29th Nov 2015

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Trial court orders compelling appraisal proceedings — proper orders

Where there is a “dispute” whether the damaged item is covered under the policy

An insurer’s contention that an appraisal is limited to items of loss that the parties agree are covered under the policy, is simply not the case.  An appraisal panel may assign a value to items as to which coverage is disputed with a disclaimer by the panel that the award does not establish coverage or the insurer’s liability to pay.  The issue of whether a loss is covered under the policy is a separate, legal issue that must be resolved outside of the appraisal process.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1170]  Plainly, it is more efficient to value all items of loss, including disputed items, at the time an appraisal is performed.  If it is later determined in court that there is no coverage for certain items, those items can simply be stricken from the award without requiring a further referral to an appraisal panel.  [Lee v. California Capital Ins., supra]

Declaratory relief

If an insurer believes that it is wasteful to engage in an appraisal  before coverage or other legal issues are resolved, it could bring a declaratory relief action requesting stay of the appraisal pending resolution of these issues.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1170-1171]  See § A79:3.1 Trial court discretion to defer appraisal proceeding pending a judicial declaration of rights, infra.

Scope of loss disputed by parties

It is proper for a trial court to compel an appraisal, requiring the appraisal panel to assign loss values to items.  The items to be appraised however must have been damaged and must be in existence.  The court may not order a panel to appraise a hypothetical loss, without regard to whether the items ever existed or actually required repair or replacement.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1174]

Hypothetical loss defined

The hypothetical loss subject arises when each side submits a scope of loss supported by competing appraisal amounts.  The competing estimates may not contain the same list of items requiring repair for different parts of the damaged property, or may include different square footage numbers for the areas of alleged damage.  Regarding the competing appraisal amounts, the appraisal panel is not required to apply a value to every item that is presented to it by a party, without regard to whether the item was damaged or ever existed.  If inspection reveals that an item is undamaged or never existed, the panel should not apply a loss value to the item.  In addition, the panel should apply a single set of measurements to a physical space and determine what is required to effect a repair, instead of offering two dueling versions of actual repairs.  If one side claims a room has a window and the other side claims the room has two windows, it is the appraisal panel’s obligation to resolve the dispute to arrive at a single value for the loss.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1175]

Examples of disputed items

Where the scope of loss of the parties is the same, an insurer will readily agree to appraisal.  Where the scopes of loss differ, the insurer will contend that appraisal is designed to place valuation on items agreed to that have been damaged.  However, if the insured contends that certain items are damaged by smoke and fire damage in certain areas, that exterior stucco was damaged, but the insurer contends there is no such damage, ordering appraisal is improper, according to the insurer.  Similarly, if the insurance company contends the need for “upgrades exist” and accordingly no coverage exists under the policy, appraisal proceedings should not include these items.  Contentions opposing the ordering of appraisal proceedings are not reasons to prevent the ordering of appraisal proceedings.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1161]   See § B27 BUILDING CODE UPGRADE COVERAGE; § O28 ORDINANCE AND LAW.

Part of order compelling appraisal orders appraisal panel not to make any causation or insurance coverage determinations

In a first party dispute where there are both covered and noncovered items, a trial court order compelling appraisal proceedings may include in its order subjects which the appraisal panel should not concern themselves with.  The trial court must however limit its instructions to lawful instructions and not direct the appraisal panel to perform acts inconsistent with Insurance Code §§ 2070, 2071.  See Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1162 (trial court order directed appraisal panel to value items of the loss agreed by the parties to have been damaged by fire as well as all items of loss claimed by the insured to have been damaged regardless of whether the items actually suffered damage).  This last direction to the panel was error.  The trial court order in Lee v. California Capital Ins instructing the panel not to make any coverage or causation determinations was not disputed as inappropriate on appeal.  [Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1161 (setting forth the trial court order)]

Trial court order compelling appraisal proceedings – improper order

Ex parte petition for appraisal is improper

The trial court cannot proceed with an appraisal if the order for appraisal is obtained ex parte.  The court is without jurisdiction to proceed.  [Caledonian Ins. Co. v. Superior Court (1956) 140 Cal. App. 2d 458; In re Falloon (1958) 168 Cal. App. 2d 522]  See Vol. 3 THE REMEDY OF APPRAISAL [§ 3:2.1 Ex parte petition is improper].

Requirement of a “dispute” as a condition to appraisal

No appraisal proceedings can take place unless there is a failure of the parties to agree on the amount of loss.  [Farnum v. Phenix Ins. (1890) 83 Cal. 246]  See Vol 3 THE REMEDY OF APPRAISAL [§ 2:2].

Lawful limited powers of trial court after petition to appraise is granted

After a petition order appraisal is granted by the trial court, the trial court’s role becomes limited.  Under limited circumstances a court may appoint or remove an arbitrator, grant a provisional remedy, confirm, correct or vacate the arbitration award.  Discovery disputes arising out of appraisal must be submitted to the arbitrator, not the judicial forum.  See Vol 3, THE REMEDY OF APPRAISAL [§ 3:7 Lawful limited powers of the court after petition to appraise is granted].

Trial court cannot compel appraisal panel to assign values to items that were not damaged or did not ever exist

An assessment of whether an item is damaged or existed is fundamental to a valuation of the amount of loss.  If an item is undamaged, there is no repair cost and no need to replace them.  The notion that an appraisal panel must assign a value to every item submitted by the insured for appraisal – regardless of whether the item existed or was damaged – derives from an improper reading of Safeco Ins. v. Sharma (1984) 160 Cal. App. 3d 1060, 1065-1066.  See Lee v. California Capital Ins. (2015) 237 Cal. App. 4th 1154, 1172.  Also see § A79:4.4, infra.

References in bold are to Mr. Cornblum’s legal text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE (2015), published by ThomsonReuters (1-800-344-5008).  Those with WestLaw can search using the database CAINLAWDDR

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