                   IN THE COURT OF APPEALS OF IOWA

                                 No. 13-0859
                             Filed July 16, 2014

NORTH GLENN HOMEOWNERS
ASSOCIATION,
    Plaintiff-Appellee,

vs.

STATE FARM FIRE & CASUALTY
COMPANY,
     Defendant-Appellant.
________________________________________________________________

      Appeal from the Iowa District Court for Polk County, Carla T. Schemmel,

Judge.



      State Farm Fire and Casualty Company appeals the district court order

granting North Glenn Homeowners Association’s motion to compel appraisal.

AFFIRMED.



      Mark W. Thomas of Grefe & Sidney, P.L.C., Des Moines, for appellant.

      Travis Burk and Shannon M. Henson of Hope Law Firm P.L.C., West Des

Moines, for appellee.



      Heard by Doyle, P.J., and Tabor and Bower, JJ.
                                         2



BOWER, J.

          State Farm Fire and Casualty Company appeals the district court order

granting North Glenn Homeowners Association’s motion to compel appraisal.

State Farm claims the district court erred in ordering an appraisal as an issue of

causation exists which cannot be determined by an appraisal. State Farm also

claims the appraisal should not consider wind and hail damage claims together.

North Glenn contends the case should be remanded as the district court order

was not a final order, making this appeal interlocutory. We find the district court

order was interlocutory but it affects the substantial rights of the parties, which

allows us to decide the appeal. We also find, by triggering the appraisal process,

North Glenn made the appraisal a condition precedent to any further action in the

matter; accordingly the district court correctly ordered the appraisal.        The

appraisal does not determine issues of coverage but simply causation.          We

affirm.

I.        Background Facts and Proceedings

          North Glenn is an association of property owners in Johnston, Iowa. On

July 15, 2009, North Glenn submitted a claim under a policy issued by State

Farm for hail damage sustained to a roof. The claim, in excess of $125,000, was

paid. North Glenn did not repair all of the damage, electing instead to use some

of the money to make other repairs and improvements to the property.

          On March 22, 2011, a second storm hit the development. North Glenn

filed an additional claim for wind and hail damage. A State Farm employee

inspected the property and determined the hail damage was from the 2009 storm
                                         3



and was not covered. The wind damage was estimated to be less than the policy

deductible. A second roofing expert agreed with State Farm’s assessment.

       On November 11, 2011, North Glenn made a demand for appraisal, as

provided for in the policy.    State Farm agreed to an appraisal of the wind

damage, but refused an appraisal of the hail damage.          North Glenn filed a

petition for declaratory judgment on March 19, 2012, requesting a determination

of coverage issues, seeking an order for appraisal, and alleging a breach of

contract. On March 11, 2013, North Glenn filed a motion to compel appraisal,

which was granted. In its ruling, the district court analyzed the appraisal clause

of the insurance contract and found the clause requires appraisers to examine

the loss, which necessitates consideration of any prior loss which occurred or is

no longer covered. The order does not clearly explain what the posture of the

case will be after the appraisal is complete, and leaves open the question of

whether the appraisers are to determine issues of causation and coverage or

whether the court will make those findings as part of a later proceeding.

II.    Scope and Standard of Review

       In an action for a declaratory judgment, the standard of review depends

upon the nature of the action. Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174,

178 (Iowa 2010). The nature of the requested relief is often most informative. Id.

Contract actions are treated as one at law. Id. In such a case, our review is for

errors at law. Id.
                                          4



III.   Discussion

       A.      Jurisdiction

       North Glenn claims we lack jurisdiction to hear this appeal because it is

interlocutory in nature and State Farm failed to seek permission from our

supreme court to file an interlocutory appeal.1 Iowa Rule of Appellate Procedure

6.104(1) requires a party aggrieved by an interlocutory ruling to seek permission

from our supreme court before they may appeal the ruling prior to a final

judgment. Absent such permission, no interlocutory order may be appealed until

after the final judgment has been entered. Iowa R. App. P. 6.103(3). Whether

an interlocutory appeal shall be granted depends upon whether the decision

impacts substantial rights and materially affects the final decision in such a

manner that examination of it before the final judgment is issued will better serve

the interests of justice. IBP, Inc. v. Al-Gharib, 604 N.W.2d 621, 628 (Iowa 2000).

       We find the district court’s ruling to be interlocutory. The petition asked for

both an order for appraisal and a determination of issues of causation and

coverage; the latter two remain unresolved. After the appraisal, further judicial

action on the petition will be necessary. Accordingly, we grant the interlocutory

appeal.     We find determination of the present issues serves the interests of

justice. The decision rendered by this court will have a substantial impact on the

future of this case. Without a ruling from this court, it will be difficult for the

appraisers to properly assess the property.


