In industries other than insurance, arbitration provisions have become a key technique used to defend against class actions. The U.S. Supreme Court has made it quite clear over the last few years that it will enforce the use of an arbitration provision that requires arbitration of individual claims and essentially bars the filing of class actions. (See my June 25 blog post for more thoughts on this.) While insurers, based on current policy provisions, do not have the arbitration option in defending many class actions, there are some cases that do offer a similar option, based on the appraisal provisions in property and auto insurance policies. These provisions typically allow either the insurer or the insured to insist that a dispute over the value of damage to a building or automobile be resolved by an informal, alternative dispute resolution mechanism called appraisal. Somewhat similar to arbitration, a three-member panel of appraisers will decide the value of the damaged property, but they do not have the authority to make legal determinations, such as interpreting an insurance policy coverage provision. In the right kind of class action (one premised on valuation), appraisal can sometimes be invoked by the insurer on the claim(s) of the named plaintiff(s). Once the dispute is resolved by appraisal, that should end the case because the named plaintiff’s own claim becomes moot, and the named plaintiff no longer has standing to proceed with the case.

A recent decision on this issued by a Nevada federal court is Herrera v. Allstate Fire & Casualty Company, Case No. 2:13-cv-00908-MMD-PAL (D. Nev. Dec. 6, 2013). The plaintiff’s vehicle sustained a total loss in an automobile accident. She alleged that Allstate miscalculated the fair market value of her vehicle, in violation of a Nevada regulation. After being sued, Allstate invoked the appraisal provision, moved to compel appraisal, and sought to stay or dismiss the case pending completion of the appraisal. The court granted the motion to compel appraisal and stayed the lawsuit. It explained that “[t]he Policy requires ‘full compliance’ with its terms before commencement of litigation. Because Defendants have initiated the appraisal process under the Policy, Plaintiff is contractually required to submit to the appraisal process before bringing suit.” Id. at *4-5.