Judge: Stephen P. Pfahler, Case: 23STCV26878, Date: 2024-07-16 Tentative Ruling

Case Number: 23STCV26878    Hearing Date: July 16, 2024    Dept: 68

Dept. 68

Date: 7-16-24 a/f 9-25-24 (via 5-30-24 ex parte order)

Case: 23STCV26878

ARBITRATION/APPRAISAL

MOVING PARTY: Plaintiff, Ritz Systems, Inc.

RESPONDING PARTY: Defendant, Ascot Insurance Company

RELIEF REQUESTED

Motion to Compel Arbitration and Stay Action

SUMMARY OF ACTION

Plaintiff Ritz Systems, Inc. acquired commercial premises insurance for the period of July21, 2022 to July 21, 2023, with defendant Ascot Insurance Company. The policy included $15,000,000 in Business Personal Property and $3,000,000 for Business and Extra Expense. Plaintiff operated a business involving the distribution of tobacco and nicotine products in Anaheim until moving to 3121 E. 12^th St., Los Angeles. Upon the change in location, policy coverage was reduced from $15,000,000 to $10,000,000 without the request or approval of Plaintiff.

On November 24, 2022, a fire caused by a neighbor destroyed the entire warehouse, thereby leading to the submission of a claim for $16,808.284. Ascot agreed to a claim amount of $2,000,000.

On November 1, 2023, Plaintiff filed a complaint for Reformation, Negligence (Ascot Insurance Company), and Agent Negligence. On February 26, 2024, Plaintiff filed a first amended complaint for (1) Reformation (2) Negligence (Against Ascot Insurance Company) (3) Agent Negligence (4) Breach of Contract (5) Breach of The Implied Covenant of Good Faith and Fair Dealing (6) Violations of Business & Professions Code Section 17200, Et Seq. and, (7) Civil Conspiracy. SGIB Insurance Services, Inc. answered the operative complaint on March 29, 2024. On April 5, 2024, Plaintiff dismissed Meaden and Moore, LLP from the Civil Conspiracy cause of action. On April 15, 2024, William Seide Agency, answered the first amended complaint.

RULING: Granted.

Plaintiff Ritz Systems, Inc. moves to compel arbitration and invocation of the appraisal process. Ascot Insurance Company (Ascot) in opposition counters Plaintiff lacks unilateral authority to compel arbitration and arbitration remains improper given the dispute over coverage rather than an appraised amount under Insurance Code section 2071, subdivision (c). Plaintiff in reply emphasizes the “mandatory” nature of the appraisal process, and the lack of authority barring a party from seeking arbitration. Plaintiff secondarily contends the panel can conduct an appraisal even if a coverage dispute exists. Finally, Plaintiff concludes with a challenge over the conduct of the insurer in the adjustment process as well as a denial of the motion.

The motion is only brought as to Ascot Insurance Company. The other served defendants submit no opposition to the motion While an appraisal is treated like an arbitration motion, and the court would otherwise address the non-joinder of the other co-defendants, the court finds the limited nature of the appraisal process in no way invokes the concerns of an order constituting a conflict impacting the other parties. (See Code Civ. Proc., § 1281.2, subd. (c).) The court therefore considers the motion as to Plaintiffs and Ascot only.

“‘An appraisal provision in an insurance policy constitutes an agreement for contractual arbitration.’” (Alexander v. Farmers Ins. Co., Inc. (2013) 219 Cal.App.4th 1183, 1186; Kirkwood v. California State Automobile Assn. Inter-Ins. Bureau (2011) 193 Cal.App.4th 49, 57.) “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.) “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

The law creates a general presumption in favor of arbitration. In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.)

The court interprets the arbitration clause like any other contract, including determination of the intent of the parties and ambiguities. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772.) “‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ. Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.” (Civ. Code, § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ (Civ. Code, § 1643.) ‘The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.’ (Civ. Code, § 1644.) ‘However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.’ (Civ. Code, § 1648.) ‘Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.’ (Civ. Code, § 1652.) ‘Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.’ (Civ. Code, § 1655.)” (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880–881.)

“A contract term should not be construed to render some of its provisions meaningless or irrelevant.” (Estate of Petersen (1994) 28 Cal.App.4th 1742, 1754 (footnote 4).) “A well-settled maxim states the general rule that ambiguities in a form contract are resolved against the drafter. (Citations.) But that is a general rule; it does not operate to the exclusion of all other rules of contract interpretation. It is used when none of the canons of construction succeed in dispelling the uncertainty.” (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.)

“‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ (Citation.) ‘The principles governing the interpretation of insurance policies in California are well settled. “Our goal in construing insurance contracts, as with contracts generally, is to give effect to the parties' mutual intentions.”’ (Citation.) “‘Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Citation.) The “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ (Citation), controls judicial interpretation. (Citation.)’” (Citation) “‘If contractual language is clear and explicit, it governs.’”

“‘If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect “‘the objectively reasonable expectations of the insured.’” (Citation.) This rule stems from the principle that “‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’” (Citation.) “‘Only if these rules do not resolve a claimed ambiguity do we resort to the rule that ambiguities are to be resolved against the insurer....’ The ‘tie-breaker’ rule of construction against the insurer stems from the recognition that the insurer generally drafted the policy and received premiums to provide the agreed protection.” (Citation.) “[L]anguage in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.... Courts will not strain to create an ambiguity where none exists. [¶] ‘The insured has the burden of establishing that a claim, unless specifically excluded, is within basic coverage, while the insurer has the burden of establishing that a specific exclusion applies.’ (Citation.) The principles of contractual interpretation, as applied to insurance policies ‘do not include using public policy to redefine the scope of coverage.’” (Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 697–698.)

