Court Opinion

ID: 4707647
Source: CourtListenerOpinion
Date Created: 2021-07-29 18:04:46.713893+00
Date Added: 2024-06-11T08:06:44.816769
License: Public Domain

Filed 7/29/21 328 Maple Limited Partnership v. Cal. Capital Ins. Co. CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION ONE

 328 MAPLE LIMITED                                             B308099
 PARTNERSHIP,
                                                               (Los Angeles County
           Cross-complainant and                               Super. Ct. No. BC611607)
           Respondent.

           v.

 CALIFORNIA CAPITAL
 INSURANCE COMPANY,

           Cross-defendant and
           Appellant.

      APPEAL from an order of the Superior Court of Los
Angeles County, Gregory Keosian, Judge. Reversed with
directions.
      GladstoneWeisberg, Gene A. Weisberg and Joseph P.
Wohrle for Cross-defendant and Appellant.
      Law Offices of Saul Reiss, Saul Reiss and Fay Pugh for
Cross-complainant and Respondent.
       Following an insurance appraisal proceeding held to
determine the amount of loss sustained by water damage to an
apartment building, the insured challenged confirmation of the
appraisal award on the grounds that the insurer’s appraiser did
not disclose previous and concurrent work with the insurer. The
trial court agreed with the insured and vacated the award.
       Although the appraiser should have timely and fully
disclosed his past and current work for the insurer, we cannot on
this record conclude as a matter of law that a reasonable member
of the public would fairly entertain doubts about his impartiality.
Accordingly, we reverse, and direct the trial court to enter a new
order confirming the award.
      FACTUAL AND PROCEDURAL BACKGROUND
      In August 2014, the penthouse of an apartment building
located at 328 North Maple Drive in Beverly Hills was flooded.
The building was damaged, and the owner of the building,
respondent 328 Maple Limited Partnership (Maple) filed a claim
for the damage under its insurance policy (the Policy) written by
appellant California Capital Insurance Company (CCIC).
      Between September and December of 2015, the parties
attempted to agree on the amount of loss sustained by the
property. In December 2015, after failing to agree, CCIC
commenced appraisal proceedings under the Policy’s appraisal
provision, governed by Insurance Code1 section 2071, which
provides as follows:

      1Subsequent undesignated code citations are to the
Insurance Code.

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      “E.    Property Loss Condition
             “. . .
             “2.    Appraisal
             “If we and you disagree on 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 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. . . .”
       On December 30, 2015, CCIC proposed to designate Gary
Halpin as its “competent and disinterested” appraiser and
provided Maple with his resume. Halpin’s resume indicated he
possessed “more than forty years in the industry . . . extensive
technical knowledge and hands on experience that enable[d] him
to act as an expert witness, consultant and damage appraiser”
whose “clients include plaintiffs, respondents, attorneys,
developers, builders, industry professionals, homeowner
associations, private parties and corporations.”
       In April 2016, Maple designated Matthew Blumkin as its
“competent and disinterested” appraiser and provided CCIC with
his resume.
       After extensive disagreement and delay, the two appraisers
eventually settled upon the Hon. Suzanne Bruguera (Ret.), as a
“competent and disinterested umpire,” following which appraisal
proceedings commenced.

                                 3
      In February 2019, the parties completed the appraisal
process.
      On December 2, 2019, an “Appraisal of Insurance Claims
Award Form” (the Award) was executed by Judge Bruguera and
Halpin.
      Disappointed by the Award, Maple’s counsel began to
research bases for opposition, eventually discovering that Halpin
had failed to disclose he had been working as an appraiser for
CCIC in another matter, Lee v. California Capital Ins. Co. (2015)
237 Cal.App.4th 1154 (Lee), at the very time he had been
retained as its appraiser for the current dispute.
      The parties then filed competing petitions to confirm and
vacate the Award in superior court. In connection therewith,
CCIC submitted a declaration from Halpin admitting not only
that he was CCIC’s appraiser in Lee, but also that he had
previously been retained as an expert witness by CCIC in a
second matter. Halpin’s declaration went on to state: “I am not
financially dependent on [CCIC]. The income that I have
received from [CCIC] totals less than two percent of my income
over the past five years. Since 2015, [CCIC] designated me twice
as an appraiser, this case and [in Lee], and was designated as an
expert in one case involving [CCIC]. During that time, I have
been designated as an appraiser, umpire or litigation expert in
approximately 80 matters. None of the others involved [CCIC].”
      Maple’s opposition argued that CCIC’s failure to disclose
Halpin’s prior relationships with CCIC constituted “ ‘corruption’ ”
for purposes of Code of Civil Procedure section 1286.2, and
warranted vacatur.
      CCIC responded that only neutral umpires in a section
2071 appraisal proceeding, and not party-appointed appraisers,

