Figi v. New Hampshire Ins. Co.

• Decision Date: 30 July 1980
• Citation: 108 Cal.App.3d 772,166 Cal.Rptr. 774
• Court: California Court of Appeals Court of Appeals
• Parties: Todd FIGI, etc. et al., Appellants, v. NEW HAMPSHIRE INSURANCE COMPANY, Respondent. Civ. 22123.

Page 774

166 Cal.Rptr. 774

108 Cal.App.3d 772

Todd FIGI, etc. et al., Appellants, v. NEW HAMPSHIRE INSURANCE COMPANY, Respondent.

Civ. 22123.

Court of Appeal, Fourth District, Division 1, California.

July 30, 1980.

Hearing denied October 1. 1980.

Popko & Cornblum and Bruce Cornblum, San Diego, for appellants.

Rhoades & Hollywood and Harrison R. Hollywood and Bruce E. Sulzner, San Diego, for respondent.

COLOGNE, Acting Presiding Justice.

Todd Figi appeals the judgment confirming arbitrators' award on the ground undisclosed business relationships between the neutral arbitrator, the insurance company arbitrator and the respondent insurance company New Hampshire Insurance Company (New Hampshire) give the appearance of bias and furnish grounds to vacate the award for fraud and corruption (Code Civ.Proc., § 1286.2, subd. (a)).

Figi sustained a fire loss insured by New Hampshire and the matter was submitted to arbitration. Both Figi and New Hampshire selected as their arbitrators independent insurance adjusters: Gary G. McKay, who normally represents claimants, for Figi; and Dick Walsh, who generally works for insurance companies, for New Hampshire. McKay and Walsh selected the neutral arbitrator, Milton Stern, a certified public accountant regarded by both Walsh and McKay as the only available competent umpire for this dispute. Stern initially resisted appointment because of a longstanding personal friendship with Figi's arbitrator, McKay, but McKay and Walsh persuaded him to serve. The arbitration hearing took place May 30, 1978, resulting in an award of $11,929. Figi thought it should be about $40,000. Shortly afterward, McKay demanded disclosure of alleged relationships between Stern and Walsh. It was determined between March 29 or March 30, 1978, when Stern agreed to act as neutral arbitrator, and the time of the award on June 7, Stern worked as an accountant for Walsh, determining business interruption losses on five matters, none involving New Hampshire, for a total of approximately $847.15 in fees, paid by the insurance companies involved, at the direction of Walsh. Stern normally does this type of work for insurance company adjusters. There was no showing of what part of his total income for the period is represented by these fees. It was further asserted Walsh, as an independent adjuster, handles a "good share" of the business of New Hampshire in San Diego. Again, the precise quantity represented by that "good share" is not established. There was no showing any of the matters Stern worked on for Walsh involved New Hampshire. Further, all three arbitrators were well acquainted and had worked together previously, and as stated, McKay and Stern were personal friends as well.

New Hampshire contends Figi's lateness in noticing its motion to vacate was a waiver of its right to object; there is evidence supporting an inference Figi knew of the relationships and waived objection; and substantial record evidence warrants the trial court's finding the relationships were not sufficiently important to require disclosure. The trial court denied the motion to vacate and confirmed the arbitration award without making specific findings. The judgment recited there are no factual allegations of wrongdoing; the award is fair, just and reasonable; and "no appearance of corruption or fraud exists."

Figi first refused to accept the arbitration award on June 14, 1978; he filed his petition to vacate award on August 10, 1978, which was timely; but he then waited eight months, until April 12, 1979, to notice the motion to vacate.

In general, significant or substantial business relationships between the neutral arbitrator and a party or his representative must be disclosed to the other party, to avoid the appearance of impropriety, but ordinary and insubstantial business dealings do not necessarily require disclosure. (Commonwealth Coatings Corp. v. Continental Casualty Company, 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301; Wheeler v. St. Joseph Hospital, 63 Cal.App.3d 345, 369, 133 Cal.Rptr. 775 et seq.; Gonzales v. Interinsurance Exchange, 84 Cal.App.3d 58, 64, 148 Cal.Rptr. 282; San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elec. Co., 28 Cal.App.3d 556, 567-568, 104 Cal.Rptr. 733; Johnston v. Security Ins. Co., 6 Cal.App.3d 839, 842-843, 86 Cal.Rptr. 133.) Whether a particular relationship requires disclosure is a factual question to be determined by the trier of fact in each case (San Luis Obispo Bay Properties, Inc., supra, 28 Cal.App.3d 556, 568, 104 Cal.Rptr. 733). Because arbitrators are selected for their familiarity with the type of business dispute involved, they are not expected to be entirely without business contacts in the particular field, but they should disclose any repeated or significant contacts which they may have with a party to the dispute, his attorney or his chosen arbitrator. (See discussion in Commonwealth Coatings Corp., supra, requiring disclosure where the neutral arbitrator, an engineering consultant, had been hired repeatedly by one of the disputants and had rendered services on the very project involved in the controversy.) The court in Commonwealth Coatings Corp. required not severance from the business world, but disclosure. (Commonwealth Coatings Corp. v. Continental Casualty Company, supra, 393 U.S. 145, 148-149, 89 S.Ct. 337, 339, 21 L.Ed.2d 301, cited and applied in Johnston v. Security Ins. Co., supra, 6 Cal.App.3d at p. 842, 86 Cal.Rptr. 133.)

Arbitration under insurance policies is governed not only by the general provisions of the Code of Civil Procedure relating to arbitration and the cases under these statutes discussed above, but also by specific provisions of the Insurance Code and particular judicial doctrines applicable to the insurance contract. First, Insurance Code sections 2070 and 2071 mandate a standard form of fire insurance policy which, under section 2071, must contain, among other things, a standard appraisal clause which provides if the insured and the company disagree as to the actual cash value of a loss, then each shall select a "competent and...