State Farm Fire & Casualty v. Hardin

• Decision Date: 13 June 1989
• Docket Number: No. B034189,B034189
• Citation: 259 Cal.Rptr. 433,211 Cal.App.3d 501
• Court: California Court of Appeals Court of Appeals
• Parties: STATE FARM FIRE AND CASUALTY, Plaintiff and Respondent, v. Dennis R. HARDIN, et al., Defendants and Appellants.

Page 433

259 Cal.Rptr. 433

211 Cal.App.3d 501

STATE FARM FIRE AND CASUALTY, Plaintiff and Respondent, v. Dennis R. HARDIN, et al., Defendants and Appellants.

No. B034189.

Court of Appeal, Second District, Division 7, California.

June 13, 1989.

Levine, Steinberg & DePasquale and Rick L. Bove, San Diego, for defendants and appellants.

Barry Zalma, Culver City, for plaintiff and respondent.

LILLIE, Presiding Justice.

Dennis and Mary Ellen Hardin appeal from order directing that a dispute between them and State Farm Fire and Casualty concerning the amount of loss caused by a January 1987 fire to the Hardin property be submitted to appraisal arbitration, and denying the Hardins' cross-petition for an order setting the scope of arbitration.

FACTS

In January 1987, fire damaged the Hardins' 18,000 square foot residence which was under construction and scheduled for completion in March 1987. The Hardins submitted to State Farm claims for damage to the residence under their Homeowner's Policy which provided fire insurance coverage on the property. The policy provides for an appraisal process to resolve disagreements concerning the amount of the loss. Pursuant to the policy, the insured and insurer each select an appraiser; the two appraisers then select a competent, impartial umpire; if the two appraisers are unable to agree on the amount of the loss, they then submit their differences to the umpire; a written agreement signed by any two of these three sets the amount of the loss.

On February 10, 1987, State Farm, after conducting a preliminary investigation, issued a draft for $100,000 to the Hardins as an "advance payment" under the terms of the policy. On February 19, the Hardins provided to State Farm a detailed repair estimate prepared by their contractor in the amount of $869,454.

Between February and March 30, the Hardins and their contractor met with agents and representatives of State Farm and a contractor retained by State Farm to prepare cost estimates pertaining to the fire loss. On March 30, State Farm paid to the Hardins an additional $398,862, which, along with the $100,000 already paid, brought the total amount paid by State Farm to $498,862, which was the cost estimate of the loss prepared for State Farm by G. R. Pollock & Associates. In a letter to the Hardins dated March 30, 1987, State Farm advised that "It is the Company's position that the repair estimate of $498,862.00 is a fair and equitable estimate of repair costs. It is further the Company's position that since both parties to the policy are in disagreement over repair costs, we elect appraisal as set forth under your policy.... [p] [State Farm] does not dispute a repair cost estimate of $498,862.00. As such, [we] enclose a draft for $398,862.00.... [p] Please be advised that [State Farm] does not intend by this letter, to waive any of the policy provisions or conditions...."

Thereafter, the Hardins retained numerous subcontractors and workmen to perform fire restoration work on the property. Further, both State Farm and the Hardins each designated an appraiser and the two appraisers selected a neutral umpire. In Mrs. Hardin's April 10 letter to State Farm, she stated that the amount paid by State Farm "did not include loss of use, financing, but simply repair of the fire damaged area. You have offered, subject to approval, another $45,500.00 additionally to settle the fire portion.... [Y]our offer of settlement did not include some very basic items such as cabinetry in the bathroom, $3,600.00 for spraying, $7,200.00 for baseboard molding, as well as overhead and profit on these items which clearly were a part of the loss." Mrs. Hardin's letter also stated that State Farm had been presented with the Hardins' additional claim in the amount of $405,444.92, which appropriately may be included under coverage for loss of use.

In a June 12 letter to State Farm's attorney, Mrs. Hardin wrote that "the damage as a result of the fire to the building is more extensive than originally reflected in our Proof of Loss Statement. Additional smoke and water damage is becoming evident and we are currently securing engineering statements as well as estimates on the repair of this more extensive damage." Mrs. Hardin's July 13 letter to State Farm's attorney indicated that the Proof of Loss must also be expanded to include warping of floor joists and water, smoke and mildew damage.

Preliminarily to the appraisal hearing, and on August 21, 1987, at a meeting of the appraisers, the umpire, and representatives of State Farm and the Hardins, the Hardins attempted to set the scope of the appraisal process to include only those items not reflected in State Farm's cost estimate prepared by G. R. Pollack & Associates. The position of the Hardins at that meeting was that because State Farm tendered the sum of $498,862 as "undisputed" based on the G. R. Pollack & Associates specific and detailed cost estimate, and because the appraiser selected by the Hardins agreed with nearly all of the figures in State Farm's cost estimate, the only items from such cost estimate remaining for appraisal were those items with which the Hardin's appraiser disagreed and those items allegedly omitted from the cost estimate. At that meeting, it was apparently agreed that the scope of the appraisal would be so limited. The date of the appraisal was also continued.

Thereafter, State Farm informed the Hardins' attorney that it intended to submit the entire structural damage loss to the appraisal process. On October 30, State Farm's attorney wrote to the Hardins' attorney that "You have, incorrectly we believe, felt it necessary to bring before the appraisers [State Farm's March 30] letter that accompanied the payment of monies to the Hardins and have attempted to make an issue of the statement that the payment was made as an 'undisputed amount.' That statement has, under the authorities cited to you above, no place in an appraisal. To bring it forward, into evidence for the consideration of the appraisers, appears to be an attempt to relieve the appraisers of the impartiality that is required of them by the policy and the law. Your actions also seem an attempt to remove from the appraisers the ability to be, as they are required by statute and the policy, disinterested.... Since it is clear that we have a disagreement concerning the scope of the appraisal we will be filing shortly a Petition ... requesting an order compelling the appraisal to proceed expeditiously and judicial direction as to the scope of the appraisers' duties."

On December 3, 1987, State Farm filed Petition to Compel Arbitration and for Directions to the Arbitrator. The Hardins filed a response to State Farm's petition and also filed Cross-Petition for Order Setting the Scope of Arbitration. In their cross-petition, the Hardins contended that in reliance upon State Farm's representations that the $498,862 was being tendered as "undisputed" based on its cost estimate, they entered into agreements with workmen...