Opinion ID: 4556131
Heading Depth: 3
Heading Rank: 1

Heading: Failure to Follow the Policy

Text: Infrassure’s primary allegation of misconduct is that the panel “reverseengineered” its conclusions to reflect the settlement Sinclair reached with the other members of the Market rather than independently appraising Sinclair’s loss as the Policy required. 2d Cx-App. Br. at 48–49. Underlying this argument is the general suggestion that any consideration of the settlement is improper. Accordingly, we address this first before turning to Infrassure’s specific grievances with respect to the panel’s conduct. We agree that had the panel “started and finished with the commercial settlement,” this would have run afoul of its obligation to appraise the loss. But, at least in the context of this case, mention of the settlement, or, critically, consideration of the expert analysis underpinning that agreement, is not inconsistent with the appraisers’ mandate. Grosz, 24 A.D.3d at 266 (recognizing that appraisers have “wide discretion as to methods of procedure and sources of information”); see also Amerex Grp., 678 F.3d at 205–06 (noting appraisers may be aided by expert analysis in the resolution of factual issues regarding lost business income). -18- Not only was the expert analysis underpinning the settlement useful in valuing the claim, 12 but this analysis, including the adjusters’ final report containing information regarding the settlement, was explicitly included in the appraisal record for the panel to consider in reaching its conclusions. Thus, far from representing an infringement of the panel’s duty, consideration of the settlement-related analysis was explicitly envisioned by the parties. Indeed, it may have been a dereliction of the panel’s duty to ignore such evidence. See Gervant, 118 N.E. at 575–76 (upholding lower court’s decision vacating an appraisal award where the umpire refused to consider relevant evidence). Infrassure relies on St. Paul Fire & Marine Insurance Co. v. Eldracher, 33 F.2d 675 (8th Cir. 1929), and Aetna, 66 F.2d 289, but neither are on point. In Eldracher, the Eighth Circuit sustained the invalidation of an appraisal award where the umpire and one appraiser agreed to abandon their duty to assess the value of the property, instead opting to put forward an award that reflected the expected settlement value of the case. 33 F.2d at 675. In Aetna, we upheld the invalidation of an award that failed to assess the loss, and instead ascertained the defendant’s settlement offer and raised the amount $2,000. 66 F.2d at 291. 12 As Mr. Killian explained, the “professionals who participated in the adjustment process” were a “‘who’s who’ in the industry.” Aple. Supp. App. at 3. -19- These decisions confirm the principle that appraisers must abide by their contractual duty to appraise a loss and may not substitute wholesale a separate figure. But neither extends as far as Infrassure suggests. That is, neither case precludes consideration of a settlement figure or settlement-related analysis when such information may assist in appraising a loss and was explicitly included in the appraisal record. Nonetheless, Infrassure points to certain areas of the record as demonstrating that the panel improperly relied on the settlement. Specifically, it references the face of the appraisal award, emails amongst the panel, and Mr. Ebel’s dissenting opinion. But none of these sources demonstrate the type of exclusive reliance on the settlement that would warrant vacating the award. To the contrary, the record taken as a whole shows the appraisers followed the Policy and Stipulated Procedures in assessing Sinclair’s covered loss. With respect to the appraisal award, Infrassure contends that a failure to discuss “numerous subsidiary factual issues that go to the proper theoretical” restart date for the #4HDS Unit invalidates the award. 2d Cx-App. Br. at 50. These subsidiary issues include “how many welders should have been used on the repair project, whether Plaintiff unreasonably delayed ordering custom piping, and whether the repairs were delayed by Plaintiff’s choice to perform other upgrades” during the repair process. Id. But the Stipulated Procedures only -20- required the panel to include its “key findings and, where necessary, the reasons for those findings” in the award. Aplt. Supp. App. at 268. This permissive standard gave the panel discretion to exclude explicit findings on the discrete issues Infrassure raises. Moreover, as the district court found and Infrassure concedes, the appraisers “thoroughly discussed” these issues in their deliberations. Aplt. Supp. App. at 606; see also 4th Cx-App. Br. at 7 (conceding that the panel “certainly debated the issues”). 13 Infrassure protests their omission from the award on the hypothesis that because they were not mentioned explicitly, the panel must have failed to consider them. See 4th Cx-App. Br. at 7. But we will not overturn a district court’s confirmation of an appraisal award on the basis of speculation that issues that were admittedly “thoroughly discussed” amongst the appraisers played no role in the panel’s final decision. To do so would rewrite the parties’ contractual agreement, which mandates nothing comparable to the detailed explanation Infrassure now seeks to read into it. Such a decision would also run counter to the presumption of validity that appraisal awards possess under New York law. See Gansevoort, 170 N.Y.S.2d at 174. 