Amerex Grp., Inc. v. Lexington Ins. Co.

• Decision Date: 10 May 2012
• Docket Number: Docket No. 10–4163–cv.
• Parties: AMEREX GROUP, INC., Amerex USA Inc., Plaintiffs–Appellants, v. LEXINGTON INSURANCE COMPANY, Westchester Surplus Lines Insurance Company, Defendants–Appellees, Ace USA, Defendant.
• Court: U.S. Court of Appeals — Second Circuit

678 F.3d 193

AMEREX GROUP, INC., Amerex USA Inc., Plaintiffs–Appellants,

v.LEXINGTON INSURANCE COMPANY, Westchester Surplus Lines Insurance Company, Defendants–Appellees,Ace USA, Defendant.

Docket No. 10–4163–cv.

United States Court of Appeals,Second Circuit.

Argued: Nov. 28, 2011.

Decided: May 10, 2012.

Dennis T. D'Antonio, Weg & Myers, P.C., New York, New York (Joshua L. Mallin, Jonathan C. Corbett, on the brief), for Plaintiffs–Appellants.

Mark L. Antin, Gennet, Kallmann, Antin & Robinson, P.C., Parsippany, New Jersey, for Defendants–Appellees.

Before: HALL, LYNCH, and CHIN, Circuit Judges.

GERARD E. LYNCH, Circuit Judge:

This case arises from a longstanding insurance dispute between plaintiffs-appellants Amerex Group, Inc., and Amerex USA Inc. (“Amerex”), and their excess insurers, defendants-appellees Lexington Insurance Company and Westchester Surplus Lines Insurance Company (“Excess Insurers”). Amerex initiated this suit on April 23, 2007, in the United States District Court for the Southern District of New York, after nearly four years of investigation of its claim by the Excess Insurers and mediation between the parties. The Excess Insurers responded to the complaint by moving to compel appraisal according to the terms of the insurance policies. The district court (Harold Baer, J.) granted the Excess Insurers' motion. In accordance with the parties' contract, each side appointed a member of the appraisal panel (“Panel”), and, when the parties failed to agree on the appointment of the Panel's umpire, the district court appointed one at their request. The fully-constituted Panel conducted its 30–month valuation and ultimately quantified Amerex's loss at less than the value of its primary insurance contract, thus rendering the Excess Insurers' policies inapplicable to Amerex's claims. The Excess Insurers moved thereafter for partial summary judgment ¹ on the basis of this appraisal, and the district court granted the motion, dismissing Amerex's complaint.

Amerex now appeals both the order to compel appraisal and the subsequent order confirming the appraisal and dismissing its complaint, arguing that (1) the Excess Insurers waived their appraisal rights by failing to demand appraisal prior to the initiation of litigation; (2) the appraisers decided questions of coverage, contrary to New York law; and (3) the appraisal process became an arbitration with one-sided discovery, thus violating Amerex's due process rights. We conclude that a demand for appraisal was not untimely; that the appraisers did not decide questions of coverage; and that the appraisal procedures did not violate Amerex's due process rights even though the appraisal process allowed the Excess Insurers to make use of evidence gained through their previous investigations without allowing Amerex to pursue the additional documentary and testimonial discovery that the company sought. The district court's orders are thus affirmed in all respects.

BACKGROUND

I. Facts

The facts in this case are largely undisputed, except where noted. Because the district court granted the Excess Insurers' motion for summary judgment, we review disputed facts in the light most favorable to Amerex. See Amador v. Andrews, 655 F.3d 89, 94 (2d Cir.2011).

Amerex distributes outerwear in the United States, acting as an intermediary between its wholesale customers and overseas clothing manufacturers. The company stored some of the clothing that awaited shipment to its customers in its warehouse in Avenel, New Jersey, on a large rack system that facilitated the clothing's storage and organization.

On August 3, 2001, the rack collapsed, activating the warehouse's sprinkler system, which flooded the premises. The water not only damaged Amerex's merchandise, but also rendered its computer system inoperable for “one to three weeks,” and thus prevented Amerex from making promised deliveries. The damages associated with the collapse included lost merchandise, cancellation of orders, late charges for orders fulfilled, and lost business income.

To manage the risk of such losses, Amerex carried three insurance policies. The first, issued by Fireman's Fund Insurance Company (“Fireman's Fund”), served as Amerex's primary insurance, and covered damages associated with the warehouse, business personal property, business income, and other such losses, up to a limit of $2.5 million. The second and third policies, issued by appellees, provided insurance in excess of the Fireman's Fund policy. Each excess policy had a liability limit of $5 million, for a total of $10 million beyond the coverage provided by Fireman's Fund.