The undisputed arbitration clause states:

“Appraisal -- If ‘you’ and ‘we’ do not agree on the amount of the loss or the actual cash value of covered property, either party may request that these amounts be determined by appraisal. If either makes a written request for appraisal and the request is accepted, each will select a competent, independent appraiser and notify the other of the appraiser's identity within 20 days of receipt of the written demand. The two appraisers will then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, ‘you’ or ‘we’ can ask a judge of a court of record in the state where the property is located to select an umpire. Appraisal proceedings are informal unless ‘you’ and ‘we"’ mutually agree otherwise. This means that no formal discovery will be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence will be applied, and no court reporter will be used for the proceedings. The appraisers will then determine and state separately the amount of each loss. The appraisers will also determine the value of covered property items at the time of the loss. If the appraisers submit a written report of any agreement to "us", the amount agreed upon will be the amount of the loss. If the appraisers fail to agree within a reasonable time, they will submit only their differences to the umpire. Written agreement so itemized and signed by any two will determine the amount of actual cash value and loss. Each appraiser will be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire will be paid equally by ‘you’ and ‘us’. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either ‘you’ or ‘us’ but cannot be compelled.” [Declaration of Derek Chaiken, Ex. 1.]

Plaintiff specifically relies on the plain language of the policy a conclusive basis for requiring mandatory appraisal. (See Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92 Cal.App.4th 886, 892.) Ascot counters that the plain language of the contract prevents unilateral invocation of arbitration, and a coverage dispute further precludes appraisal without the scope of the legal claim first established.

Ascot relies on the language “If either makes a written request for appraisal and the request is accepted” as a requirement of acceptance by both sides for appraisal. Ascot only cites to Federal District Court Authority—one uncitable unpublished opinion, and the other a slip opinion from March 2024, without any indication of publication. While the court is not barred from considering unpublished district court opinion (Coleman v. Medtronic, Inc. (2014) 223 Cal.App.4th 413, 432 (footnote 6)), the court declines to rely on unpublished authority even on a persuasive level (Walker v. Apple, Inc. (2016) 4 Cal.App.5th 1098, 1108 (footnote 3)) given the court finds published California arbitration law allows for a single party to invoke arbitration. (Kirkwood v. California State Automobile Assn. Inter-Ins. Bureau, supra, 193 Cal.App.4th at pp. 57-58.) The court therefore finds Plaintiff properly brings the motion to compel arbitration under procedural standards. Nothing in the language establishes required mutuality.

As for the propriety of any appraisal, Ascot cites to both an ongoing investigation and coverage dispute as the basis for denying the appraisal. “[S]ection 2071 constrains the role of the appraiser to that of appraising ‘the loss, stating separately actual cash value and loss to each item....’ Appraisers have no power to interpret the insurance contract or the governing statutes. ‘The function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy.’” (Id. at pp. 58–59 (internal quotation marks omitted); Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498, 1504-1505; Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, 1175.)

The item(s) in dispute at least in part arise from a California ban on flavored tobacco and nicotine containing products. (See Cal. Health & Safety Code § 104559.5.) Neither party cites to the contract terms denying or allowing coverage as to the disputed inventory, though Plaintiff in reply implicitly concedes to the potential exclusion in accepting the coverage dispute.

Notwithstanding, Plaintiff strenuously emphasizes the ability of the appraisal process to occur on the covered items. The court agrees Plaintiff correctly establishes the right to arbitration on said items, but the court remains mindful of the limitation to covered inventory. One court found that the assessment of non-covered property may improperly introduce qualitative distinctions to the appraiser, which constitutes an activity beyond the scope of the appraisal process. (Safeco Ins. Co. v. Sharma (1984) 160 Cal.App.3d 1060, 1065-1066.) Any award subsequently rendered would be subject to reversal, and therefore contrary to the purpose of efficiently resolving claims.

On the other hand, the most recent case on the subject specifically distinguished the coverage limitation by allowing the appraisal to happen with any later resolved coverage distinctions allowing for the striking of said uncovered items upon completion of the adjustment process. (Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, 1170-1171.) The process constitutes a potential suggested path, which the court finds persuasive. The court finds no greater efficiency in deferring an appraisal for purposes of further investigation given coverage either exists for the flavored tobacco and nicotine products exists or not. The court also accepts the ability of the parties, and potentially the court if requested, to resolve the coverage issues if necessary, thereby allowing for any potential striking of the identified inventory. The court finds no inextricable relationship between the two areas functionally supporting further delay in a compelled right to seek an appraisal under Insurance Code section 2071 as part of the claim for benefits under the policy. Further delays in adjusting the claim between covered and non-covered inventory instead only arguably contributes to further argument for the bad faith claim—wrongful withholding of insurance contract benefits. The court therefore orders Plaintiffs and Ascot into an appraisal.

The motion is therefore GRANTED.

Motion for trial preference on calendar for August 15, 2024.

Plaintiff to provide notice.