                                 4
have an obligation to disclose under Code of Civil Procedure
section 1281.9.
       The trial court agreed with Maple, ruling that Halpin’s two
other retentions by CCIC constituted “an ongoing and substantial
business relationship, requiring disclosure below and vacatur
presently.” (See Mahnke v. Superior Court (2009) 180
Cal.App.4th 565, 580 (Mahnke).) It granted Maple’s motion to
vacate under Code of Civil Procedure section 1286.2, subdivision
(a)(4) and (6).
       CCIC timely appealed.
                          DISCUSSION
A.    Standard of Review
      We review a trial court order vacating an arbitration
award, as well as its determination of whether there are grounds
to disqualify an appraiser, de novo. (SWAB Financial, LLC v.
E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1196; see
Mahnke, supra, 180 Cal.App.4th at p. 580, fn. 9.)
B.    Law Governing Appraisal Awards
      All fire insurance policies issued in California must be on a
standard form that includes the appraisal provision set forth in
section 2071. (§§ 2070, 2071.) Property insurance policies
written to protect against other perils may opt-in to the
provisions found at section 2071 by using it as a standard form,
as did the Policy in this case.
      When the parties to a section 2071 residential insurance
policy disagree on the amount of loss, they are required to
participate in an informal appraisal proceeding. Each side
proposes a “disinterested and neutral” appraiser, following which
the appraisers attempt to jointly agree on an umpire, i.e.,

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someone who resolves the appraisers’ disagreement by
considering the evidence and selecting the appropriate appraisal
award. (§§ 2070, 2071.)
       In addition to judicial review of the award itself, the parties
can ask the superior court to review the selection of the other
party’s appraiser, or to appoint an umpire when the parties fail to
reach agreement on that issue. (§§ 2070, 2071.)
       Although informal, appraisal proceedings are subject to the
statutory contractual arbitration law. The exclusive grounds for
vacating an appraisal award are set forth in Code of Civil
Procedure section 1286.2, subdivision (a). (See Maaso v. Signer
(2012) 203 Cal.App.4th 362, 371.) As relevant here, an appraisal
award may be vacated on the basis that “[t]he award was
procured by corruption, fraud or other undue means.” (Code Civ.
Proc., § 1286.2, subd. (a)(1).)
       The appraisal process under section 2071 differs from
traditional arbitration in several important respects, as discussed
by our colleagues in Division Seven writing in Mahnke. Most
importantly for our purposes, the statutory conflict-of-interest
disclosure requirements as amended by the Legislature in 2001
were held by the court in Mahnke to apply only to the umpire and
not to the party-selected appraisers. (See Mahnke, supra, 180
Cal.App.4th at p. 577 [“The disclosure requirements in [Code Civ.
Proc., §] 1281.9 and the Judicial Council’s ethics standards for
neutral arbitrators do not apply to any arbitrator other than the
jointly selected, or court-appointed, proposed neutral arbitrator—

