New Nevada Statute May Affect Enforceability of Appraisal Clause in Property Insurance Policies
By Andrew B. Downs
A growing trend is the imposition of statutory and regulatory limitation on arbitration clauses. To some degree this is a reaction by some jurisdictions to the strongly pro-arbitration position taken by the United States Supreme Court in recent years. Nevada has now followed the anti-arbitration trend in a way that might operate to invalidate the appraisal clauses in first party policies if the courts treat them as arbitration agreements, as the Nevada courts have in the past.
This year, Nevada enacted NRS 597.995 which read literally, operates to invalidate arbitration clauses subject to Nevada law, unless there is proof that the non-drafting party has affirmatively agreed to arbitration.
In most states, a statute similar to the new Nevada statute would have no effect on appraisal clauses because those clauses are part of the statutory fire policy. Nevada is one of a small minority of states that does not have a statutorily mandated form of fire insurance policy. While the Nevada Division of Insurance must approve the policy forms used, there is no statutory mandate to include any particular provisions.
The legislative history of the statute indicates its target was arbitration agreements in End User License Agreements for computer software and consumer-business agreements, such as those utilized by cellular telephone companies, not property insurers. The statute is written in far more broad terms, however:
Limitations on agreements which include provision requiring arbitration of disputes arising between parties. 597.995 NRS
- Except as otherwise provided in subsection 3, an agreement which includes a provision which requires a person to submit to arbitration any dispute arising between the parties to the agreement must include specific authorization for the provision which indicates that the person has affirmatively agreed to the provision.
- If an agreement includes a provision which requires a person to submit to arbitration any dispute arising between the parties to the agreement and the agreement fails to include the specific authorization required pursuant to subsection 1, the provision is void and unenforceable.
- The provisions of this section do not apply to an agreement that is a collective bargaining agreement. As used in this subsection, "collective bargaining" has the meaning ascribed to it in NRS 288.033.
The Nevada Division of Insurance has given notice to insurers licensed in Nevada that they must, before December 31, 2013 file for approval the forms of authorization they intend to use. A Nevada court may agree with the Division of Insurance and conclude NRS 597.995 bars the enforcement of an appraisal clause if there is no proof of the policyholder's affirmative agreement to it.
Because the statute was enacted without consideration for its insurance ramifications, it is not clear whether it was intended to extend to appraisal, or whether it applies to policies written in the surplus lines market. The Division of Insurance appears to be reading it literally to apply to all contracts, including insurance policies issued by admitted and non-admitted insurers.