Century Surety Co. v. P&S Fashions

Filed 4/17/07 Century Surety Co. v. P&S Fashions CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from judgment and orders of the Superior Court of Los Angeles County, Robert L. Hess, Judge. Affirmed.

Dodell Law Corporation, Herbert Dodell and Gerald J. Miller for Petitioner, Cross-Respondent and Appellant P&S Fashions., Inc.

Murchison & Cumming and Carolyn A. Mathews for Petitioner, Cross-Respondent and Respondent Century Surety Company.

_______________________

A business sustained personal property loss in a fire. Pursuant to the terms of an insurance contract between the business and its insurer, two party-appointed appraisers and one court-appointed umpire appraised the actual cash value of the loss. Two of the three appraisal panel members agreed on the award. The trial court confirmed and declined to vacate the award. On appeal, the business contends the award exceeded the appraisers jurisdiction and was the result of fraud, corruption or misconduct. Because substantial evidence supports the finding that these limited grounds for judicial review of a non-judicial arbitration award do not exist, we affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Respondent Century Surety (Century) insured appellant P&S Fashions (P&S) for up to $1.3 million against loss of business property from fire and other specified causes. The insurance contracts loss conditions provided: If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree they will submit their differences to the umpire. A decision agreed to by any two will be binding.

While the policy was in effect, a fire damaged P&Ss business property. P&S claimed smoke and water damage to fabric, samples, artwork, buttons, thread, plastic hangers, desks, chairs, tables and computers. Following independent evaluations by their respective adjusters, Century set the business property loss at $631,247; P&S claimed the full policy limit of $1.3 million on its proof of loss.

Because no agreement could be reached on the value of the loss, P&S demanded appraisal under the terms of the policy. Century appointed Frederick Buttner and P&S appointed Frank Zeigon as their respective party appraisers.

When Buttner and Zeigon could not agree on an umpire, Century petitioned the Superior Court for an appointment pursuant to the terms of the insurance contract. After reviewing a slate of potential umpires with P&S and Century in open court and hearing no objections, the court ordered the parties to inquire about the availability of the following retired judges: 1) Judge Irving Shimer; 2) Justice John Zebrowski; and 3) Justice Edward A. Panelli. Judge Shimer agreed to serve as umpire.

Over the course of a three-day hearing before the appraisal panel, the parties presented witnesses and evidence, and submitted opening and closing briefs. At the hearing, P&S claimed for the first time that its business property loss was $3,244,785.80.

After observing contact between Buttner and Centurys counsel and witness, P&S moved to disqualify Buttner and terminate the proceedings. Judge Shimer denied the motion.

Subsequent to the hearing, the appraisal panel met several times to deliberate the value of P&Ss business personal property loss. Approximately four months later, the appraisal panel issued an award of $691,238 signed by Judge Shimer and Buttner.[1]

Century petitioned the trial court for an order confirming the award on the ground the appraisal panels award must be presumed valid in the absence of a showing to the contrary. P&S cross-petitioned the court to vacate the award on the ground of fraud, corruption or misconduct by Judge Shimer and Buttner. The court granted the motion to confirm and denied the motion to vacate the award.

P&S timely appealed from the order confirming the award and the order denying vacation of the award.[2]

DISCUSSION

I. APPEALABILITY

An aggrieved party may appeal from: [] (a) An order dismissing or denying a petition to compel arbitration. [] (b) An order dismissing a petition to confirm, correct or vacate an award. [] (c) An order vacating an award unless a rehearing in arbitration is ordered. [] (d) A judgment entered pursuant to this title. [] (e) A special order after final judgment. (Code Civ. Proc.,[3] 1294.)

The notice of appeal must be liberally construed. The notice is sufficient if it identifies the particular judgment or order being appealed. (Cal. Rules of Court, rule 8.100(a)(2).) For this reason, the Second District has long viewed an order confirming the arbitrators award to be an appealable order. (Thriftimart, Inc. v. Superior Court (1962) 202 Cal.App.2d 421, 424.) Although the order denying the motion to vacate the award is not appealable, it may be reviewed on the appeal from the order confirming the award. [Citation.] (Olivera v. Modiano-Schneider, Inc. (1962) 205 Cal.App.2d 9, 13; Jordan v. Pacific Auto. Ins. Co. (1965) 232 Cal.App.2d 127, 129 [Thus, inasmuch as this appeal is solely from an order denying a petition to vacate and set aside an award, we treat the same as in effect an appeal from an order confirming an award. [Citations.]].)

