Victor's Cafe 52nd Street, Inc. v. The Travelers Indemnity Company of America

Background

A fire damaged the plaintiffs’ restaurant, which was covered by Travelers’ property insurance policy. The plaintiffs submitted a claim for lost business income and extra expenses. Travelers denied that claim, and the parties continued to disagree about whether the plaintiffs sustained those losses and the amount of any loss. The plaintiffs filed this lawsuit, and Travelers later demanded an appraisal.

The policy allowed either party to make a written demand for appraisal when the parties disagreed about the extent or amount of loss or damage. It required each party to select a “competent and impartial appraiser” and notify the other side of that selection within 20 days after the demand. If a party refused to proceed, the policy allowed the other party to ask a court to order compliance.

Appraisal Demand

Travelers moved to compel the plaintiffs to participate in appraisal and to stay, or pause, the lawsuit while appraisal proceeded. The plaintiffs argued that Travelers had waived its appraisal right by waiting too long and by failing to engage in good-faith negotiations. Travelers also asked the court to direct the plaintiffs to appoint a “competent and impartial” appraiser.

Judge Netburn held that the court had authority to enforce the appraisal provision under New York law. She explained that New York treats the contractual right to submit a valuation dispute to an appraiser as enforceable in the same way as an arbitration agreement, subject to an exception for provisions in the state’s standard fire policy. The court concluded that the provision at issue appeared to be part of the plaintiffs’ general property insurance policy and was enforceable.

The court then rejected the plaintiffs’ waiver argument. It found no demonstrated prejudice from the delay because the claim involved lost business income, there were no allegations that relevant business records had been lost, and the damaged property had not been altered in a way that would make appraisal impractical. The court also found that the parties had engaged in good-faith negotiations, including exchanges about the claimed business-income losses. The court stated that the plaintiffs’ filing of the lawsuit before Travelers formally denied the claim ended the possibility of further negotiations, and that Travelers’ later appraisal demand was not untimely on that basis.

The court further determined that appraisal was desirable because the parties had substantially different valuations of the lost business income, making the dispute technical and time-consuming. It also noted that New York public policy favors appraisal over a trial on damages when the dispute concerns the amount of a property loss.

Appraiser Request and Disposition

The court granted Defendant’s motion to compel appraisal. It ordered each party to select a competent and impartial appraiser and notify the other party of the selection within 20 days of the order. The court stayed the action pending the outcome of the appraisal and required the parties to file a status letter within 28 days.

To the extent Travelers sought to disqualify the appraiser identified by the plaintiffs, the court denied that request without prejudice. The court directed the parties to follow the policy’s requirement that each appraiser be competent and impartial. It explained that either party could later apply to the court if the policy’s selection method failed or was not followed.