The excess insurance policies contained substantially identical clauses that allowed either party to insist in writing on the appointment of an appraisal panel to determine the extent of losses associated with any claim. The appraisal clause does not specify any time limit for making such a demand, and instead focuses on the procedure used to appoint the Panel.

Two years after the rack collapse, on or about June 12, 2003, Amerex submitted its proof of loss to Fireman's Fund and the Excess Insurers, claiming total damages of $8.8 million. Fireman's Fund paid the full amount of its policy; Amerex then sought coverage from the Excess Insurers for the remaining $6.3 million. The Excess Insurers investigated the claim until October 2005. During the course of this investigation, the Excess Insurers interviewed certain Amerex employees concerning the nature of the business and reviewed financial statements and other documents.

At times, Amerex appears to have prolonged the Excess Insurers' investigation. Some documents requested were not immediately forthcoming. The Insurers also requested, but Amerex could not produce, various other documents concerning Amerex's shipping and delivery reports and the quantities and/or prices of merchandise shipped during the period preceding the rack collapse.

Ultimately, on February 21, 2006, the Excess Insurers rejected Amerex's claim on three bases: (1) Amerex's failure to substantiate a number of aspects of its claims, due to the lack of documentary evidence; (2) alternative explanations for the loss of business income that Amerex reported, including the September 11, 2001, terrorist attacks, economic recession, and the bankruptcies of some major customers; and (3) Amerex's improper determination of the proper “restoration period,” that is, the date after which business losses could no longer be attributed to the rack collapse or computer failure.

The parties agreed to meet to discuss the terms of the rejection and the Excess Insurers' claim analysis. During the meeting, the Excess Insurers' consultants and forensic accountants discussed with Amerex the findings that led them to recommend rejecting Amerex's claim. After that meeting, in April 2006, the parties agreed to mediate their dispute. In the mediation, the Excess Insurers provided significant documentary evidence to Amerex. Amerex's own experts also presented their calculation of damages to the mediator. In April 2007, after conferring with the mediator, the Excess Insurers made a final offer. Without responding to that offer, Amerex filed the present lawsuit on April 23, 2007.

II. District Court Proceedings

On June 4, 2007, after Amerex had filed its complaint, the Excess Insurers wrote to Amerex demanding appraisal and answered the complaint the next day, listing the appraisal demand among their affirmative defenses. The Excess Insurers then moved to compel an appraisal. Amerex rejected the demand and contested the motion, claiming that the demand was untimely and was asserted only to preclude Amerex from prosecuting its claim and obtaining discovery. Amerex also argued that appraisal was inappropriate because the nature of its claims would require the appraiser to resolve issues of coverage, which, under governing law, the appraiser was not permitted to do.

The district court granted the Excess Insurers' motion to compel appraisal on September 19, 2007. Subject to the terms of their contract, each party appointed one member of the Panel, and, when the parties could not agree on the Panel's umpire, they petitioned the district court to make that appointment. The district court did so and then stayed the litigation pending resolution of the appraisal.

III. Appraisal

In conducting the appraisal, the Panel reviewed documentary and testimonial evidence similar to that reviewed during both the Excess Insurers' initial investigation and the subsequent mediation. The appraisal proceeding included the examination and cross-examination of witnesses, and a day exclusively set aside for Amerex's rebuttal. On June 15, 2010, after almost two and a half years of review, the Panel issued its valuation decision, finding that Amerex's damages amounted to approximately $1.3 million, just more than half of the value of Amerex's insurance policy with Fireman's Fund. Pursuant to the parties' agreement, the Panel did not disclose most of its valuation methodology. It did, however, determine that the period of restoration concluded on October 31, 2001. Amerex's appointed Panel member did not register a vote on the appraisal, declining to indicate whether he agreed or disagreed with the Umpire's conclusions.

Because the Panel valued Amerex's losses at less than the $2.5 million the company had already received from its primary insurance carrier, thereby precluding recovery from the Excess Insurers under the terms of their policies, the Excess Insurers moved in district court for summary judgment. The district court granted the Excess Insurers' motion and dismissed Amerex's complaint. In doing so, the district court held, inter alia, that “the appraisal panel ... evaluated only the amount of loss of income suffered by Amerex” and “did not evaluate, for example, the scope of coverage provided by the insurance policy.” Amerex Grp., Inc. v. Lexington Ins. Co., No. 07 Civ. 3259, 2010 WL...