1
  North Glenn’s challenge to the nature of the appeal was untimely because it failed to
raise the issue before filing its brief on the merits. By an order of our supreme court
dated January 24, 2014, we have been instructed to consider the issue of whether the
district court ruling is interlocutory along with the merits of the appeal.
                                        5



      B.     Order for Appraisal

      State Farm claims the district court erred in ordering an appraisal that

requires the appraisers to make causation determinations, beyond their authority.

The dispute is whether causation and coverage issues are to be determined by

the appraisers, or by the court. State Farm also claims the motion to compel the

appraisal should have been denied as there is no loss for the appraisers to

examine. What State Farm actually sought was for the district court to decide

there was no damage caused by the second storm, or the present damage was

not covered by the policy. Accordingly, we are faced with two questions: first, are

issues of coverage and causation reserved for judicial determination, and

second, if so, must those issues be determined before an appraisal is ordered.

      1.     Causation and Coverage

      “An appraisal is a supplementary arrangement to arrive at a resolution of a

dispute without a formal lawsuit. Provisions for appraisal of an insurance loss,

whether under policy terms or pursuant to independent agreement, are valid and

binding on the parties.” Cent. Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d

257, 260 (Iowa 1991). The appraisal clause in this case reads:

      Appraisal: If we and you disagree on the value of the property or
      the amount of loss, either may make written demand for an
      appraisal of the loss. In this event, each party will select a
      competent and impartial appraiser. Each party will notify the other
      of the selected appraiser’s identity within 20 days after receipt of
      the written demand for an appraisal. The two appraisers will select
      an umpire. If the appraisers cannot agree upon an umpire within
      15 days, either may request that selection be made by a judge of a
      court having jurisdiction. The appraisers will state separately the
      value of the property and amount of loss. If they fail to agree, they
      will submit their differences to the umpire. A decision agreed to by
      any two will be binding. Each party will:
                                        6



             a. pay its chosen appraiser; and
             b. bear the other expenses of the appraisal and umpire
      equally.
             If we submit to an appraisal, we will still retain our right to
      deny the claim.

      As an initial matter, the dispute before us is a mixed issue of coverage and

causation. Construction and interpretation of the contract is for the courts. See

Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 206 (Iowa 1995).

Causation is the thing that produces a particular effect. Black’s Law Dictionary

249 (9th ed. 2009). Coverage is the “inclusion of a risk under an insurance

policy; the risks within the scope of an insurance policy.” Id. at 422. The dispute

in this case is over both what caused damage to the roof and whether that

damage is covered under the policy or excluded because of North Glenn’s prior

compensation.

      Whether an appraiser has the authority to determine causation or issues

of coverage has never been fully considered by the courts of this state. Several

other states have considered the issue, reaching different conclusions.          A

number of states have decided appraisers have no authority to consider issues of

causation.   State Farm primarily relies upon Johnson v. Nationwide Mutual

Insurance Company, 828 So. 2d 1021, 1025–26 (Fla. 2002). In Johnson, the

Florida Supreme Court considered an appraisal dispute and determined

coverage decisions were to be decided by the court. The Johnson court also

held causation is a question for the court when an insurer “wholly denies that

there is a covered loss.”    Johnson, 828 So. 2d at 1022.       Years earlier, the

Mississippi Supreme Court limited the role of appraisers to determining the value
                                          7



of the property damage. See Munn v. Nat’l Fire Ins. Co. of Hartford, 115 So. 2d

54, 56 (Miss. 1959).     Relying principally on Johnson, the Alabama Supreme

Court also limited the role of appraisers to determining the “amount of loss,”

interpreted to exclude coverage and causation questions. See Rogers v. State

Farm Fire & Cas. Co., 984 So. 2d 382, 391–92 (Ala. 2007).

       Several other states have disagreed and held appraisers may, under

certain circumstances, consider causation.          Most recently, the Minnesota

Supreme Court considered the question and, recognizing “the line between

liability and damage questions is not always clear,” held “a determination of the

‘amount of loss’ under the appraisal clause necessarily includes a determination

of causation.” Quade v. Secura Ins., 814 N.W.2d 703, 706–07 (Minn. 2012).

However, the Minnesota court retained questions of coverage for judicial

determination.    “Coverage questions, such as whether damage is excluded

because it was not caused by wind, are legal questions for the court as this case

goes forward.” Id. at 707. Minnesota is not alone. Considering Delaware law

and the split between the states, the United States District Court for the District of

Delaware reached the same conclusion as the Quade court, finding the

“determination of amount of loss under the appraisal clause includes a

determination of causation.” CIGNA Ins. Co. v. Didimoi Prop. Holdings, N.V.,

110 F. Supp. 2d 259, 268 (D. Del. 2000). The Texas Supreme Court similarly

agrees. See State Farm Lloyds v. Johnson, 290 S.W.3d 886, 893 (Tex. 2009)

(“Indeed, appraisers must always consider causation, at least as an initial

matter.”). Courts in other states have reached the same conclusion. See St.
                                          8



Charles Parish Hosp. Serv. Dist. No. 1 v. United Fire & Cas. Co., 681 F. Supp.