II. STANDARD OF REVIEW

When parties choose to forgo the traditional court system and arbitrate their claims, it is assumed they wish to have a final and conclusive resolution of their dispute. The Legislature has recognized this underlying assumption of finality and has, by statute, limited the grounds for judicial review of an arbitrators award. [Citation]. (Aguilar v. Lerner (2004) 32 Cal.4th 974, 981.) Thus, the authority to review an arbitrators decision is highly circumscribed. A court cannot review the merits of the controversy, the arbitrators reasoning, or the sufficiency of the evidence supporting the award. Nor can it correct errors of laweven those appearing on the face of the award and causing substantial injustice. (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 23.)

Sections 1286.6[4](correction of arbitration award) and 1286.2[5](vacation of arbitration award) provide the exclusive grounds upon which a court may review private arbitration awards. [Citation.] Judicial review of arbitration awards is limited to these specific and narrow statutory grounds, since by voluntarily submitting to arbitration, the parties have agreed to bear [the risk of an erroneous decision by the arbitrator] in return for a quick, inexpensive, and conclusive resolution to their dispute. [Citation.] (J. Alexander Securities, Inc. v Mendez (1993) 17 Cal.App.4th 1083, 1089.)

The arbitrators award is entitled to great deference. In reviewing a judgment confirming an arbitration award, we must accept the trial courts findings of fact if substantial evidence supports them, and we must draw every reasonable inference to support the award. (Pierotti v. Torian, supra, 81 Cal.App.4th at p. 24.)

III. THE TRIAL COURT PROPERLY CONFIRMED THE APPRAISAL AWARD

A. P&S Did Not Meet its Burden to Show the Appraisal Panel Acted Improperly or Exceeded its Jurisdiction

1. The Appraisal Panel Properly Applied Fair Market Value as the Measure of Actual Cash Value

P&S contends replacement cost rather than fair market value should have been the measure of actual cash value, because its lost property was not intended or used for sale.

Insurance Code sections 2070 and 2071 require all fire policies on subject matter in California to use or, in combination with coverage against other perils, to be substantially equivalent to the elements in a statutory standard form. Centurys compliance is not at issue, as the appraisal procedure in its insurance contract is nearly identical to that in the standard form.[6]The standard form provides that an award must be in writing and itemize actual cash value and loss to each item. (Ins. Code, 2071, subd. (a).)

As used in section 2071, it is well settled that actual cash value is synonymous with fair market value. (Jefferson Ins. Co. v. SuperiorCourtofAlamedaCounty(1970) 3 Cal.3d 398, 402 (Jefferson); see Martin v. State Farm Mutual Auto. Ins. Co. (1962) 200 Cal.App.2d 459, 470 (Martin); Hughes v. Potomac Ins. Co. (1962) 199 Cal.App.2d 239, 243, disapproved on another point in Sabella v. Wisler (1963) 59 Cal.2d 21, 34.) The loss payable on an insurance policy is not the cost of the [loss] to plaintiffs but its fair market value just prior to its destruction. (Martin, supra, at p. 470.) The Jefferson court found it clear that the Legislature did not intend the term actual cash value in the standard policy form, set forth in section 2071 of the Insurance Code, to mean replacement cost less depreciation. (Jefferson, supra, at p. 402.) It reasoned that because the term appears in both the coverage and insuring clauses of the standard form, it must be given the same meaning. (Ibid.) Further, since replacement cost less depreciation can never exceed replacement cost, it would not be logical to interpret this clause to mean to the extent of the replacement cost less depreciation, but not exceeding the . . . cost to repair or replace the property. (Italics added.) If actual cash value had been intended to mean replacement cost less depreciation, the Legislature would not have used the cost to . . . replace the property as a limiting factor, and would have specified as a limiting factor only the cost to repair the property. (Ibid.)

Here, the plain language of the insurance contract provides that in the event of loss or damage, at Centurys option, it would either pay the value of lost or damaged property; pay the cost of repairing or replacing the lost or damaged property; take all or any part of the property at an agreed or appraised value; or [r]epair, rebuild or replace the property with other property of like kind and quality. The contract states that Century will not pay you more than your financial interest in the Covered Property. That the majority of the appraisal panel elected to pay the lost propertys fair market value rather than the replacement cost is consistent with the terms of the insurance contract and with Insurance Code sections 2070 and 2071.

2. P&S Did Not Establish that its Artwork Had No Fair Market Value

Analogizing to Leslie Salt Co. v. St. Paul Mercury Ins. Co. (9th Cir. 1981) 637 F.2d 657 (Leslie Salt), P&S asserts that where there is no market for damaged or lost property, an appraiser must value such property at its replacement cost, rather than its fair market value.

