- Lee v. California Capital Ins. Co. (1st Dist. Ct. App. 2015) &under;&under;&under; Cal. App. 4th &under;&under;&under;&under;, 2015 DJDAR 6913, Case No. A136280
- August 5, 2015
- Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office
- UNDERLYING CLAIM
A fire damaged a four story apartment building owned by Lee. The fire started in ground floor unit #3. California Capital insured the building and claimed that the flames did not extend beyond unit #3 while the Lee claimed the fire damaged six of the twelve apartment units. California Capital's investigation resulted in an interim estimate of damage to unit #3 of $69,255.34. Lee hired Dawson, a public adjuster, to assist with the claim. Dawson submitted a claim to California Capital on Lee's behalf in excess of $800,000. California Capital attempted to re-inspect the property based on the new claim. Dawson then made a written demand for appraisal under Ins. Code section 2071. California Capital again requested the opportunity to re-inspect the property. Lee then filed a petition to compel appraisal and to appoint an umpire to oversee the appraisal. The court continued the matter to allow California Capital to re-inspect the property. After the re-inspection, California Capital issued an additional payment of $109,367.41.
Lee again requested a court ordered appraisal of the scope of loss. California Capital argued that the court was not authorized to compel an appraisal of disputed items and further argued that the insured's loss estimate and scope of loss were inflated and included damage unrelated to the fire. The court ordered the appraisal and instructed the appraisal panel to value (1) items of loss agreed by the parties to have been damaged by the fire, (2) items of loss asserted by Lee to have been damaged but for which California Capital disputed coverage, and (3) items of loss asserted by California Capital to have been damaged but for which Lee did not assert a claim. The panel was instructed to not make causation or coverage determinations or to value the loss of rental or business income. California Capital contended that Lee's repair estimate included items that never existed at the property, incorrect square footage, and the incorrect number of stories the building contained. An appraisal award was issued comprised of Exhibit "A" (which included replacement cost based on California Capital's scope of loss of $190,505.21 and actual cash value of $186,041.74) and Exhibit "B" (which included replacement cost based on Lee's scope of loss of $813,884.89 and actual cash value of $788,057.02.)
California Capital filed a petition to vacate or correct the award. It argued that the panel exceeded its authority by issuing two different valuations and by valuing a theoretical loss by including items which were not damaged or which never existed on the property. It asked that the award be vacated or corrected to list only those items in Exhibit "A". The court denied the petition and entered judgment attaching the appraisal award and restating limiting language in the award to the effect that it did not address issues of coverage, causation or even whether the claimed items existed at the time of the fire. California Capital appealed.
THE APPELLATE COURT'S RULING
On appeal, California Capital contended the trial court erred by instructing that the appraisal include items for which it was disputed that coverage applied. Citing the cases of Safeco Ins. Co. v. Sharma (1984) 160 Cal. App. 3d 1060, Kacha v. Allstate Ins. Co. (2006) 140 Cal. App. 4th 1023, and Devonwood Condominium Owners Association v. Farmers Insurance Exchange (2008) 162 Cal. App. 4th 1498, the court noted that an appraisal panel may assign value to items with respect to which coverage is disputed as long as there is a disclaimer that the award does not establish coverage or the insurer's liability to pay. However, the appellate court found that the trial court did err in ordering the appraisal and valuation of items Lee claimed were damaged regardless of whether such items were actually damaged by the fire or ever existed. The appellate court reasoned that "an assessment of whether an item is damaged or existed is fundamental to a valuation of the amount of the loss....If an item is undamaged, there is no repair cost and no need to replace the item." Thus, if an insured claims loss to a four story building when the building was, in fact, only three stories, the panel should not be required to place a value on the non-existing fourth floor.
The appellate court found that "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 overly expansive interpretation of the holdings in Sharma and Kacha." The court concluded that, "while an appraisal panel exceeds its authority by awarding nothing for damaged items based on causation or other coverage determinations, a panel does not exceed its authority by awarding nothing for items that are not damaged or never existed, where the nature or existence of the item is readily ascertainable. If there is a dispute about causation, the panel does not exceed its authority if it determines and clearly labels different amounts of loss where the amounts differ due to stated assumptions about the condition of the property prior to the loss." The appellate court went on to suggest that, to avoid any confusion about the reasoning for assigning a zero value (i.e., lack of coverage versus undamaged or non-existing item), the appraisers should clearly note that the item in question was undamaged or did not exist.
Since the trial court prevented the appraisal panel from complying with Ins. Code §2071 to appraise the actual loss suffered by requiring it to appraise a hypothetical loss, regardless of whether the items ever existed or actually required repair or replacement, the appellate court reversed the order compelling the appraisal of three categories of items. The trial court was ordered on remand to issue a revised order compelling an appraisal under Ins. Code §2071.
Finally, California Capital argued the appraisal panel exceeded its authority by issuing two different amounts of loss and by valuing undamaged or non-existent property. The appellate court agreed that the award was deficient because it failed to provide a single valuation of the loss. The appraisal panel failed to resolve any factual questions about the condition of the damaged property. It was the appraisal panel's responsibility to resolve these factual disputes and arrive at a valuation of the loss.
EFFECTS OF THE RULING
The appellate court in this case explained that the holdings in Sharma, Kacha and Devonwood do not limit appraisals to items of loss as to which there is no dispute as to coverage. However, these cases are also not to be read to require that an appraisal panel assign a value to every item submitted by the insured, regardless of whether the item existed or was damaged. Simply put, the appraisers are to make factual findings regarding the value of the loss, including whether items exist or are damaged, without making any determinations regarding causation, coverage or liability of the insurer.