Michael v. Aetna Life & Casualty Ins.

• Decision Date: 30 April 2001
• Citation: 106 Cal.Rptr.2d 240,88 Cal.App.4th 925
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 2 Dist. 2001) MAHFOUZ MICHAEL, Plaintiff and Respondent, v. AETNA LIFE & CASUALTY INSURANCE CO. et al., Defendants and Appellants. B131509 Filed

106 Cal.Rptr.2d 240 (Cal.App. 2 Dist. 2001)

MAHFOUZ MICHAEL, Plaintiff and Respondent, v. AETNA LIFE & CASUALTY INSURANCE CO. et al., Defendants and Appellants.

B131509

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION THREE

Filed 4/30/01

Amended 5/30/01

APPEAL from an order of the Superior Court of Los Angeles County, Marvin M. Lager, Judge. Reversed and remanded with directions. (Los Angeles County Super. Ct. No. BC158268)

Breidenbach, Buckley, Huchting, Halm & Hamblet, Gary A. Hamblet and Kendall Caudry for Defendants and Appellants Aetna Life & Casualty Insurance Co. and Farmington Casualty Company.

Robie & Matthai, Pamela E. Dunn and Daniel J. Koes for United Services Automobile Association and State Farm General Insurance Company, as Amici Curiae on behalf of Defendants and Appellants.

Daniel E. Budorick for Plaintiff and Respondent.

Quisenberry & Kabateck, Brian S. Kabateck, Terry R. Bailey, Paul N. Philips and Penny J. Manship as Amici Curiae on behalf of Plaintiff and Respondent.

CERTIFIED FOR PUBLICATION

KITCHING, J.

I. INTRODUCTION

An insurer appeals from an order vacating a fire insurance appraisal award because of alleged "corruption" in a party-selected appraiser pursuant to Code of Civil Procedure section 1286.2, subdivision (b).¹ Insurance Code section 2071 requires appraisers to be "disinterested." Since an appraisal agreement is subject to the California Arbitration Act ( 1280 et seq.), we conclude that to be "disinterested," a party-selected appraiser must make the disclosure that section 1281.9, subdivision (e) requires all arbitrators to make.

Among other requirements, section 1281.9, subdivision (e) requires an appraiser to disclose matters that would cause a person aware of the facts to reasonably entertain a doubt that the appraiser would be able to be impartial. We find that a failure to make this disclosure constitutes "corruption in any of the arbitrators" and therefore provides a ground for vacating an appraisal award under section 1286.2, subdivision (b). In this case, under section 1281.9, subdivision (e), the facts did not require disclosure by the party-selected appraiser. Therefore no "corruption" in the appraiser existed that required vacation of the appraisal award pursuant to section 1286.2, subdivision (b). We therefore reverse the order vacating the appraisal award.

II. FACTS AND PROCEDURAL HISTORY

Plaintiff Dr. Mahfouz Michael, doing business as Mark John Medical Group ("Michael"), conducted a medical practice in a building at 2651 South Western Avenue in Los Angeles. Aetna Life & Casualty Insurance Company ("Aetna"), affiliated with Farmington Casualty Company ("Farmington"), issued a policy insuring those premises. During rioting on April 30, 1992, fire destroyed the insured premises.

Michael notified Aetna of the loss and demanded indemnification for damage to the building and interruption of the business. When Aetna failed to compensate him for these losses, Michael sued Aetna for breach of insurance contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty.

The fire insurance policy contained a clause providing for an appraisal procedure to resolve disputes about the value of property or the amount of loss.² Aetna exercised its right under the policy and initiated an appraisal.

Before August 1, 1997, Aetna selected R. Dixon Grier, a certified public accountant and a member of the firm of Matson, Driscoll & Damico ("MD&D") as its appraiser. Michael selected David Fox as his appraiser. Grier and Fox selected John Costello as umpire. After appraisal proceedings on January 28, 1998, the panel's award issued February 17, 1998, determined that Mark John Medical Group sustained $356,249 in lost business income and incurred $95,000 necessary expenses. Umpire Costello and Appraiser Grier signed the award. Appraiser Fox did not sign the award.

