Greenbrier Hotel Corp. v. Lexington Ins. Co., No. 5:14-cv-15201, 2017 WL 589544 (S.D. W. Va. Nov. 29, 2017)

This is one of very few recent decisions discussing the standard to apply under West Virginia law to review an appraisal award.  The decision is also notable because the Court held, under West Virginia law, that if an insurer properly invokes appraisal, and timely complies with an appraisal award, that a breach of contract claim will not lie against the insurer.  The Court also held that if an insured does not “prevail” at an appraisal, the insured is not entitled to Hayseeds (bad faith) damages under West Virginia law.

The Greenbrier Hotel Corporation (“Greenbrier” or “Plaintiff”) was to host the Greenbrier Classic golf tournament in early July 2012. Three days prior to the event, a derecho occurred causing certain property damage.  The tournament, however, was able to proceed. Afterwards, the Greenbrier submitted a business interruption claim, asserting it suffered a loss of business during the nine months following the derecho.  MCWG’s clients, the Greenbrier’s insurers (the “Insurers”) disagreed as to the value of the claim, and the Court ordered an appraisal to proceed.

The Greenbrier’s expert valued the business interruption loss at over $16 million.  The Insurers’ accountant concluded that there was no business interruption loss after the golf tournament and it valued the business interruption during the tournament at roughly $800,000, which the Insurers paid prior to suit. A majority of the appraisal panel sided with the Insurers on the business interruption valuation, and awarded $57,000 for social media hire and advertising, which was paid promptly by the Insurers.

The Greenbrier sought to vacate the appraisal arguing that the panel relied on an incorrect analysis by the Insurers’ accountant.  Greenbrier also argued the panel erred by not allowing live witness testimony at the appraisal hearing.  The Insurers argued that the Greenbrier was attempting to re-argue the appraisal on the merits and that the panel followed a commonly-accepted practice of accepting direct testimony via affidavit and limiting live witness testimony to cross-examination.

The Insurers cross-moved for summary judgment dismissing Greenbrier’s breach of contract claim, including Hayseeds damages, on the basis that the Insurers properly sought appraisal and timely complied with the appraisal award.

The District Court denied Plaintiff’s motion, finding that the standard to vacate an appraisal award is “misconduct, fraud, partiality, or clerical error” and that the Greenbrier had not met that standard.  The court further stated it would not second guess the panel’s review of the evidence. The court also did not agree with Plaintiff that the appraisal process was flawed because the panel relied primarily on affidavits and written evidence, which it found common to appraisals.

The court went on to grant the Insurers’ motion for summary judgment, holding that the Insurers had properly sought appraisal, and had timely paid the appraisal award.  Therefore, they had not breached their contracts. The court also found that the Greenbrier had not “prevailed” at the appraisal and thus was not entitled to Hayseeds damages.

For inquiries about this decision, please contact partners Wayne Glaubinger or James Dennis.

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