Judge: Michael Small, Case: 21STCV21544, Date: 2024-04-12 Tentative Ruling

Case Number: 21STCV21544    Hearing Date: April 12, 2024    Dept: 57

Emanuel Shirazi (“Shirazi”) was insured for property damage under an insurance policy (“the Policy”) issued by California Automobile Insurance Company (“CAIC”).   Shirazi sued CAIC for breach of contract and breach of the implied covenant and good faith and fair dealing, alleging that CAIC failed to provide coverage that Shirzai says he was owed under the Policy for damage he sustained to his property arising from a water leak that occurred when a plumbing supply line burst.  Pending before the Court is Shirazi’s motion to compel an appraisal of the amount of his loss from the damage to his property.  CAIC opposes the motion on the ground that Shirzai has waived his right to an appraisal by unreasonably delaying in requesting one.  The Court agrees with CAIC and is therefore denying Shirazi’s motion.

Both Shirazi and CAIC have a right to an appraisal under the Policy.  In pertinent part, the Policy provides that if the parties cannot “agree on the amount, cause or extent of the loss, either one can request that the amount, cause or extent of the loss be set by appraisal.”  This provision conforms to the requirements of standard form insurance policies set forth in Section 2071 of the Insurance Code, which states, in pertinent part, that in the event of a dispute “as to the actual cash value [“ACV”] or the amount of loss,” either the insurer or insured may “request” an appraisal to determine the ACV or amount of loss.  Section 2071 goes on to set forth the appraisal procedure “[w]here the request is accepted.” (Ins. Code, § 2071.)

“Appraisal proceedings are a form of informal arbitration and generally are subject to the rules governing arbitration. “ (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023) ¶ 15:357 [“Croskey”].) This fundamental point is manifested in the California Arbitration Act, which defines arbitration agreements to include “agreements providing for . . . appraisal . .  . .”  (Code of Civil Procedure, § 1280(a); see ( Louise Gardens of Encino Homeowners’ Ass’n, Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 658 [“An agreement to conduct an appraisal contained in a policy of insurance constitutes an ‘agreement’ within the meaning of section 1280, subdivision (a), and therefore is considered to be an arbitration agreement subject to the  statutory contractual arbitration law.”)  Among the rules governing arbitration is that a contractual right to arbitration can be waived.   (Code of Civil Procedure § 1281.2(a).)  To determine whether such a waiver has occurred, courts apply the following factors: “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been  substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” [Citation] (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.)  The party claiming that there has been a waiver of arbitration rights bears the burden of proving that to be the case.  (Id. at p. 1195.)

Based on the factual record the parties have assembled in connection with Shirazi’s motion for an appraisal, the Court finds that CAIC has carried its burden of proving that Shirazi waived his right to an appraisal.  The record shows the following events.

The water leak at Shirzai’s property from which this case stems occurred on or about November 23, 2019.   Shirazi’s made a claim on or about that day to CAIC under the Policy for water damage to his property arising from the leak.  Shortly thereafter, CAIC’s adjuster inspected Shirazi’s property and wrote an estimate for damages to the kitchen and dining room at the property, concluding that the damages were limited to the drywall and paint in those rooms.  Next, CAIC reassigned the claim to Romeo Gateb, who inspected Shirzai’s property on December 9, 2019.  During that inspection, Gateb concluded that kitchen cabinets, wood flooring and the electrical panel did not show signs of water damage.  As a result of Gateb’s inspection, CAIC made a building payment to Shirazi for $2,572.79 on December 27, 2019.  An additional policy limit payment for $5,000.00 was also made on December 27, 2019 for the mold remediation

related to the loss.  A supplemental building payment was  made on February 4, 2020 for $1,051.60.

