Summary
denying a motion to compel appraisal and holding the amount of loss was not in dispute because "the meaning of 'actual cash value' is a legal determination that cannot be made by the appraiser."
Summary of this case from Munoz v. GEICO Gen. Ins. Co.Opinion
B230612
11-28-2011
SEROZH SARKISYAN, Plaintiff and Respondent, v. NEWPORT INSURANCE COMPANY et al., Defendants and Appellants.
Prata & Daley, Robert J. Prata, John F. Morning for Defendants and Appellants. Leist Law Group, Jeffrey J. Leist for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Los Angeles County Super. Ct. No. BC417647
APPEAL from a judgment of the Superior Court of Los Angeles County. Kevin C. Brazile, Judge. Affirmed.
Prata & Daley, Robert J. Prata, John F. Morning for Defendants and Appellants.
Leist Law Group, Jeffrey J. Leist for Plaintiff and Respondent.
An insurance company seeks to compel an appraisal in a dispute with an insured homeowner over payment to repair his damaged home. The appraisal would determine whether the insurance company can (1) deduct the general contractor's overhead and profit and (2) depreciate the sales tax, or whether the insurer has a duty to pay for those items. The amount of the homeowner's loss—his property damage—is not in dispute. The trial court correctly rejected the insurer's effort to compel an appraisal. Resolution of the dispute requires an interpretation of the policy terms and state law, which is outside the scope of an appraisal.
FACTS
Respondent Serozh Sarkisyan purchased a homeowner insurance policy (the Policy) from appellant Newport Insurance Company (the Insurer). During the Policy period, Sarkisyan suffered a covered loss to his home. Sarkisyan submitted a claim, on which the Insurer initially paid $6,764.50. After Sarkisyan hired a lawyer, the Insurer revised its estimate of the loss up to $14,779.29. From that amount, the Insurer deducted the contractor's overhead and profit ($2,373.95) and depreciated the sales tax ($132.28).
The complaint states that Sarkisyan suffered fire damage in November 2008. The Insurer claims that Sarkisyan suffered water damage in February 2009. In his appellate brief, Sarkisyan describes water damage to his property in February 2009. Evidently, the complaint is factually incorrect.
Sarkisyan filed a putative class action for breach of contract; breach of the implied covenant of good faith and fair dealing; and unfair or unlawful business practices. He alleges that the Insurer improperly reduced the amount owed to him for property damage by withholding the entire amount of the general contractor's overhead and profit and by depreciating the sales tax. The Insurer allegedly engages in this practice with all members of the class.
After generally denying all of the allegations in the complaint in its answer, the Insurer moved to stay the proceedings and compel an appraisal. The company argued that Sarkisyan is required to submit to an appraisal in any dispute regarding the amount of his claim, including disputes over deductions. Sarkisyan opposed the motion. His main argument is that an appraisal cannot be used to resolve a coverage dispute when the amount of loss is not at issue.
THE TRIAL COURT'S RULING
At the hearing, the trial court observed that the point of contention is policy coverage. The court noted that there is no dispute over the amount of the loss; rather, "the dispute is what does the policy cover," which is not subject to appraisal. The court denied the Insurer's motion to compel an appraisal.
DISCUSSION
1. Appeal and Review
An insurance policy appraisal clause is subject to the statutory arbitration scheme. (Louise Gardens of Encino Homeowners' Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 658; Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 11291130.) The statutory scheme authorizes an appeal from an order denying a motion to compel arbitration. (Code Civ. Proc., § 1294, subd. (a); Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349.) A request to stay proceedings is reviewed at the same time. (Valentine Capital Asset Management, Inc. v. Agahi (2009) 174 Cal.App.4th 606, 612, fn. 5.) The trial court's denial of a petition to compel arbitration is reviewed de novo when the underlying facts are undisputed and no extrinsic evidence is submitted. (Mayhew v. Benninghoff (1997) 53 Cal.App.4th 1365, 1369.)
