The California Court of Appeal offered a primer in the appraisal process in reversing the trial court's confirmation of the appraisal award. Lee v. California Capital Ins. Co., 2015 Cal. App. LEXIS 530 (Cal. Ct. App. June 18, 2015).
A fire damaged an apartment building owned by the insured. The fire started in unit 3 on the ground floor. The insurer argued the fire did not extend beyond unit 3. The insured claimed that the fire damaged six of the 12 apartments with fire or smoke.
The insured's public adjuster submitted a claim to the insurer that exceeded $800,000. The statement of loss included costs for cleaning, asbestos abatement, reconstruction of affected apartments, and loss of rent. The public adjuster said the loss consisted of burn damage to unit 3 and some damage to the "common" walls located between the apartments on the two floors above unit 3. All of the interior rooms of five apartments other than unit 3 would need to be completely dismantled and then replaced.
When the statement of loss was questioned, the insured filed a petition to compel arbitration. The petition was eventually granted. The appraisal panel was instructed to value: (a) items of loss agreed by the parties to have been damaged by the fire; and (b) items of loss asserted by the insured to have been damaged by the fire but where the insurer disputed coverage.
The appraisal panel issued a unanimous appraisal award setting forth the replacement cost loss and actual cash value for each claimed item based upon Exhibits A and B. Exhibit A consisted of items in the insurer's scope of loss:
Exhibit A replacement cost loss: $190,505.21
Exhibit A actual cash value loss: $186,041.74
Exhibit B consisted of items in the insured's scope of loss:
Exhibit B replacement cost loss: $813,844.89
Exhibit B actual cash value loss: $$788,057.02
The appraisal award stated it took no position on the appropriate scope of construction or method of repair. Further, it made no determination of coverage under the insurance policy.
The insurer filed a petition to vacate the appraisal award. It argued the panel exceeded is authority by failing to value the loss and instead issuing two vastly different valuations of the same fire loss. It also asserted that the panel valued a theoretical loss, including items that were not damaged or that never existed at the property. The trial court denied the petition.
On appeal, the court decided the trial court erred because it directed the appraisal panel to assign loss values to items without regard to whether they were actually damaged. An appraisal panel could assign a value to items as to which coverage was disputed with the disclaimer that the award did not establish coverage or the insurer's liability to pay. The issue of coverage was a separate, legal issue that had to be resolved outside the appraisal process. Nor was it proper for the trial court to order the panel to assign loss values to items that inspection revealed were not damaged or plainly never existed.
Therefore, the trial court's order compelling the appraisal for two categories of items, including items claimed by the insured to have been damaged in the fire, was improper. Directing the appraisal panel to assign loss values to items that were undamaged or never existed was improper.
Finally, the appraisal award was deficient because it did not provide a single valuation of the loss suffered by the insured. Instead, it presented two competing valuations with an express disclaimer that the appraisal did not determine the appropriate scope and method of repair or whether the submitted items were damaged or ever existed. It was the responsibility of the appraisal panel to resolve factual disputes and arrive at a valuation of the loss. An appraisal should not ordinarily contain two competing valuations for the same items. If one side claimed a room had one window and the other side claimed there were two windows, it was the appraisal panel's obligation to resolve the dispute to arrive at a single value for the loss.