On May 28, 1998, Michael moved to correct or vacate the appraisal panel's award pursuant to section 1286.2. Michael requested vacation of the award on the ground that there was corruption in Aetna's arbitrator, and specifically that Aetna's appraiser Grier failed to inform Michael of Grier's prior and ongoing relationship with Aetna. Michael alleged that Grier worked for Aetna on prior occasions, that the relationship of Grier and MD&D with Aetna meant Grier was not disinterested, and these business relationships and Grier's failure to disclose them prohibited Grier from acting as appraiser.

Aetna's opposition addressed two of Michael's allegations of impropriety: (1) that Grier acted as a party-selected arbitrator for Aetna in an insurance claim by Sea Mar International, and (2) that other members of MD&D did business with Aetna. Aetna's opposition argued that this evidence did not show sufficient bias to justify vacating the award.

Michael's reply relied on further evidence discovered while the petition to vacate was pending. According to that evidence, Aetna made payments to the MD&D firm during 1996, 1997, and 1998, and made payments to MD&D specifically for Grier's services in another arbitration, Bradford Personnel v. Trammell Crow.

On February 26, 1999, the trial court ruled that Insurance Code section 2071 required a party-selected appraiser to be "disinterested." It found that because MD&D did substantial business with Aetna and some income went to Grier or to Grier's professional corporation, the association between Aetna and MD&D had significant potential advantage to Grier, which was an impermissible financial interest. The court found that, at a minimum, there existed an impression of possible bias sufficient to disqualify Grier, and vacated the appraisal award.

Aetna filed a timely notice of appeal on April 23, 1999.

III. ISSUES

The main issues in this case are:

1. Whether this appeal was properly taken;

2. What Insurance Code section 2071 means when it requires a party-selected appraiser to be "disinterested;"

3. What disclosure a party-selected appraiser must make to the parties of an appraisal pursuant to section 1281.9, subdivision (e);

4. Whether the failure to make the disclosure required by section 1281.9, subdivision (e) constitutes "corruption in any of the arbitrators" as provided by section 1286.2, subdivision (b); and

5. Whether substantial evidence supports the vacation of the appraisal award in this case.

IV. APPEALABILITY

Section 1294, subdivision (c) states: "An aggrieved party may appeal from: [] . . . [] An order vacating an award unless a rehearing in arbitration is ordered." Aetna appealed from the trial court's February 26, 1999, order vacating the appraisal award and setting a status conference for March 31, 1999. Michael claims that because a September 24, 1999, reporter's transcript shows that the trial court granted Aetna's request to compel a new appraisal, the February 26, 1999, order is not appealable. We disagree.

First, the record on appeal contains no order reflecting the September 24, 1999, ruling, which appears only in a reporter's transcript. An order is a document which is either entered in the court's permanent minutes or signed by the judge and stamped "filed." (Shpiller v. Harry C.'s Redlands (1993) 13 Cal.App.4th 1177, 1179.)

Second, the notice of appeal divested the trial court of jurisdiction. This rule protects the appellate court's jurisdiction by preserving the status quo until this court decides the appeal, and prevents the trial court from rendering an appeal futile by altering the appealed order by conducting other proceedings that may affect it. (Betz v. Pankow (1993) 16 Cal.App.4th 931, 938.) As the trial court lacked jurisdiction, the ruling on September 24, 1999, granting a request to compel a new appraisal provides no basis for the exception to appealability in section 1294, subdivision (c).

We conclude that the appeal is properly taken.

V. THE STANDARD OF REVIEW

This court independently reviews whether a trial court has correctly construed the relevant statutes. (Garamendi v. Executive Life Ins. Co. (1993) 17 Cal.App.4th 504, 512-513.) The trier of fact determines the factual question whether a particular relationship requires disclosure in each case. (Figi v. New Hampshire Ins. Co. (1980) 108 Cal.App.3d 772, 776; Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 527.) This court reviews the trial court's factual findings relating to its vacation of the award according to the substantial evidence rule. (Webb v. West Side District Hospital (1983) 144 Cal.App.3d 946, 949, overruled on other grounds, Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 32.)

VI. DISCUSSION

A. The California Arbitration Act Governs the Appraisal Procedure in Insurance Code Section 2071

As reflected in the Aetna insurance policy, Insurance Code sections 2070 and 2071 governing fire insurance policies in California establish an "appraisal" procedure when the insured and the insurer cannot agree on the cash value or the amount of loss. Insurance Code section 2071 requires the standard form of fire insurance policy to state, in relevant part: "In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon such umpire, then, on request of the insured or this company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this...