2. Applicable Policy Provisions
The Policy reads, "If you and we fail to agree on the amount of loss, then, either party may make a written request for an appraisal. In this event, each party will select a competent and impartial appraiser. Each party shall notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the two appraisers will select a competent and impartial umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the 'residence premises' is located. The appraisers will appraise the loss, stating separately the loss to each item. If they fail to agree, they will submit their differences to the umpire. An award in writing, agreed to by any two, will set the amount of loss."
The Insurer is required to pay "no more than the actual cash value of the damage . . . ." The Policy defines "Actual Cash Value" as "the amount it would take to repair or replace the damaged property, at the time of the loss, with material of like kind and quality subject to a deduction for deterioration, depreciation or obsolescence and contractor's overhead and profit. Actual cash value applies to the valuation of property whether that property has sustained partial or total loss."
3. The Limited Role of Appraisers in Insurance Disputes
Appraisers have limited powers. "'The function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy.'" (Jefferson Ins. Co. v. Superior Court (1970) 3 Cal.3d 398, 403.) The appraiser may determine the actual cash value of a building, but cannot decide whether "actual cash value" means "fair market value" or "replacement cost less depreciation": the meaning of "actual cash value" is a legal determination that cannot be made by the appraiser. (Id. at pp. 402-403. Accord: Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498, 1505; Kacha v. Allstate Ins. Co. (2006) 140 Cal.App.4th 1023, 1026; Figi v. New Hampshire Ins. Co. (1980) 108 Cal.App.3d 772, 777 [the appraiser "only evaluates the loss and does not consider questions of policy, interpretation or scope of coverage"].)
By contrast, an arbitrator is "'empowered to exercise what are essentially judicial functions,'' including the interpretation of contracts and the law. (Kirkwoodv. California State Automobile Assn. Inter-Ins. Bureau (2011) 193 Cal.App.4th 49, 58 (Kirkwood).)
In 2001, in response to reports of insurer abuses following wildfires and earthquakes, the Legislature revised Insurance Code section 2071 "[i]n an effort to equalize the positions of insurers and insureds and to streamline the appraisal process by reducing the opportunity for delaying tactics by insurers . . . ." (Mahnke v. Superior Court (2009) 180 Cal.App.4th 565, 573; Kirkwood, supra, 193 Cal.App.4th at p. 58.) Insurance Code section 2071 limits appraisers to simply valuing a loss. Simply put, "Appraisers have no power to interpret the insurance contract or the governing statutes." (Kirkwood, supra, 193 Cal.App.4th at pp. 58-59.)
Although Insurance Code section 2071 relates to fire insurance, the Legislature expressly indicated its intent that the provisions "apply to all residential property insurance policies sold in the state . . . ." (Stats. 2001, ch. 583, § 1.)
4. No Appraisal Is Needed Because the Amount of Loss Is Not in Dispute
The Policy in this case covers "a physical loss" to the insured property. The Policy does not define the word "loss," though it describes "property damage" as "physical injury to, destruction of, or loss of use of tangible property." A "loss" in connection with insurance means injury, destruction or damage to property that gives rise to liability on the part of the insurer. (Jarrett v. Allstate Ins. Co. (1962) 209 Cal.App.2d 804, 811.)
The Policy allows for an appraisal when the "amount of loss" is in dispute. Using the commonly accepted definition of "loss," the Policy's appraisal clause comes into effect when the amount of injury, destruction or damage to the property is in dispute. This is consistent with state law and the Policy language, which directs the appraisers to evaluate the loss, "stating separately the loss to each item." The only reasonable interpretation of this language is that the appraisers examine the value of "each item" of damaged property, and do not consider issues such as sales tax or contractor profits. In this case, the amount of injury, destruction or damage to Sarkisyan's property is not in dispute. Sarkisyan accepts the Insurer's assessment of the cost to repair his home. He also accepts the Insurer's computation of the sales tax and contractor overhead/profit.