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or, in the case of a contested [insurance] appraisal proceeding,
the competent and disinterested umpire”].)2
       While declining “to recognize an automatic and unlimited
right of disqualification for disclosures made by those appraisers”
(Mahnke, supra, 180 Cal.App.4th at p. 578, fn. omitted), the
Mahnke court concluded that appraisers may be disqualified (and
any subsequent award vacated) by virtue of not being
“disinterested” if they fail to disclose “substantial” “business
relationships” with “the [umpire] and a party, its counsel or a
witness.” (Id. at p. 579.) It is this pivotal question to which we
now turn.
C.     The Appraiser’s Tardy Disclosures Do Not, on This
       Record, Warrant Vacation of the Award
       The Mahnke court explained that “substantial” “business
relationship[s]” can create “ ‘an impression of possible bias’ ”
because “ ‘[s]uch a relationship suggests a pecuniary interest on
the part of the [appraiser] or that the [appraiser] will place
unusual trust or confidence in the party with whom the
relationship existed, thus giving the [appraiser] reason to favor
the party for reasons wholly unrelated to the merits of the
[appraisal].’ [Citation.]” (Mahnke, supra, 180 Cal.App.4th at
p. 579.)

      2 In contradistinction to an appraiser, the umpire in an
appraisal proceeding must disclose six specific sorts of
relationships, any ground for disqualification under Code of Civil
Procedure section 170.1, and other matters that could cause a
reasonable person to entertain a doubt about her impartiality.
(Code Civ. Proc., § 1281.9, subd. (a).)

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       In Mahnke, the insurer’s appraiser disclosed that he had
been retained by the insurer’s counsel to testify as an expert
witness on one case that was then pending. (See Mahnke, supra,
180 Cal.App.4th at p. 571.) In order to determine whether this
concurrent work should have disqualified the party appraiser as
“interested” for purposes of disqualification under section 2071,
the Mahnke court examined Gebers v. State Farm General Ins.
Co. (1995) 38 Cal.App.4th 1648, 1652-1654 (Gebers) and Figi v.
New Hampshire Ins. Co. (1980) 108 Cal.App.3d 772, 777 (Figi).
(Mahnke, supra, at pp. 575, 581.)
       In Gebers, the trial court vacated an appraisal award
because the appraiser appointed by the insurer failed to disclose
that he “was currently retained by [the insurer] as an expert
witness in two pending court actions.” (Gebers, supra, 38
Cal.App.4th at p. 1652.) The Court of Appeal affirmed because
this failure to disclose “casts considerable doubt on the
appraiser’s ability to act impartially.” (Ibid.)
       In Figi, the Court of Appeal reversed an appraisal award
where the umpire was concurrently engaged by the insured’s
counsel. Although the record did not indicate how significant
that business relationship was, or whether it involved the same
client, the umpire nevertheless could not be considered
“ ‘disinterested,’ ” “when he has done business with the insurance
company’s appraiser during the pendency of an appraisal
involving that company.” (Figi, supra, 108 Cal.App.3d at p. 777.)
       While the appellants in Figi also challenged the neutrality
of the insured’s party-appraiser, pointing out that he handled a
“ ‘good share’ ” of the umpire’s business, the Court of Appeal
disagreed this rendered the appraiser “ ‘interested’ ” as a matter

                                8
of law so as to justify vacating the award. (Figi, supra, 108
Cal.App.3d at pp. 775, 778.)
       In holding that the disclosed relationship between the
appraiser and the insured’s counsel was not so “substantial” as to
render the appraiser “interested” as a matter of law, the Mahnke
court distinguished Gebers by observing that the appraiser in
Gebers had been concurrently engaged in two litigated matters,
both involving the same insurer, whereas the appraiser
challenged in Mahnke had been retained by the same counsel to
testify as an expert in only one other pending case. (See Mahnke,
supra, 180 Cal.App.4th at pp. 580-581.) The Mahnke court
distinguished Figi on the basis that the challenged business
relationships involved the umpire’s multiple relationships with
the insured’s appraiser. (Id. at p. 581.)
       The trial court in this case was rightfully concerned about
Halpin’s failure to disclose his CCIC relationships until after the
appraisal was completed. Justice White’s concurring opinion in
Commonwealth Coatings Corp. v. Continental Casualty Co.
(1968) 393 U.S. 145 points out the obvious. “ ‘If [appraisers and
their clients] err on the side of disclosure, as they should, it will
not be difficult for courts to identify those undisclosed
relationships which are too insubstantial to warrant vacating the
award.’ ” (Mahnke, supra, 180 Cal.App.4th at p. 580, quoting
Commonwealth, supra, at p. 152 (conc. opn. of White, J.).)
       The theme of full and early disclosure was echoed in
Gebers. “An additional infirmity of equal magnitude . . . is that
the appraiser’s current dealings with [the insurer] were not
disclosed to plaintiffs. This omission is equally lethal to the
award.” (Gebers, supra, 38 Cal.App.4th at p. 1653, fn. omitted,
citing Kaiser Foundation Hospitals, Inc. v. Superior Court (1993)

