September 17, 2021

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Is Appraisal Illegal in Arkansas?

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A 1989 Arkansas Insurance Bulletin indicates that arbitration and appraisal clauses are not to be placed into insurance policies. This bulletin is still listed on the Arkansas Department of Insurance website and states:

POLICY PROVISIONS AS TO ARBITRATION OR APPRAISAL

The provisions of Arkansas law prohibit binding arbitration or appraisal clauses in insurance policies or contracts. See Ark. Code Ann. §§23-79-208 (1987) and 16-108-201 (1987).

This Department has inadvertently approved policy form filings containing mandatory and binding arbitration/appraisal clauses. To be acceptable, policy language must reference that arbitration/appraisal procedures are voluntary and non-binding, to avoid deprivation of a contractual party’s right to trial by jury.

The Department requests that as soon as possible insurers and advisory organizations file with the Property and Casualty Division amendatory endorsement forms to correct these impermissible clauses in new and existing policies.1

While the bulletin has been around for over thirty years, I was wondering what the legal basis was under the codes cited. When going to the Codes, there appears to be nothing addressing “appraisal” nor making either arbitration or appraisal illegal as the bulleting suggests. Arbitration is specifically protected and can be in contracts in Arkansas with a savings clause which makes the law not applicable to certain contracts or situations:

16-108-233. Savings Clause – Certain Actions Excluded

(a) This subchapter does not affect an action or proceeding commenced or a right accrued before this subchapter takes effect.

(b) This subchapter does not apply to:

(1) Personal injury or tort matters;

(2) Employer-employee disputes; or

(3) An insured or beneficiary under any insurance policy or annuity contract.2

There are older cases in Arkansas upholding appraisal awards with the fairly standard finding that:

Every reasonable intendment and presumption is in favor of an award made by appraisers pursuant to the terms of a fire policy, and it should not be vacated unless it clearly appears that is was made without authority, or was the result of fraud or mistake, or of the misfeasance or malfeasance of the appraisers.3

However, newer cases seem to indicate that

Turning now to the law of both Arkansas and Oklahoma, it is clear that the Insurers’ position is untenable, as Simmons had no legal obligation to submit to a non-voluntary, binding appraisal process, as set forth in the general appraisal provision of the IRI policy or in the Insurers’ written demands. Arkansas law provides that a non-voluntary, binding appraisal provision is unenforceable, as it would deprive a contracting party of the right to trial by jury on material issues of fact under the policy. See Ark. Code Ann. § 23-79-203 (‘No insurance policy or annuity contract shall contain any condition, provision, or agreement which directly or indirectly deprives the insured or beneficiary of the right to trial by jury on any question of fact arising under the policy or contract … All such provisions, conditions, or agreements shall be void.’)4

The statute cited by the court states:

23-79-203. Trial by jury.

(a) No insurance policy or annuity contract shall contain any condition, provision, or agreement which directly or indirectly deprives the insured or beneficiary of the right to trial by jury on any question of fact arising under the policy or contract.

(b) All such provisions, conditions, or agreements shall be void.5

It appears that the Bulletin is correct and should cite to the statute above.

Thought For The Day

I’ve just come back from Mississippi and over there when you talk about the West Bank they think you mean Arkansas.
—Pat Buchanan
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1 Arkansas Insurance Bulletin 19-89, Policy Provisions as to Arbitration or Appraisal. Available at https://insurance.arkansas.gov/uploads/resource/documents/19-89.pdf
2 Ark. Code (Uniform Arbitration Act) §16-108-233. Savings Clause – Certain Actions Excluded.
3 Niagara Fire Ins. Co. v. Boon, 76 Ark. 153, 88 S.W. 915 (1905); See also Miller v. Am. Ins. Co. of Newark, N.J., 124 F. Supp. 160, 164, n. 1 (W.D. Ark. 1954) (seemingly equating appraisal clause with arbitration provisions, but not definitively ruling on the issue).
4 Simmons Food, Inc. v. Industrial Risk Insurers, 2015 WL 12912443, at *3 (W.D.Ark., 2015).
5 Ark. Code (Insurance) §23-79-203. Trial by jury.

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