A party-appointed appraiser is an “arbitrator” and is barred from giving evidence about the appraisal proceeding, except for evidence that the award was procured by “corruption, fraud, or other undue means” or that the members of the panel “exceeded their powers.” (Khorsand v. Liberty Mutual Fire Ins. Co. (2018) 20 Cal.App.5th 1028)
Facts
Liberty Mutual Fire Insurance Company issued a homeowner insurance policy to Arash Khorsand and Mahshid Fahandeza. Khorsand and Fahandeza submitted a claim for damage allegedly caused by a plumbing leak, but the parties had very different evaluations of the extent of covered damage and cost of repair. Specifically, Liberty Mutual determined the cost of repair was about $34,000, while Khorsand and Fahandeza determined the cost of repair was about $482,000.
Khorsand and Fahandeza then submitted a second claim for damage allegedly caused by rain, but the parties again had very different evaluations of the extent of covered damage and cost of repair. Specifically, Liberty Mutual determined the cost of repair was about $66,000, while Khorsand and Fahandeza determined the cost of repair was about $288,000.
Because of the dispute, Khorsand and Fahandeza demanded appraisal of the damage, and ultimately obtained a court order compelling Liberty Mutual to participate in the appraisal as to both claims. In ordering the appraisal, the court directed the appraisal panel to value separately items of loss about which Liberty Mutual disputed coverage.
Each side selected an appraiser, and the two appraisers appointed an umpire. Ultimately, the umpire and Liberty Mutual’s selected appraiser signed the award, but Khorsand’s and Fahandeza’s selected appraiser did not. The award stated that the total amount of the two losses was $132,293.04 – which was only a fraction of what Khorsand and Fahandeza had sought. And, importantly, the $132,293.04 award included $96,530.37 for items about which Liberty Mutual disputed coverage.
Liberty Mutual filed a petition to confirm the award, but Khorsand and Fahandeza opposed that petition and filed their own petition to correct or vacate the award. In support of their petition to correct or vacate the award, the appraiser selected by Khorsand and Fahandeza submitted a declaration in which he provided an account of the appraisal proceedings, including his summary of the evidence presented and the appraisal panel’s deliberations. His declaration also forth his reasons for declining to sign the award.
Liberty Mutual objected to the entire declaration as inadmissible. Specifically, Liberty Mutual asserted that, subject to some exceptions, Evidence Code section 703.5 bars an “arbitrator” from testifying about any statement, conduct, decision, or ruling, occurring at or in conjunction with an arbitration. The trial judge overruled Liberty Mutuals objection, and held that Khorsand’s and Fahandeza’s appraiser was not an “arbitrator.” But even after considering Khorsand’s and Fahandeza’s appraiser’s declaration, the trial judge granted Liberty Mutual’s petition to confirm the award. Khorsand and Fahandeza then appealed.
Holding
The Court of Appeal rejected the trial judge’s ruling that Khorsand’s and Fahandeza’s appraiser was not an “arbitrator.” The Court of Appeal held that each member of the appraisal panel was an “arbitrator,” and that Evidence Code section 703.5 severely limited the extent to which an appraiser could give evidence about any statement, conduct, decision, or ruling occurring at or in conjunction with the appraisal proceeding. However, the Court of Appeal held that an appraiser could give evidence that the award was procured by “corruption, fraud, or other undue means” or that the members of the panel “exceeded their powers.”
Thus, the Court of Appeal held the trial judge should not have admitted the entire declaration into evidence but, instead, should have admitted only that part of declaration that was intended to show the award was procured by “corruption, fraud, or other undue means” or that the members of the panel “exceeded their powers.” Although the Court of Appeal held the trial judge should not have admitted the entire declaration into evidence, the Court of Appeal ultimately affirmed the trial judge’s ruling confirming the appraisal award. In other words, the Court of Appeal ruled the trial judge improperly admitted the appraiser’s entire declaration, but still reached the correct conclusion.
Comment
This case reinforces the concept that appraisers are arbitrators, albeit arbitrators with limited authority. Unlike other arbitrators, who typically decide all issues of law and fact, appraisers decide only a limited issue of fact, i.e., the amount of loss. Appraisers clearly have no authority to determine coverage issues, such as causation or policy interpretation.
This case also reinforces the concept that, if two of the three members of an appraisal panel sign an award, the award can be vacated or corrected only for extremely limited reasons. And, as illustrated in this case, a member of the appraisal panel is barred from giving evidence about any statement, conduct, decision, or ruling occurring at or in conjunction with the appraisal proceeding. Instead, a member of the appraisal panel is limited to giving evidence the award was procured by “corruption, fraud, or other undue means” or that the members of the panel “exceeded their powers.”