Friday, September 27, 2013

Appraisal Can Wait for Statutory Construction

Alexander v. Farmers Insurance Company, No. B239840 (D2d8 Sept. 23, 2013)

The court of appeal holds that a trial court has the discretion to delay sending insurance valuation claims to a statutory appraisal when the lawsuit presents gateway issues of statutory and contract interpretation that can only be addressed by the court.

Plaintiffs sued their insurer in a class action that sought declaratory relief challenging the insurer’s methodology in calculating their losses incurred in a fire as well as damages due to the employment of that methodology to calculate their losses on their particular claim. Under the relevant provisions in the insurance code, an insurer is required to pay “actual cash value” for any property an insured loses in a fire, including a “reasonable deduction for physical depreciation based upon its condition at the time of the injury.” See Cal. Ins. Code § 2051. If the parties are unable to agree on the value, they are required to submit their dispute to an appraisal in which a neutral decides the value of the loss. Id. Although appraisal is a form of arbitration, the appraiser’s authority is limited to the valuation—the appraiser has no authority to interpret the law or the insurance contract.

The gist of the plaintiffs’ complaint was that the insurer applied a time-based depreciation formula, contrary to that in § 2051, which resulted in the depreciation of the value of their property to cents on the dollar. The insurer moved to compel the case into the statutory appraisal. Recognizing that the action presented two separate issues—the declaratory relief on the validity of the methodology and the actual loss calculation—and that the former was not amenable to appraisal, the trial court held that the petition to compel was premature, but subject to being revisited after the validity of the methodology was resolved. The insurer appealed.

The court of appeal held that the trial court had the discretion to delay the appraisal pending the resolution of the depreciation methodology issue. Because the appraisal was logically dependent on the methodology, and as the appraiser did not have the authority to address that issue, interests of judicial economy warranted the trial court’s dealing with the methodology issue first. Indeed, there was a distinct possibility that resolving the dispute over the methodology would moot the need to have the appraisal in the first place. 


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