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Mahnke v. Superior Court of Los Angeles County

December 21, 2009

PETER MAHNKE ET AL., PETITIONERS,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT;
CALIFORNIA FAIR PLAN ASSOCIATION, REAL PARTY IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Melvin D. Sandvig, Judge. Petition granted. (Los Angeles County Super. Ct. No. PS011547).

The opinion of the court was delivered by: Perluss, P. J.

CERTIFIED FOR PUBLICATION

When an insurer and its insured fail to agree on the amount of loss following a fire, the Insurance Code requires each of them to select a "competent and disinterested appraiser," who are in turn required to agree on a "competent and disinterested umpire" (or request appointment of one by the court) to form a three-member panel to adjudge the amount of loss. (Ins. Code, § 2071.) California courts have concluded this adjudication must be conducted pursuant to the provisions of the California Arbitration Act, Code of Civil Procedure section 1280 et seq.*fn1 (Arbitration Act). (See, e.g., Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 1129.)

Section 1281.9 of the Arbitration Act requires proposed neutral arbitrators to disclose to opposing parties the existence of any potential grounds for disqualification. If a party objects to the proposed neutral arbitrator, section 1281.91 requires the objecting party to serve a notice of disqualification within 15 days of receipt of the disclosure statement. Do these disclosure and disqualification provisions apply only to the jointly proposed umpire in a loss appraisal proceeding or also to the "competent and disinterested" appraisers unilaterally designated by the parties? If they do not apply, under what circumstances may a party to the appraisal proceeding disqualify an opposing party appraiser for cause?

In this case the party-selected appraisers provided disclosure statements identifying potential conflicts. Two months after the disclosures, the insurer, California FAIR Plan Association (CFPA), sought to disqualify the party appraiser selected by their insureds, Peter and Patricia Mahnke. The trial court granted CFPA's petition, concluding (a) although section 1281.9's disclosure and disqualification standards apply to party-selected appraisers, section 1281.91's 15-day limitation period for disqualification petitions does not; and (b) the Mahnkes' party-appraiser's retention as an expert witness by another client of the Mahnkes' counsel was an impermissible conflict of interest requiring his disqualification. Because we disagree with respondent superior court's analysis on both points, we grant the petition for writ of mandate filed by the Mahnkes and direct respondent superior court to vacate its order disqualifying their party appraiser and to enter a new order denying CFPA's petition to disqualify him.

Factual and Procedural Background

After the Mahnkes' home was severely damaged in the November 2008 Sylmar wildfires, they tendered a claim to CFPA. CFPA acknowledged coverage, adjusted the claim and offered payment. The Mahnkes did not agree with CFPA's assessment of their damages and elected to proceed under the appraisal provision of the policy.

On January 26, 2009 the Mahnkes served CFPA with notice of this election and their choice of Robert McConihay to serve as their appraiser. The next day CFPA responded with the name of the appraiser it had selected, William Bruce Reid. On February 9, 2009 Mr. Reid mailed a disclosure statement indicating his own lack of financial interest in the outcome of the appraisal and disclosing he was currently serving as CFPA's designated appraiser in another pending action. In a letter dated February 11, 2009 the Mahnkes' counsel responded, "[t]hough we are unaware of a requirement to make the disclosure . . . your appraiser has made, out of courtesy we will do the same." Mr. McConihay's disclosure statement asserted he lacked any financial interest in the outcome of the proceeding and had no previous dealings with the parties. The declaration disclosed, however, he was currently engaged as a construction expert for another client of the law firm representing the Mahnkes. The letter also attached his resume, which recounted his professional experience and included the names of 14 lawyers, including the Mahnkes' counsel, as references. By the time the disclosure statement was mailed to CFPA, Mr. McConihay had already completed his appraisal of the damages suffered by the Mahnkes.

On March 31, 2009, after retaining outside counsel, CFPA demanded the Mahnkes withdraw Mr. McConihay as their appraiser based on his concurrent association with another party represented by the Mahnkes' counsel. The Mahnkes refused. On April 8, 2009 the Mahnkes filed a petition with respondent court seeking appointment of a neutral umpire. Two days later CFPA filed a petition seeking to disqualify Mr. McConihay from acting as the Mahnkes' designated appraiser. The court granted the petition on May 7, 2009, reasoning section 1281.9 requires party- selected appraisers, as well as the neutral umpire, to make the specified disclosures, but section 1281.91's limitation on the time to disqualify a proposed neutral arbitrator does not apply to a party- selected appraiser. The court also ruled Mr. McConihay's professional relationship with another client of the law firm representing the Mahnkes created "an impression of possible bias" that warranted his disqualification.

On May 15, 2009 the Mahnkes petitioned this court for a writ of mandate compelling the trial court to vacate its order granting CFPA's petition to disqualify their party-selected appraiser and to enter a new order denying the petition. At this court's request CFPA filed its opposition to the petition, styled as a "return," on June 4, 2009. On June 10, 2009 we issued an order to show cause why the relief requested in the petition should not be granted. CFPA filed a "second return" to the petition on June 30, 2009; the Mahnkes filed their reply on July 9, 2009.

Discussion

1. The Appraisal Provision of Insurance Code Section 2071

Fire insurance policies on California properties have long been required to use standard language specified by the Legislature. (See Ins. Code, § 2070; Burns v. California Fair Plan Assn. (2007) 152 Cal.App.4th 646, 656.) Among other policy provisions, in the event the insurer and the insured disagree about the amount of loss, Insurance Code section 2071 requires the parties to participate in an informal appraisal proceeding in which each party selects "a competent and disinterested appraiser," who together must then select (or, if the party-selected appraisers cannot agree, have the court appoint) "a competent and disinterested umpire." The party-selected appraisers are each required to appraise the loss and, in the event of disagreement, submit their differences to the umpire for adjudication.*fn2

The "Appraisal" provision in the current version of the statute has remained largely unchanged since it was first enacted in 1949. (See Stats. 1949, ch. 556, § 2, p. 959.)*fn3 In particular, the terms "competent and disinterested appraiser" and "competent and disinterested umpire" appear in the original, 1949 legislation. (Ibid.) The most significant amendments to section 2071 occurred in 2001, in response to complaints of insurer abuses following the Oakland hills fire of 1989, the Northridge earthquake of 1994 and the Napa earthquake of 2000. (See Assem. Floor Analysis of Sen. Bill No. 658 (2001-2001 Reg. Sess.) Sept. 12, 2001, p. 3.) In 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, the following language was inserted into the Appraisal paragraph: "Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, `informal' means that no formal ...


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