The dispute is whether the Policy or state law imposes on the Insurer a duty to pay the contractor's overhead/profit and the sales tax. This issue can only be resolved by interpreting (1) the Policy provision relating to "Actual Cash Value" and (2) applicable state law. Sarkisyan maintains that the Insurer's interpretation of the Policy conflicts with California law, in particular Insurance Code section 2051 and title 10 of the California Code of Regulations section 2695.9. It is the function of the trial court, not the appraisal panel, to interpret the Policy and California law. When the appraisal process is invoked, it allows evaluation of the loss, but does not preclude "separate legal proceedings on issues unrelated to the appraisal process." (Cal. Code Regs., tit. 10, § 2695.9, subd. (e).)
At oral argument, the Insurer asserted that the dispute is whether it "overpaid" for Sarkisyan's property damage. The Insurer did not claim "overpayment" in the trial court or in its appellate briefs. As framed on page 9 of its opening brief, the issue is that "Newport believes it properly depreciated items, and Sarkisyan contends the insur[er] did not properly depreciate those items." New arguments about appraising a purported overpayment cannot be made for the first time at oral argument.
The Insurance Code provides the measure of indemnity for a loss. If there is a partial loss to a structure or its contents, and the policy requires payment of actual cash value, the measure of indemnity is "the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure." (Ins. Code, § 2051, subd. (b)(2), added by Stats. 2004, ch. 605, § 2.)
Citing Insurance Code section 2051, the Insurance Commissioner adopted a regulation that states, "Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment." (Cal. Code Regs., tit. 10, § 2695.9, subd. (f)(1), Register 2006, No. 22 (operative Aug. 30, 2006).)
Kirkwood is the leading case in this area. In Kirkwood, the insured contended that excessive depreciation was deducted from his insurance payment, in violation of Insurance Code section 2051. The defendant insurer tried to compel an appraisal of the depreciation issue. The appellate court found that interpretations of Insurance Code section 2051 are matters addressed to the trial court, not an appraisal panel. (Kirkwood, supra, 193 Cal.App.4th at pp. 62-63. Accord: Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th 1082, 1101-1104.)
The Insurer relies primarily upon Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92 Cal.App.4th 886, in which the court ordered an appraisal to determine whether the actual cash value payable by the insurers could include depreciation. The Community Assisting case was decided before the 2004 amendment of Insurance Code section 2051 and before the Insurance Commissioner's 2006 adoption of title 10, California Code of Regulations, section 2695.9, subdivision (f). (See fn. 5, ante.) Prior to the enactment of the new provisions relating to depreciation, "there was no statutory direction dictating how the insurer was to measure the actual cash value of recovery under an open policy." (Kirkwood, supra, 193 Cal.App.4th at p. 60.) The Community Assisting court did not "construe the statute and regulation governing depreciation practices under an open policy," which did not then exist. (Kirkwood, supra, 193 Cal.App.4th at p. 60.) (In an "open" policy, the value of the insured property is not agreed upon in advance, but is ascertained when there is a loss. [Ins. Code, § 411.].) Though Kirkwood presented a claim for declaratory relief, Sarkisyan's claims for breach of contract, bad faith, and unlawful business practices similarly present the issue of whether the Insurer's practices violate state insurance laws and regulations, which is an issue for the court (not the appraisers) to decide. (Doan v. State Farm General Ins. Co., supra, 195 Cal.App.4th at pp. 1097-1098, 1104.)
The Insurer cites two federal cases. One of the cases, Goldberg v. State Farm Fire & Cas. Co. (9th Cir. 2004) 88 Fed. Appx. 197 is a one-paragraph unpublished opinion that contains no facts and minimal analysis. Goldberg is not persuasive. The other case is Enger v. Allstate Ins. Co. (E.D.Cal. 2009) 682 F.Supp.2d 1094. Both opinions "blindly embraced" the reasoning of Community Assisting, questionable authority in light of recent changes in state law. (Kirkwood, supra, 193 Cal.App.4th at p. 61.) We choose to follow the reasoning in Kirkwood and Doan v. State Farm, which correctly describe current state law in the area of insurance appraisals.
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
_______________
BOREN, P.J.
We concur:
_______________
DOI TODD, J.
_______________
CHAVEZ, J.