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RASTELLI BROS., INC. v. NETHERLANDS INS. CO.

June 28, 1999

RASTELLI BROTHERS, INC., PLAINTIFF,
v.
NETHERLANDS INSURANCE COMPANY T/A PEERLESS INSURANCE, DEFENDANT.



The opinion of the court was delivered by: Simandle, District Judge.

  OPINION

This case arises from a disputed insurance claim. The principal issue is whether an insurance policy's appraisal clause for resolving disputes about the amount of loss — but not liability for insurance coverage upon the loss — is enforceable as an arbitration clause under the Federal Arbitration Act. According to the Complaint, plaintiff, Rastelli Brothers, Inc., submitted a claim to its insurer, defendant, Netherlands Insurance Company t/a Peerless Insurance, for $306,717.83 in costs incurred in setting up a replacement location after plaintiff's warehouse burned down, and defendant paid plaintiff $63,307.63 on that claim. (Compl.8-9.) The parties began the appraisal process listed in the insurance policy, from which defendant unilaterally withdrew while it was ongoing but before a decision had been reached. (Id. at ¶ 11.) Plaintiff filed a Complaint in this Court pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq. ("FAA"), seeking specific performance of the appraisal clause of the policy. (Id. at ¶ 12.) Now before the Court are the parties' cross-motions for summary judgment. For the reasons stated herein, plaintiff's motion for summary judgment shall be denied, but defendant's motion for summary judgment shall be granted, and this case will be dismissed.

I. BACKGROUND

On June 17, 1995, plaintiff, Rastelli Brothers, Inc., was a tenant at 641 Cattell Road in Deptford, New Jersey ("original location"), where it operated a warehouse and food processing plant. (Rastelli Examination Under Oath at 8:7-23.)*fn1 On July 17, 1995, a fire occurred at the site. (Id. at 8:7-10.) Plaintiff thereafter relocated its business operations to 1688 Delsea Drive, in Deptford, New Jersey. (Pl.'s Statement of Undisputed Facts ¶ 7.) Plaintiff had purchased the Delsea Drive building in January of 1995 and planned to move into that location within two years, allowing time to obtain necessary building permits. (Rastelli Verified Statement ¶ 3.) As a result of the fire, plaintiff first tried to set up a temporary business at the original location and then sought other temporary locations. (Id. at ¶ 4.) When none could be found, plaintiff sought emergency approval from the township to set up temporary operations at 1688 Delsea Drive. (Id. at ¶ 5.) Plaintiff made renovations to the property in order to occupy it as a warehouse and plant (id.), and some of the renovations remained incorporated in the building after plaintiff obtained its building permit and began building a permanent warehouse and plant.

According to plaintiff, as a result of the move, it incurred extra expenses in connection with the cost to equip and operate the replacement location. (Id.) Plaintiff submitted to defendant a claim and sworn proof of loss for that extra expense in the amount of $306,717.83 (id. at ¶ 8), and defendant paid out $63,307.63 on that claim. (Id. at ¶ 9.)

The parties' insurance policy contains an appraisal clause which reads as follows:

E. PROPERTY LOSS CONDITIONS

2. Appraisal

If we and you disagree on the amount of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the 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

a. Pay its chosen appraiser and

b. Bear the other expenses of the appraisal and umpire equally

If there is an appraisal, we will still retain our right to deny the claim.

(Id. at ¶ 10.) The appraisal clause thus deals exclusively with the method of handling a dispute about "the amount of loss." The policy's narrowness of the appraisal clause is demonstrated by the fact that the defendant still retains its "right to deny the claim" (i.e., coverage) even if there has been an appraisal of the loss. (Id.)

In accordance with the policy, the parties selected appraisers, and the appraisers selected an umpire. (Id. at ¶ 11.) However, while the appraisal was ongoing but before the panel reached its agreement on the amount of the loss, defendant withdrew from the process. (Id.) Defendant sent plaintiff a letter dated December 3, 1997 which indicated as follows:

It appears that the dispute between Peerless and the insured has nothing to do with respect to the amount of the expenses incurred by the insured following the fire, but whether or not the items are covered at all. As I indicated in the past, the ...


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