                                  9
19 Cal.App.4th 513, 517 and Betz v. Pankow (1993) 16
Cal.App.4th 931, 936.)
       Further, insurance companies cannot sit idly on the
sidelines. They have an independent duty of good faith and fair
dealing towards their insureds, which includes conduct during an
appraisal procedure. (See Figi, supra, 108 Cal.App.3d at pp. 776-
777). Ensuring that their chosen appraiser fully discloses all past
and present business relationships with the counsel or parties
who nominate them is part and parcel of the duty of good faith
and fair dealing. (Ibid.)
       On the other hand, we are mindful that the doctrine of
appraiser disclosure set forth in Mahnke leaves room for
interpretation. While appraisers in section 2071 proceedings are
styled as “competent” “disinterested” and “impartial,” it goes
without saying that both parties are likely to nominate
appraisers who look at least somewhat favorably on their
respective positions. Umpires are surely aware of this point.
       Further, Halpin’s declaration states that he is not
financially dependent on CCIC, that his CCIC income has totaled
less than 2 percent of his income over the past five years, that he
has been designated as an appraiser umpire or litigation expert
in approximately 80 matters, and that none of these other
matters have involved CCIC. These statements parallel the
appraiser declaration that assuaged the Mahnke court by
“demonstrate[ing] that he possesses experience qualifying him to
act as a ‘competent’ appraiser and . . . his broad client base
distinguishes him from those professionals who regularly perform
services for particular clients (or attorneys) and become
financially dependent on them.” (Mahnke, supra, 180
Cal.App.4th at p. 582.)

                                10
       We also note that Maple took a less-than-aggressive
position over Halpin’s disclosure obligations until after the
umpire (an experienced, retired superior court judge), issued the
Award. Maple could have demanded a more specific disclosure
from CCIC up front, conducted its own investigation of Halpin’s
relationships with that company, or challenged Halpin’s selection
beforehand through a petition to the trial court rather than
waiting until it came out on the losing end. This has the ring of
“sour grapes.”
       Moreover, instead of leaving Halpin’s belated declaration
unchallenged in the trial court, Maple could have sought
discovery regarding Halpin’s work for CCIC in relation to his
other engagements and other facts regarding appraiser bias.
(See Rebmann v. Rohde (2011) 196 Cal.App.4th 1283, 1293-1294
[discussing deposition subpoena and joinder of arbitrator].)
Instead, Maple asks us to speculate as to how much Halpin was
truly dependent on CCIC’s business, and also whether Judge
Bruguera might have viewed Halpin’s appraisal differently had
she known about the ongoing and past relationships between
Halpin and CCIC. Speculation cannot support reversing an
arbitral award.
       This case falls within the gray area between Mahnke and
Gebers. On the record before us, we cannot say that Halpin’s two
additional engagements with CCIC are “substantial” under
Mahnke as a matter of law. (See Mahnke, supra, 180 Cal.App.4th
at p. 579.)

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                          DISPOSITION
     The superior court’s order vacating the Award is reversed.
The superior court is ordered to enter a new order confirming the
Award. The parties shall bear their own costs on appeal.
      NOT TO BE PUBLISHED

                                           CRANDALL, J.*

We concur:

             CHANEY, J.

             BENDIX, Acting P. J.

      *Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.

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