In June, an appellate court in California reversed a trial court's confirmation of an appraisal award where the appraisal panel assigned loss values to certain items that the insured claimed in a fire loss that either did not exist or were undamaged. That decision, Lee v. California Capital Insurance Company,1 is interesting for several reasons and addresses important aspects of the appraisal process in California which I will cover. This week, I will focus solely on the grounds by which an appraisal award can be vacated.
In California, similar to most other jurisdictions, the rules that apply to the arbitration process also apply to insurance appraisals. California's Code of Civil Procedure section 1286.2 sets forth the exclusive grounds for vacating an arbitration/appraisal award:
- The award was procured by corruption, fraud or other undue means.
- There was corruption in any of the arbitrators.
- The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.
- The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.
- The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.
- An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in [Code of Civil Procedure] Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision.
So, in the insurance appraisal context, for the above to make sense, any reference to an "arbitrator" needs to be replaced with an "umpire" and the term "party" can be substituted with the insured or insurer. Also, keep in mind that when the court reviews an appraisal award, it is "not the court's role to review the merits of the controversy or to determine whether the evidence is sufficient to support the appraisal award."2 In other words, the court can only vacate an appraisal award if it determines any of the above occurred.