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James Dickey, Inc. v. Alterra America Ins. Co. (C.D Cal. 2017) 2017 U.S. Dist. LEXIS 109811, Case No. 5:15-cv-00963-0DW (DTB)

Wednesday, August 16, 2017

UNDERLYING CLAIM 

After Plaintiff's Snap-On brand tools were stolen, it made a claim under its inland marine insurance policy issued by Alterra.  The parties could not agree on a value for the tools so Alterra successfully moved to compel an appraisal under the policy.  Pursuant to the appraisal clause, each party may nominate an appraiser and the two chosen appraisers in turn may agree on an impartial umpire. The two appraisers appraise the loss and if they do not agree their differences are submitted to the umpire.  Once the umpire and another appraiser agree on the amount of loss, that amount becomes the appraisal award.  Plaintiff nominated Twarowski as a party appraiser and Alterra nominated Smith as a party appraiser.  The party appraisers agreed on McCarthy as the umpire.  McCarthy provided a disclosure statement indicating that he had worked with Twarawski on an insurance appraisal 5 years earlier in a case in which Twarawski was the insured's public adjuster and McCarthy served as the appraiser for the insurer. 

The party appraisers could not agree on a value for the tools and therefore involved McCarthy.  During a conference call, McCarthy proposed an in-person meeting to review and discuss the evidence and contested issues. Twarawski later sent an email to the other appraisal panel members suggesting dates for a meeting and indicating he may bring a witness.  McCarthy responded with an email stating that he expected the parties to put on witnesses and bring to the meeting documents supporting their position.  Alterra's counsel subsequently sent a letter to Twarowski, Smith, McCarthy and Plaintiff's counsel asking that Plaintiff identify any witnesses it intended to present and details regarding the witness's testimony.  Twarowski responded by stating he did not intend to call any witnesses.

The appraisers met to discuss the appraisal.  Smith argued that depreciation should be applied while Twarawski argued it should not.  McCarthy agreed that some measure of depreciation was warranted.  Twarawski then requested that the meeting be continued to allow him time to gather evidence about the rise in value of Snap-On tools over the years.  This request was denied by McCarthy and he determined that the tools should be depreciated at the rate of two percent per year for a total of fourteen percent depreciation.  McCarthy and Smith signed an "Appraisal of Insurance Claim Award Form" ("award") finalizing an award in the amount of $27,237.28.  A copy of the award was provided to the plaintiff on November 28, 2016 and Alterra satisfied the award on December 7, 2016.

Plaintiff filed a motion to vacate the award on June 2, 2017, contending that McCarthy failed to disclose his previous relationship with the law firm representing Alterra.  Plaintiff further claimed that this relationship resulted in McCarthy favoring Alterra as evidenced by his refusal to allow Twarawski to present witnesses and by his refusal to allow a continuance.  The relationship referenced was a prior appraisal case with respect to which McCarthy disclosed that he was designated by the insurer as a party appraiser but did not disclose the fact that the same law firm representing Alterra in the current matter represented the insurer in the prior appraisal case.

DISTRICT COURT'S RULING

The district court first addressed the issue of whether California law or the Federal Arbitration Act (FAA) governed the motion.  In finding that the FAA controlled, the district court first noted that the FAA governs arbitration clauses in contracts involving interstate commerce and that the insurance policy at issue in this matter involved interstate commerce. 

Second, the district court discussed whether an appraisal clause qualifies as an arbitration clause.  Citing Wasyl v. First Boston Corp.  (9th Cir. 1987) 813 F.2d 1579), the district court noted that it must first look to California law to determine whether an appraisal is the functional equivalent of an arbitration.  The Wasyl court answered this question in the affirmative, noting that appraisals are expressly included in the definition of an arbitration agreement under California Code of Civil Procedure section 1280.  Since Wasyl remains good law in the 9th Circuit, the district court concluded that the FAA should be applied to rule on the motion.

The district court next discussed whether the motion was timely.  Under the FAA, notice of a motion to vacate an award must be served within three months after the award is filed or delivered.  Because the award in the present case was delivered to plaintiff on November 28, 2016 and the motion to vacate was not served until June 2, 2017, it was not timely.  In addition, the district court found no grounds for tolling the period as there was no evidence the plaintiff was prevented from filing a timely motion due to inequitable circumstances.  In addition, Twarowski stated in his declaration that he discovered the nondisclosure months before the deadline. 

Finally, the district court addressed the merits of the motion.  In ruling against the plaintiff, the court determined there was no impression of bias as "the connection alleged is too distant, too attenuated, and too insubstantial to create the necessary 'impression of bias.' (Citation.)"  Furthermore, there was no showing of actual bias based on McCarthy's refusal to allow a continuance.  First, the plaintiff had voluntarily withdrawn its witness before the meeting.  In addition, the parties had been litigating the case for over a year and Twarowski's declaration showed that he knew the issue of depreciation would be discussed at the meeting.  McCarthy's refusal to deny the continuance was reasonable and did not constitute bias. For these reasons, the district court denied the plaintiff's motion to vacate.

EFFECTS OF THE  COURT'S RULING

The decision reaffirms the notion that inland marine policies involve interstate commerce, a condition to establishing jurisdiction under the FAA. This case is also significant in that it reaffirms an older 9th Circuit case finding that the FAA governs proceedings related to appraisals under insurance policies if the appraisal clause is considered an arbitration agreement under state law.

Parties should take note of the potential for an appraisal proceeding to be subject to the FAA, rather than California law, in the event the applicable insurance policy involves interstate commerce. 

The district court also specifically noted in a footnote that the result would have been the same under California law which requires that motions to vacate appraisals be filed within 100 days of the date of service of the award. (Cal. Code. Civ. Pro. Sections 1280 and 1288.)  Even this longer filing period would not have saved the plaintiff's motion.  The takeaway is the importance of filing a motion to vacate or correct an award within the relevant statutory time period (within 90 days of delivery or filing of an award under the FAA or within 100 days of the date of service of the award under California law).

This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

This publication is intended for informational purposes only and is not intended as legal advice or as a substitute for legal consultation in a particular case or circumstance. Transmission of this information is not intended to create, and receipt does not create, an attorney-client relationship.

Last Updated Tuesday, January 09, 2018 - 06:51 AM.