13 The record amply supports the district court’s factual finding in this regard. See Aplt. Supp. App. at 570, 580, 590, 592. -21- Nor does the face of the appraisal award demonstrate an exclusive reliance on the settlement. With respect to the repair timeline, the award analyzes various hypothetical restart dates that were proposed by experts during the claimadjustment period and appraisal process. These spanned dates from February 8, 2014 to July 25, 2014—both well before and after the April 16, 2014 date ultimately selected by the panel. In its analysis, the award provides conclusions as to why particular dates either were or were not appropriate based on numerous references to the expert reports and testimony in the appraisal record. Ignoring this expanded analysis, Infrassure focuses on a single sentence in the award as evidence of exclusive reliance on the settlement figure. In discussing the April 1 and April 26 dates, the award states in part, Consistent with the facts i) that April 1st was a negotiated settlement date, ii) that April 26th is the undisputed restart date, iii) the insurers noted that a date later than April 1st might be appropriate for subrogation purposes, and iv) Sinclair agreed to shorten the actual restart date by ten days, the Appraisal Panel concluded that April 16, 2014 is a reasonable restart date assuming due diligence and dispatch. Aplt. Supp. App. at 257. Infrassure argues this shows the panel “relied on just four facts” in establishing the repair timeline, all of which it contends are irrelevant or fatally dependent on the commercial settlement figure. 2d Cx-App. Br. at 50. But this alleged reliance is belied by the award’s language—stating that its decision was merely “consistent” with the four facts discussed—and the panel’s detailed -22- discussion of other potential theoretical restart dates. See Aplt. Supp. App. at 255–57. Even considering the four facts Infrassure raises, the record reveals that they are not so divorced from principles of claim valuation as Infrassure suggests. For example, the first fact—that April 1st was a negotiated settlement date—was arguably arrived at using principles of claim valuation, and not the mere product of commercial horse-trading. Indeed, as the award states, use of the April 1 date as the theoretical restoration date was “consistent with Mr. Mastracci’s June 7, 2015 report”—part of the expert analysis retained by the Market, including Infrassure, to value Sinclair’s claim. Id. at 256–57. 14 Nor do the statements of Infrassure’s party-appointed appraiser demonstrate exclusive reliance on the settlement. The record contains only a single specific grievance regarding the umpire’s alleged commitment to the settlement figure. Mr. Ebel states that in response to his position that the March 2015 LP Model “had serious flaws which needed to be corrected,” Mr. Graves 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 14 Infrassure contends that Mr. Mastracci’s June 7, 2015 report is unreliable as it is itself a product of commercial negotiations and not genuine claim valuation analysis. As discussed in more depth infra, we find this allegation unsupported by the record. -23- ‘compelling argument,’ Mr. Graves refused to give any consideration to it.” Aplt. Supp. App. at 544–45. This allegation falls short of the type of “clear and strong proof amounting to fraud, bad faith or misconduct” required to set aside an appraisal award. Gansevoort, 170 N.Y.S.2d at 174. Not every compelling argument necessarily carries the day, and the fact that Mr. Ebel’s argument failed to persuade the umpire is evidence only that the panel had to exercise judgment “in weighing competing arguments regarding causation and loss.” Amerex Grp., 678 F.3d at 206. It shows no legally cognizable misconduct. See id. The umpire’s decision to adhere to the March 2015 LP Model was supported by the award’s statement that the panel had “not seen any engineering evidence that would support further adjustment” to that model and the fact that the only two LP experts involved in adjusting the claim agreed on the model as a compromise. Aplt. Supp. App. at 258. Infrassure fails to show that this was an unreasonable exercise of judgment and we will accordingly not second-guess the work of the appraisers. The email communications amongst the appraisers similarly fail to reveal any misconduct. As the district court found, each appraiser had “every opportunity to argue their positions,” had “significant” communication with the umpire, and discussed the substantive issues underlying both the repair timeline and the appropriate LP Model. Aplt. Supp. App. at 606. These observations are -24- amply supported by the record, which shows the panel engaged in a thorough discussion of how best to value the claim. The fact that certain email communications challenged each party-appointed appraiser’s arguments by referencing the settlement does nothing to change this in light of the other evidence in the record and the presumption of validity the award is entitled to. See Gansevoort, 170 N.Y.S.2d at 174. In sum, we agree with the district court that the “record undermines Infrassure’s allegation that the umpire simply accepted the commercial settlement.” Aplt. Supp. App. at 606. Taken as a whole, the appraisal award and communications amongst the panel reveal no lack of good faith, fraud or bias, or failure to comply with the terms of the Policy and Stipulated Procedures. Accordingly, the award cannot be set aside for the panel’s alleged failure to appraise the loss. 2. Gross Mistake and Lack of Substantial Thoroughness Infrassure also argues the appraisal award should be vacated because it was based on “gross mistake or lack of substantial thoroughness.” 