Posted on: March 2nd, 2018

On February 13, 2018, the Iowa Supreme Court heard oral arguments in Walnut Creek Townhomes Association v. Depositers Insurance Company.

The case is up on further review from a decision of the Iowa Court of Appeals that ruled the trial court erred in rejecting an award of an appraisal board, invoked under the terms of Walnut Creek’s property insurance policy, when it substituted its findings of fact for the board’s factual findings. In a 2-1 decision, Judge Mullins joined Judge Bower’s opinion, which held that the district court could only evaluate the “structural and environmental underpinnings of the appraisal award and search out evidence of fraud, mistake or malfeasance.” Unless the appraisal award is the result of fraud, mistake or malfeasance, the court reasoned, the appraisal board’s decision is binding on the parties and cannot be reviewed by the district court. On this basis, the Court of Appeals reversed the district court, concluding that it committed legal error by rejecting the appraisal board’s factual findings and remanded the case with directions to enter judgment in favor of the plaintiff, Walnut Creek.

Judge McDonald dissented. In his view, the district court was not bound by the appraisal board’s factual determinations and had the authority to set aside the board’s award because, in part, the appropriate function of an appraisal board is to determine value, not make factual findings. Accordingly, the district court should not be bound to such findings and can set aside an appraisal board’s award on this basis. Judge McDonald also rejected the view that appraisal boards must always, necessarily, make determinations of causation in the appraisal process. Rather, he argued, there are plenty of situations where an appraisal board’s valuation determination could merely bind the parties’ measure of damages while they slug out the issue of liability.

Jurisdictions across the country are split on this question and the issue is one of first impression for the Iowa Supreme Court. We will report on the outcome of this case once the Iowa Supreme Court issues its ruling within the next few months.

Walnut Creek Townhome Association v. Depositors Insurance Company, No. 16-0121, LACL128361 (Iowa District Court in and for Polk County)

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