2d 748, 757 (E.D. La. 2010) (finding causation must be considered to determine

the scope of the measured loss, but finding the determinations may be judicially

challenged by either party); Coates v. Erie Ins. Exch., No. CL-2009-1456, 2009

WL 7416039, at *4 (Va. Cir. Ct. Nov. 4, 2009).

       After a review of the opinions of the various states, we find the analysis by

the Minnesota court in Quade persuasive. As part of the appraisal process,

appraisers must determine what the amount of “loss” is, which often requires

consideration of causation. As the district court pointed out, loss means the

“financial detriment caused by . . . damage, for which the insurer becomes liable.”

Black’s Law Dictionary 1030 (9th ed. 2009). Causation is an integral part of the

definition of loss, without consideration of which the appraisers cannot perform

their assigned function.    During the appraisal process, the appraisers must

consider what damage was caused by hail, and what damage was not, or

damage with which they are unconcerned, such as normal wear and tear. We

are convinced to hold otherwise would improperly limit the appraisal process to

situations where the parties agree on all matters except the final dollar figure.

       By law and under the specific terms of the appraisal clause, once the

appraisers conclude their work, the issue of coverage may be further litigated by

State Farm. Additionally, the causation determinations by the appraisers may be

subject to further review by the district court. “This process gives force to the

appraisal process but reserves to the courts the authority to decide coverage

questions.” Quade, 814 N.W.2d at 707–08. We agree with the Quade court that
                                         9



“[w]hether the appraisal award will be conclusive on all issues will depend on the

nature of the damage, the possible causes, the parties’ dispute, and the structure

of the appraisal award.” Id. at 708.

      2.      Order of Appraisal and Coverage Determination

      The second question facing us is whether the district court should have

ordered the appraisal process to begin before the coverage disputes were

resolved.   Again, no Iowa court has directly answered the question.             Our

supreme court held long ago that an outside determination of the amount of loss

is not a condition precedent to further court action, so it is clear the court could

consider coverage issues before an appraisal is complete. Barry v. Farmers Mut.

Hail Ins. Ass’n, 86 N.W. 290, 290 (Iowa 1901).

      As other courts have acknowledged, there is logic in determining what the

coverage is before the appraisers set about their work. See Citizens Prop. Ins.

Corp. v. Mango Hill Condo. Ass’n 12 Inc., 54 So. 3d 578, 581 (Fl. Dist. Ct. App.

2011). However, this procedure runs the risk of short-circuiting the benefits of

the appraisal procedure, which is designed to be an expeditious process without

the necessity of judicial intervention. Id. In Terra Indus., Inc. v. Commonwealth

Ins. Co., 981 F. Supp. 581, 593–94 (N.D. Iowa 1997), a federal district court

applying Iowa law examined the question of whether the appraisal process must

be used before other related suits may commence. The plaintiff asserted the

appraisal process was not required until triggered by one of the parties, and the

court agreed. Terra Indus., Inc., 981 F. Supp. at 593-94. After engaging in a

lengthy recitation of authority that need not be repeated here, the court held
                                          10



       where appraisal is demanded by either party prior to suit, under a
       policy with the terms dictated by Iowa Code § 515.138(6) [(1997)],
       completion of the appraisal process is a precondition to a suit by
       either party. However, where no demand for appraisal is made
       before suit is filed, the suit cannot be barred as premature, because
       appraisal is not then a precondition to suit.

Id. at 594. In Terra, no party demanded appraisal. We agree, where a party has

demanded an appraisal, the process should go forward with other judicial

determinations waiting until after the process has been completed. The plain

language of the clause in this case supports this conclusion. The clause speaks

in mandatory language and sets forth a strict and limited timeframe which would

be rendered unrealistic, or that could be easily circumvented, if a question of

coverage were to be raised. Additionally, the clause specifically reserves State

Farm’s right to challenge the coverage after the appraisal process is completed.

Accordingly, we find the judicial determination of coverage need not be made

before an appraisal is conducted, a decision that gives life to the terms of the

contract in this case.2

       AFFIRMED.




2
  Having determined the appraisers must consider causation and engage in the
appraisal process before coverage issues are determined by the district court, we do not
address State Farm’s claim that only the wind damage should be appraised.