In Leslie Salt, the insured sued its insurer to recover on a policy of insurance for property loss on its radial stacker, a huge custom-made machine used in the process of removing salt from seawater. (Leslie Salt, supra, 637 F.2d at p. 659.) The court held that although actual cash value means fair market value and not cost of replacement, that rule is not applicable when the insured property, such as a custom-built stacker, has no market. (Id. at p. 660.)

Where property is of such nature that its market value can be readily determined, market value has frequently been applied as the test or criterion of actual cash value of property at the time of loss, under policies insuring to that extent. In a few cases, the courts although recognizing that the market value test would ordinarily be applicable, have refused to apply it where, under the existing circumstances, this test of actual cash value would fail to properly indemnify the insured. Another test or criterion, which has been employed in a great number of cases to ascertain the actual cash value of the insureds property at the time of loss, is the replacement or reproduction cost of the property lost. (See Annot., Test or criterion of actual cash value under insurance policy insuring to extent of actual cash value at time of loss (1958) 61 A.L.R.2d 711, 714-715, fns. omitted.)

Here, P&S has failed to make any showing that its lost art work and production samples constitute the type of unique property that required valuation by means of a replacement cost test. To the contrary, the evidence showed that the vast majority of the artwork was thrown into boxes along with fabric squares on the buildings second floor, which was used for storage. The artwork was neither catalogued nor indexed for retrieval. In addition, any artwork that was in use at the time of the fire was in P&Ss possession and not damaged. Accordingly, P&S has failed to meet its burden to show that fair market value would not have indemnified its loss.

3. The Appraisal Panel Did Not Exceed its Jurisdiction in Ascertaining the Quality and Condition of the Loss

P&S contends the appraisal panel exceeded its jurisdiction by making improper factual determinations about the lost production artwork beyond the scope of an appraisal in contravention of Insurance Code sections 2070 and 2071.[7]

Appraisers have the power only to determine a specific question of fact regarding the actual cash value of the insured item. (Safeco Ins. Co. v. Sharma (1984) 160 Cal.App.3d 1060, 1063 (Sharma); Kacha v. Allstate Ins. Co. (2006) 140 Cal.App.4th 1023, 1025; 2071.) An appraisal panel exceeds its powers by deciding a factual issue not properly before it. (Sharma, supra, at p. 1066.) In Sharma, the appraisers exceeded the scope of their powers, and the trial court abused its discretion in confirming the award, where the appraisers, rather than assessing the value to be assigned the paintings described by the insured as sets of 36 miniature Indian paintings, made a factual determination that the set was unmatched and thus of a lesser value. (Id. at pp. 1064-1065.)

Analogizing to Sharma, P&S contends the appraisal panel exceeded its powers in questioning whether certain samples of production artwork could have been replaced or their loss mitigated, because such a determination impermissibly resolves a question of fact beyond the scope of the appraisal. However, P&Ss reliance on Sharma is misplaced. There, the appraisers implicitly expressed disbelief that the insured had owned the items reported stolen, and appraised the value of the miniature paintings as though they were an unmatched set. Division One of this District found an abuse of discretion in granting the petition to confirm the appraisal award, because the appraisal panel exceeded its powers by deciding a factual issue not properly before it, namely the identity of the property. (Sharma, supra, 160 Cal.App.3d.at 1065-1066.)

Here, unlike Sharma, property was damaged, not stolen. The appraisal panel never disputed the identity of the loss, but rather the quality and condition of the artwork prior to the fire. These issues related to the quality and condition of the loss were squarely before the appraisal panel and relevant to its determination of the artworks actual cash value. Accordingly, we see no evidence to support the contention that that the appraisal panel exceeded its powers in its queries.

B. P&S Did Not Meet its Burden in Showing the Award was Procured by Fraud, Corruption or Misconduct by the Appraisal Panel

P&S contends Buttner should have been disqualified, because his ex parte communications with Centurys counsel and witness created a clear impression of bias. It claims the trial court erred in failing to vacate the award for fraud, corruption or misconduct pursuant to section 1286.2.

Section 1286.2, subdivision (a)(6)(A), requires vacating the arbitration award if the arbitrator failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware. As the party seeking to vacate the arbitration award, P&S bears the burden of proving the necessary facts, i.e., a ground for disqualification and knowledge by the arbitrator. (Betz v. Pankow (1993) 16 Cal.App.4th 919, 926, citing National Marble Co. v. Bricklayers & Allied Craftsmen (1986) 184 Cal.App.3d 1057, 1066.)

