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Lee v. California Capital Insurance Co

California Court of Appeals, First District, Third Division

June 18, 2015

LI-LIN SUNG LEE, Plaintiff, Cross-defendant, and Respondent, CALIFORNIA CAPITAL INSURANCE COMPANY, Defendant, Cross-complainant, and Appellant.

Alameda County Super. Ct. No. RG11571734 Hon. Robert B. Freedman Judge.

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LHB Pacific Law Partners, David B.A. Demo, Clark B. Holland and Lisa L. Kirk for Defendant, Cross-complainant and Appellant.

Kerly Schaffer and J. Edward Kerly for Plaintiff, Cross-defendant and Respondent.

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In this appeal from a judgment confirming an insurance appraisal award, California Capital Insurance Company (California Capital) contends the trial court erred in compelling an appraisal that required the appraisal panel to assign loss values to items the insured claimed were damaged in a fire even if the items were not damaged or did not exist. It also claims the court erred in confirming the appraisal award, arguing that the appraisal panel exceeded its authority by issuing two competing and vastly different values for the loss.

We agree with California Capital that the award issued in this case pursuant to the trial court’s directive neither complies with the terms of the governing statute nor accomplishes the objectives of an appraisal. It was error to compel the appraisal panel to assign loss values to items simply because they were listed in the insured’s scope of loss and regardless of whether inspection revealed they were undamaged or never existed. Accordingly, we reverse.

Factual and Procedural Background

In November 2010, a fire damaged an apartment building in Oakland owned by Li-Lin Sung Lee (the “property”). The property consists of a four-story building containing a total of 12 apartments, with four units on each of three levels and a fourth garage level underneath. The fire started in a ground floor unit—unit No. 3. According to California Capital, the flames did not extend beyond unit No. 3. Lee claims the fire damaged six of the 12 apartments with fire or smoke.

The property was insured at the time of the fire under a California Capital policy issued to Lee. Based on its investigation, California Capital prepared an interim estimate of damage to unit No. 3 of $69, 255.34. In December 2010, it issued an initial payment to Lee of $46, 755.34, representing the initial estimate less depreciation and the applicable deductible. California Capital made additional payments directly to vendors for demolition and fire restoration.

Lee retained licensed public adjuster Kevin Dawson to assist her in the presentation of her claim. In February 2011, Dawson submitted a claim to California Capital on behalf of Lee. The total claim exceeded $800, 000. The statement of loss provided breakdowns of the claimed costs for cleaning, asbestos abatement, reconstruction of the affected apartments, and loss of rent. As set forth in Dawson’s claim on behalf of Lee, the fire loss consisted of burn damage to unit No. 3 and smoke damage to the “common” walls

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located between apartments on the two floors above unit No. 3. According to the claim submitted by Dawson, all the interior rooms of five apartments other than unit No. 3 would need to be completely dismantled and then replaced. The claim also included removal of a portion of the stucco exterior around the building, as well as removal of iron balcony railings, followed by a repainting of the entire building.

California Capital sought to inspect the property and investigate the new claim. Dawson questioned the need for further investigation. In March 2011, Dawson made a written demand for appraisal pursuant to Insurance Code section 2071. California Capital contended it did not have a sufficient opportunity to review and respond to the insured’s claim, and again requested that an inspection be allowed.

In April 2011, Lee filed a petition to compel an insurance appraisal and to appoint an umpire to oversee the appraisal. California Capital opposed the petition on the grounds that (1) it was premature because it had not completed its adjustment of the claim, (2) the petition improperly sought appraisal of only the insured’s scope of loss, and (3) appraisal of a disputed scope of loss is unauthorized. At a hearing conducted in June 2011, the trial court continued the matter for one month in order to allow California Capital to re-inspect the property and respond to the claim presented by Dawson on behalf of Lee. After California Capital completed its re-inspection, it issued an additional payment to Lee in the amount of $109, 367.41.

In supplemental briefing submitted after California Capital completed its re-inspection, Lee again demanded that the court order appraisal of her scope of loss. California Capital claimed the court was not authorized to compel an appraisal of disputed items, which included the existence of smoke and fire damage in certain areas, the scope and cause of any damage to exterior stucco, and the need for code upgrades and similar work to comply with legal requirements, including whether any such work was covered by the policy. California Capital also argued that the insured’s loss estimate and scope of loss was inflated and included damages and work unrelated to actual fire damage.

In June 2011, the court granted Lee’s petition to compel an insurance appraisal. The court’s order set forth the following guidelines for the appraisal panel: (1) the appraisal was to “value the damages caused by the fire only;” (2) the “scope of the loss” was “limited to those items of loss agreed by the parties to have been damaged in the fire;” (3) the panel was instructed not to make any coverage or causation determinations; and (4) no valuation for loss of rental or business income was allowed.

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Lee appointed Keith Charleston to serve as her appraiser, while California Capital appointed Thad Eaton as its appraiser. After the appraisers were unable to agree upon the selection of a neutral umpire, Lee requested that the court appoint one. The court appointed retired Judge Demetrios Agretelis to serve as the umpire.

The appraisal hearing commenced on October 11, 2011. Lee’s public adjuster, Dawson, appeared on her behalf. Dawson argued that the insured’s entire scope of loss must be appraised. By contrast, California Capital argued that the insured’s scope of loss was not a proper subject of the appraisal and that the court had already ruled that only the agreed-upon scope of damage should be appraised. The umpire suspended the hearing pending clarification from the trial court as to what items should be valued at the appraisal.

Two days after the umpire suspended the appraisal hearing, Lee filed a separate lawsuit for breach of contract and bad faith against California Capital. Following the filing of the bad faith lawsuit, California Capital moved to dismiss Lee’s petition to compel an appraisal. Among other things, it argued that Lee had waived any right to appraisal by refusing to participate in the appraisal procedure fashioned by the court and by filing a bad faith lawsuit. Lee opposed the motion to dismiss, contending that an appraisal should proceed with respect to her scope of loss.

On November 21, 2011, the trial court denied California Capital’s motion to dismiss and modified its July order compelling an appraisal. The modified order directed the appraisal panel to “value three categories of items: (a) items of loss agreed by the parties to have been damaged by the fire; (b) items of loss asserted by Lee to have been damaged by the fire but where [California Capital] disputes coverage; and (c) items of loss asserted by [California Capital] to have been damaged by the fire but where Lee does not assert a claim.” As in the original order, the modified order directed the panel not to make any causation or coverage determinations, or to value the loss of rental or business income. The modified order also specified as follows: “Following the appraisal proceedings, the parties can through other proceedings resolve their disputes regarding whether an appraised item was covered by the policy, whether the item was damaged, and whether the item was damaged by the fire.”

The appraisal hearing resumed January 10, 2012. California Capital argued that Lee’s estimate sought an award for items that demonstrably did not ever exist at the property, including extra windows in all the rooms. The panel declined a request by California Capital to inspect the property. According to California Capital, Lee’s appointed appraiser took the ...

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