appraisal shall pay the appraiser appointed by the party and shall bear equally the expense of the appraisal and the umpire.
Appointment by judge
(5) Where,
a) a party fails to appoint an appraiser within seven clear days after being served with written notice to do so;
b) the appraisers fail to agree upon an umpire within fifteen days after their appointment; or
c) an appraiser or umpire refuses to act or is incapable of acting or dies,
a judge of the Superior Court of Justice may appoint an appraiser or umpire, as the case may be, upon the application of the insured or of the insurer.
A dispute over deductibility ensued within the appraisal process. The matter was submitted to an insurance umpire, who ultimately agreed with the insurer’s position.
The insured then commenced an action in the Superior Court of Justice for damages for breach of contract, mental distress, breach of duty of good faith, and punitive damages. The insurer argued that the Superior Court of Justice lacked jurisdiction to deal with any complaint arising out of the appraisal process or the decision of the insurance umpire, as those were made pursuant to the Act. The insurer submitted that the insured’s only recourse was an application to the Divisional Court for judicial review.
The insurer then brought a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for a determination of the preliminary issue of jurisdiction. The motion judge declined to hear the motion on its merits, concluding that the insurer ought to have brought its Rule 21 motion earlier in the proceedings, and that to allow the motion would be highly prejudicial to the insured. The insurer appealed, with leave.
Decision
The appeal was allowed, and all claims made by the Respondent in the action that related to or arose out of the appraisal process were stayed for want of jurisdiction.
Takeaways
The appraisal process as provided for in section 128 of the Act has been described as “unique”. As the Divisional Court noted in Birmingham Business Centre Inc. v. Intact Insurance Company, 2018 ONSC 6174, the purpose of the appraisal process is to provide an expeditious and easy manner for the settlement of claims for indemnity under insurance policies. It is intended to be a final and binding determination of the loss. Unless there is proof of misconduct or that the appraisers or umpire exceeded their jurisdiction, Courts have been reluctant to interfere.
In the case at bar, the motion judge erred in failing to find that the Superior Court did not have jurisdiction. The claim related to an appraisal of fire insurance damages under a policy that had already been the subject of an appraisal process and determination by an insurance umpire.
Stewart J. for the Court outlined “good policy reasons for this approach to the issue”:
Permitting the parties to expend their own and court resources on pursuing and defending a civil action in such circumstances runs contrary to the statutory scheme under the Act which is designed to be simple and cost-effective.
Moreover, allowing a trial judge to set aside or vary an appraisal in the absence of statutory authorization to do so undermines the appraisal process. Insureds and insurers could sidestep the standard of review and the deference expected to be afforded to the appraisal process and the Insurance Umpire. [para 39]
Evidently, the Court recognizes the appraisal process as a fundamental tool for resolution in these kinds of insurance disputes. Thus, a decision made in this process cannot be disputed in the Superior Court, but rather is subject only to judicial review by the Divisional Court.
[1] The Dominion of Canada General Insurance Company v. Nelson, 2023 ONSC 386. [2] Insurance Act, RSO 1990, c I.8. [3] Rules of Civil Procedure, R.R.O. 1990, Reg. 194. [4] Birmingham Business Centre Inc. v. Intact Insurance Company, 2018 ONSC 6174.