Enforcement of Appraisal Procedure
Fed. Ins. Co. v. Anderson, No. 18-CV-06920-JST, 2019 WL 8128570 (N.D. Cal. Sept. 27, 2019)
In this case, the insurer successfully moved to compel an appraisal to establish disputed valuations under its insurance policy. The insureds had purchased a luxury home situated on a 20-acre estate in California’s wine country, only to have the home burn down before it was occupied. The issue in dispute was the cost to rebuild the home. Federal Insurance Company paid over $3 million on the claim, but the insureds, who elected to replace the home with a structure approximately twice its size, claimed that it would have cost over $6 million to rebuild the home as it existed at the time of the fire.
Federal invoked the insurance policy’s appraisal procedure, but the insureds refused to participate. Federal brought an action for declaratory relief seeking to enforce its right to appraisal, and the insureds filed cross-claims for breach of contract and bad faith. The insureds argued that the parties’ dispute should proceed in court, not via appraisal, because the dispute involved legal issues relating to the insureds’ causes of action, and because Federal’s methodology for calculating the costs to replace the home was flawed, such that the appraisal could not proceed.
The court agreed with Federal, stayed the litigation and ordered the insureds to comply with the insurance policy’s appraisal provision. It held that the duty to resolve disputes through appraisal was governed by federal and state arbitration law, which mandated that appraisal proceed prior to any litigation of coverage issues or other challenges.