Opinion ID: 4556131
Heading Depth: 2
Heading Rank: 4

Heading: The Litigation and Appraisal

Text: Following Infrassure’s refusal to settle, the matter went to court. 7 As relevant here, Sinclair filed its second amended complaint on June 9, 2017, alleging that its total business interruption loss constituted $99,467,307. 8 Infrassure, meanwhile, had at this point paid Sinclair only what it believed to be due under the Policy: $2,136,197.48—representing Infrassure’s share of an alleged $28,482,633 business interruption loss. On June 29, 2017, Infrassure exercised its right to appraisal under the Policy. The parties notified the district court of their intention to follow the appraisal process, and the matter was stayed. Sinclair named Karl Killian to serve as its appraiser, and Infrassure selected Brad Ebel. Mr. Killian and Mr. Ebel then 7 The parties’ dispute involves a complicated procedural history. We relay here only the portion relevant to this appeal. 8 Sinclair took the position in litigation that because Infrassure failed to pay its portion of the settlement, it was unable to rely on the $60 million figure, and had to pay Sinclair’s actual business interruption loss, which Sinclair maintains exceeds that amount. -10- collectively chose R. Dean Graves to serve as the umpire on the panel. Sinclair and Infrassure agreed this panel was acceptable. The Policy describes the appraisal panel’s substantive task in a single paragraph, stating in pertinent part: [A]t a reasonable time and place, the appraisers shall appraise the loss, stating separately the value at the time of loss and the amount of loss. If the appraisers fail to agree, they shall submit their differences to the umpire. An award in writing by any two shall determine the amount of loss and shall be paid . . . within 30 days thereafter. Aple. App. at 148. To supplement the Policy, Sinclair and Infrassure entered into a negotiated Stipulation Concerning Procedures for Appraisal (Stipulated Procedures). The Stipulated Procedures require an organizational meeting, address ex parte communications, and provide for additional document discovery, expert analysis, and depositions. The Stipulated Procedures also establish a limited record for the panel to consider, including evidence gathered during the 20-month claimadjustment period—specifically, the reports and deposition testimony of the experts involved. The appraisal record also includes documents and testimony related to the settlement and the Market’s adjusters’ final report issued after the settlement. With respect to the award itself, the Stipulated Procedures require “a written award setting out [the panel’s] key findings and, where necessary, the -11- reasons for those findings.” Aplt. Supp. App. at 268. The Stipulated Procedures list six issues which, at a minimum, the panel was required to resolve: a. The date on which the #4HDS Unit should have been rebuilt, repaired, or replaced following the September 27, 2013 explosion and fire, as defined in the Policy as Period of Recovery; b. The covered business interruption loss incurred during the Period of Recovery proximately caused by the September 27, 2013 explosion and fire; c. Whether the buildup of gasoil was caused by the September 27, 2013 fire and explosion, and the amount of covered loss for the Extended Period of Indemnity (as defined in the Policy), if any; d. The covered business interruption loss incurred, if any, during the Extended Period of Indemnity (as defined in the Policy) proximately caused by the September 27, 2013 explosion and fire; e. Any reductions to the amount of loss Sinclair could have achieved, if any, by selling or otherwise mitigating the buildup of gasoil; and f. The total amount of covered loss. Id. at 268–69. Consistent with the Policy, the party-appointed appraisers worked to narrow their differences with respect to these issues and jointly identified three questions for the umpire to assist in resolving: (1) “the appropriate time period for the time element loss;” (2) which LP Model should be applied and “whether further adjustments were needed;” and (3) how to quantify “the increase in coker gas oil -12- (‘CGO’) inventory and sales of CGO during the loss period.” 9 Id. at 252–53. The answers to these questions would resolve the six issues identified in the Stipulated Procedures. The panel met in person, communicated by telephone, and exchanged numerous emails regarding these questions. Each party-appointed appraiser also submitted a report to Mr. Graves presenting their positions. Perhaps unsurprisingly, the party-appointed appraisers remained far apart on the key issues. Mr. Ebel, Infrassure’s appointed appraiser, argued that the appropriate restart date was February 28, 2014 and that additional modifications were required to the March 2015 LP Model. Under his calculations, Sinclair suffered a business interruption loss of only $5,098,601. Meanwhile Mr. Killian, Sinclair’s appointed appraiser, used a restart date of April 26, 2014 and the November 2014 LP Model to arrive at a total business interruption loss of $78,724,351. On September 14, 2018, over a year after Infrassure sought appraisal, the panel issued its decision over Mr. Ebel’s dissent. The award determined April 16, 2014 was an appropriate theoretical restart date for the #4HDS Unit and that the 9 During the outage of the #4HDS Unit, CGO accumulated that could not be processed as it would in the normal course of operations. The parties in the appraisal process contested whether this excess CGO inventory caused a loss to Sinclair and, if so, the amount of that loss. The appraisal award determined Sinclair suffered a $10,648,885 loss with respect to CGO. On appeal, Infrassure does not make any arguments specifically with respect to this portion of the appraisal award. Accordingly, we do not address it further. -13- March 2015 LP model, without additional adjustments, should be used to calculate Sinclair’s lost profits. These decisions led to calculating Sinclair’s total business interruption loss as $60,365,508—of which Infrassure’s share constituted $4,527,413. Mr. Ebel dissented from the panel’s decision. Although he recognized that “the umpire . . . conducted the panel interactions in a very professional and open manner,” he stated “in my opinion, it has become apparent that the umpire was not disinterested and actually had a strong bias in favour of the agreed settlement.” Aplt. Supp. App. at 264. According to Mr. Ebel, “[o]n several issues, Mr. Graves expressed his opinion that, given that 22 qualified and experienced individuals had dealt with an issue, how could their agreement not be correct.” Id. 10 Back in district court, Sinclair moved to confirm the appraisal award, while Infrassure cross-moved to vacate the award. The district court, applying New York law, held that the appraisers complied with the Policy and Stipulated 10 In both his dissent from the appraisal award and his subsequent declaration, Mr. Ebel expands partially on only one alleged example of this. In response to Mr. Ebel’s position that the March 2015 LP Model “had serious flaws which needed to be corrected,” Mr. Graves allegedly advised the panel that Mr. Ebel had “made a compelling argument that an adjustment was warranted,” yet, “[i]n spite of there being no substantive response to refute this ‘compelling argument,’ Mr. Graves refused to give any consideration to it.” Aplt. Supp. App. at 544–45. -14- Procedures and that the record failed to show any lack of good faith, fraud or bias, failure to consider the evidence before the panel, gross mistake, or lack of substantial thoroughness. Accordingly, the district court confirmed the appraisal award.