P&S fails to carry its burden of proof. The record shows that on the morning of the second days appraisal hearing, Centurys counsel stopped in her office to retrieve certain documents P&S delivered the day before. Because Buttner had not gone to his office that day, he had not retrieved his copy of the documents. He then reviewed the copy brought by Centurys counsel in the same conference room where P&Ss counsel and appraiser were free to come and go. At the hearing, Buttner asked Centurys counsel about the exhibit number of a certain document. Centurys counsel located the document and wrote the exhibit number on a slip of paper, which she handed to Buttner. At lunch time, Buttner sat at the same table as Centurys counsel, who declared that the conversation had not involved the evidence or issues in the appraisal hearing.

After lunch that day, P&S moved to disqualify Buttner and to discharge or terminate the proceedings on the ground that Centurys appraiser had engaged in ex parte contact. P&Ss counsel claimed he had seen Buttner speaking with Centurys counsel, adjuster and accountant in the hallway and returning from lunch together. Buttner in turn claimed that he had also seen Zeigon speaking to P&Ss counsel and witnesses. Each side asserted it had not engaged in any ex parte contact. The umpire denied disqualification and explained as follows: . . . It is more than clear that both appraisers came into this room yesterday with information about the case before us. [] . . . [] But I would have to be a moron not to understand that Mr. Zeigon has looked at papers other than what we have marked over the last two days [or] before the last two days. His questions are too intelligent and too knowledgeable to have been gleaned sitting at the table over the last two days. [] . . . [] So as far as Mr. Buttner is concerned, he may have made a mistake in associating with [Centurys counsel] and a witness today. Im not aware from anything I have heard or seen that there has been any confidential information or prejudicial information supplied. . . . [] . . . [] I am not aware in the circumstances of this kind of a proceeding that appraisers are supposed to walk into the room as ignorant as the arbitrator/umpire/judge is expected to be.

There is nothing in the record suggesting that Buttners review of a document already delivered to him or his receipt of an exhibit number in plain view of all parties would constitute ex parte contact with Centurys counsel. Buttners seating at a common lunch table with Centurys counsel was further not shown to have been concerned with the subject matter of the appraisal.

Therefore, the trial court properly rejected P&Ss claim of fraud, corruption or misconduct arising out of the ex parte communication.

DISPOSITION

The judgment is affirmed. Respondent is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

ZELON, J.

We concur:

PERLUSS, P .J.

JOHNSON, J.

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line attorney.

[1] The award set forth: The appraisal panel hereby makes the following Award using as points of reference the Schedules submitted by the parties, combining the Fabric Upstairs and Downstairs[,] Schedules 3 and 4, into one calculations, and Clothing Upstairs and Downstairs[,] Schedules 5 and 6 into one calculation, as set forth below. [] Schedule 2 Clothing[.] The loss is determined to be $147,212. [] Schedules 3 and 4 Fabric Upstairs and Downstairs[.] The loss is determined to be $355,909. [] Schedules 5 and 6 Clothing Upstairs and Downstairs[.] The loss is determined to be $21,501. [] Schedule 7 Supplies[.] The loss is determined to be $69,208. [] Schedule 8 Lace[.] The loss is determined to be $9103. [] Schedule 9 Artwork, stock, etc. The loss is determined to be $35,000 [] Schedule 10 Samples, etc. The loss is determined to be $38,305. [] Schedule FFE[.] The loss is determined to be $15,000.

[2] Although P&S also appealed from the judgment confirming the award, the record and trial court docket show no judgment was entered.

[3] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

[4] Subject to Section 1286.8, the court, unless it vacates the award pursuant to Section 1286.2, shall correct the award and confirm it as corrected if the court determines that: [] (a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; [] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or [] (c) The award is imperfect in a matter of form, not affecting the merits of the controversy. ( 1286.6.)

[5] (a) Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following: [] (1) The award was procured by corruption, fraud or other undue means. [] (2) There was corruption in any of the arbitrators. [] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [] (5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. ( 1286.2, subd. (a)(1)-(5).)

[6] The appraisal provisions of the standard form provides: In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located. Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, informal means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either the insured or this company but shall not be compelled. (Ins. Code, 2071, subd. (a).)

[7] At the appraisal hearing, Judge Shimer asked P&S: What do you do with the market value or the value to it that P&S assigned to artwork that it signed off as being irretrievably lost when smoke damage, if there were any, did not render that artwork irretrievably lost? Judge Shimer also commented that the insured threw away what it claimed to be artwork worth $365,000. In addition, Judge Shimer stated that P&Ss owner has already made clear that some of the samples are in effect junk. He has made that clear by his statement that he would replace some but not all, meaning the ones that he wouldnt bother to replace are not worth replacing at market value, actual cash value, replacement cost, or any other standards you want to use. Hes already demeaned the quality of what he has, and you can, you know, dress this pig up any way you want, but whether anybody will dance with it or not is a different matter altogether.