2d Cx-App. Br. at 47. As a preliminary matter, we note that Infrassure cites no authority articulating “gross mistake” or “lack of substantial thoroughness” as a basis for vacating an appraisal award under New York law. Infrassure points to Salt Lake Tribune, but there we held only that, under New Jersey law, a court may “review -25- the appraisal to determine whether [the appraisers] committed a mistake of law, failed to consider relevant evidence, or exceeded its authority.” 454 F.3d at 1136. Infrassure also cites Gervant, which applies New York law. But again Infrassure’s articulation of the standard is nowhere to be found. In Gervant, the “principal issue” was whether an appraisal award could be set aside where the umpire and a party-appointed appraiser considered only certain evidence and “flatly refused to consider other pertinent evidence.” 306 N.Y. at 396. The court held that such an arbitrary refusal to consider evidence that was directly presented to the appraisers justified vacating the award. Id. at 399 (“The right of a party to have appraisers receive all pertinent evidence offered is a fundamental procedural right to which plaintiff was entitled, and its denial . . . is sufficient . . . to set aside the award.”). Although one may characterize the refusal to consider evidence a “gross mistake” or evidence of a “lack of substantial thoroughness,” Infrassure has not cited any authority that has done so in applying New York law. In the absence of such authority, we decline the invitation to expand the law by elevating these terms to standards mandating the overturning of an appraisal award. This is the province of New York lawmakers into which we will not intrude. But even to the extent such standards did apply, they would not merit vacating the award in this instance. Infrassure’s primary allegation is that the -26- panel erred by relying on the updated timeline in Mr. Mastracci’s June 7, 2015 report, which states that he revised his analysis of the timeline based on “new information” presented at the June 2, 2015 settlement meeting. See 2d Cx-App. Br. at 55–56. Infrassure claims no new information was presented at this meeting, and Mr. Mastracci’s statement to the contrary is “unquestionably false.” Id. at 55. The truth, Infrassure claims, is revealed by Johnson’s deposition and emails between Mr. Mastracci and Mr. McLain. These allegedly show that the parties simply reached a commercial settlement and Mr. Mastracci’s “vague reference to ‘new information’” was inserted as a “fig leaf” to cast the agreement as a result of genuine value-based claim adjustment. Id. at 56. Like the district court, we find this argument amounts to an oversimplification of the record and lacks merit. See Aplt. Supp. App. at 608. Taken as a whole, the record contains ample evidence that Mr. Mastracci’s updated timeline was the product of legitimate analysis and not, as Infrassure alleges, concocted solely to back-fill a commercial settlement. Mr. Mastracci’s June 7 report states that his conclusions were adjusted to reflect “new information and clarifications provided by Sinclair during” the June 2 settlement meeting. Id. at 412. He elaborates that during the meeting “Sinclair explained that work on the #4HDS Unit undertaken and performed during the month of March 2014, was the result of physical damage sustained during the September 27, 2013 incident -27- and, as such, the effects of which should be considered in preparing a theoretical restoration timeline.” Id. This explanation is in part what Mastracci references in later saying that he revised his theoretical restart date based on “new information.” Id. As evidenced by the disparate expert opinions in the record, valuing Sinclair’s business interruption loss is not an exact science. Amerex Grp., 678 F.3d at 206 (noting that appraising business losses “involve[s] the exercise of judgment and discretion in weighing competing arguments regarding causation and loss”). Considering new explanations and revising calculations based on continued discussions is not improper for an expert in Mr. Mastracci’s position. Cf. Olympia, 93 A.D.2d at 472 (rejecting the notion that appraisers must “dogmatically . . . stick to their initial calculations” in a manner that would routinely result in deadlock). And the record suggests that is what occurred here. See Aplt. Supp. App. at 131 (noting that both the insurers and the insured “presented their claim analysis and answered questions of the other [regarding] methodology of the claim submission, assumptions regarding performance of the business, hypothetical period of restoration vs. actual period of restoration” during the settlement meeting); id. at 538 (stating that “[Mr. Mastracci] seemed satisfied that [Sinclair] had addressed his questions about the repair timeline” -28- during the settlement meeting). Accordingly, the panel’s reliance on Mr. Mastracci’s updated timeline fails to warrant invalidation of the award. 15