On October 30, 2020, Shirazi, by and through his public adjuster Leland Coontz, requested an appraisal.  By letter to Coontz dated November 5, 2020, CAIC acknowledged receipt of Shirazi’s request for appraisal and asked Shirazi/Coontz for clarification on the parts of Shirazi’s claim on which he was requesting an appraisal.  CAIC explained that it could not start the appraisal process until Shirazi provided that additional information.   By letter dated December 3, 2020, CAIC reiterated that it is in receipt of Shirazi’s appraisal request on October 30, 2020 but stated that it had not received a response to its November 5, 2020 letter requesting clarification.  CAIC again asked for a response from Shirazi to its clarification request.   

On June 9, 2021, Shirazi filed suit against CAIC.  His complaint alleged that he attempted to avoid litigation by invoking the appraisal process under the Policy, but that CAIC had refused to agree to an appraisal.    Thereafter, the parties conducted discovery.  During the pendency of the litigation, the Court has heard discovery motions and a motion for summary adjudication.   On August 7, 2023, the Court set the trial in the case for May 13, 2024.  An earlier trial date, in October 2023, previously had been set.

On December 19, 2023, Shirazi renewed his request for an appraisal.  On March 1, 2024, CAIC declined the renewed request based, inter alia, on “timing” of it.  Shirazi filed the pending motion for an appraisal on March 5, 2024.  

Applying the factors for determining whether a waiver has occurred to the factual record, the Court finds that Shirazi waived his right to an appraisal.  Shirzai delayed for nearly three-and-one-half years from the time of his initial request for an appraisal (October 30, 2020) to the time that he moved to compel an appraisal (March 2024).  During that period, Shirazi never responded to CAIC’s requests for clarification, made in November and December 2020, regarding Shirazi’s appraisal demand.  Instead, during that period, Shirazi initiated and conducted the litigation.  Merely filing a lawsuit does not waive a right to an appraisal.  But here, the litigation machinery was substantially invoked long before Shirazi moved to compel an appraisal.  The bottom line is that Shirazi’s actions in conducting the litigation appear to the Court to be entirely inconsistent with the exercise of his appraisal rights.  And now, trial in the case is right around the corner: Shirazi’s motion to compel an appraisal finally came just two months before the May 13, 2024 start date of the trial.   At this juncture, Shirazi’s delay in moving to compel an appraisal misled, affected, and prejudiced CAIC, which has been gearing up for trial by, for example, filing more than a dozen motions in limine in advance of the final status conference before the trial, which is set for May 3, 2023 -- just three weeks way from today.

In arguing that he has not waived his right to an appraisal, Shirazi says that the parties entered into informal settlement discussions on April 5, 2023.    That fails to explain, however, why Shirazi did not file a motion to compel appraisal before then -- for example, at some point following CAIC’s requests for more information regarding his appraisal demand.  Nor does the fact that informal settlement discussions began on April 5, 2023 explain why Shirazi waited for more than a year after that to file a motion to compel an appraisal.

Shirazi also tries to make hay out of the fact that he wanted an appraisal but CAIC refused to engage in one.  The problem is that the appraisal process cannot begin until one party’s request for an appraisal is accepted by the other party.  (See Croskey, ¶ 15:357.)  After CAIC did not accept Shirazi’s request for an appraisal way back in late 2020, Shirzai could have, and should have, moved to compel an appraisal.  He did not do that until March 2024.  At this point, the motion is too late.

Finally, the Court notes that the parties’ briefs in connection with Shirazi’s motion devote substantial attention to what it is that happens in an appraisal, with CAIC, in particular, focusing on the fact that an appraisal cannot determine whether an insurance policy covers a particular loss -- it just determines the amount of the loss.    The parties’ discussion of this aspect of the appraisal process has no bearing on whether Shirazi waived his right to arbitrate.    That said, at this point, it is unclear what purpose an appraisal would serve given that a trial is about to begin not on the amount of Shirazi’s asserted loss, but whether he has suffered the asserted loss for which he seeks coverage under the Policy and on which his suit against CAIC is premised.