In a significant victory for policyholders, a federal magistrate in Northern California recently rejected most of Federal Insurance Company’s (aka Chubb) attempts to vacate a substantial appraisal award in a Glass Fire case. The case, Pollock v. Federal Insurance Company, highlights the limited grounds for challenging appraisal awards and reinforces the binding nature of the appraisal process. 1

The dispute arose from the September 2020 Glass Fire that severely damaged the insureds’ St. Helena property, including burning a guest house to the ground and causing smoke and toxic chemical damage to the main house. After disputes over the loss amount, the court ordered an appraisal, which resulted in a $32.1 million award for repair costs.

I was in Marina Del Rey yesterday for the first day of the packed Pacific Coast Association of Public Insurance Adjusters (PCAPIAS) Annual Conference. I was listening to California attorney Joel Gumbiner discuss how California appraisals are to be conducted as arbitrations and not like how appraisals are done in most states. Gumbiner is an experienced expert when it comes to California appraisals, and he was noted in footnote 5 of the court’s order.

I noted Chubb as an insurance company that looks for ways to pay in a previous blog post, Chubb Calls Competitors Cheap And Unfair Federal Insurance. Not this time. It attempted to vacate the award on multiple grounds, but the court rejected most of its arguments.

Chubb challenged the policyholder’s appraiser, Robert Bresee, claiming he wasn’t sufficiently independent due to prior work with the policyholder’s counsel. The court found that Bresee’s previous engagements (18 over five years) with policyholder’s counsel did not disqualify him or demonstrate bias. This ruling reinforces that business relationships between appraisers and counsel, without more, are insufficient to demonstrate partiality.

Chubb also argued that the appraisal panel exceeded its authority by making implicit causation determinations. While the court acknowledged that appraisal panels cannot make coverage determinations, it allowed the panel’s valuation of damages to stand, recognizing the practical necessity of considering causation in determining repair costs.

The court upheld the core $32.1 million award for repair costs to return the structures to their pre-loss condition. This represents a significant victory for the policyholders and demonstrates that most courts are reluctant to disturb appraisal determinations absent compelling reasons.

Chubb’s only success was convincing the court to vacate the $1,048,215.43 award for investigation and pre-construction costs. The court found these costs fell outside the scope of determining the actual value of damaged structures. I will discuss a case that says you can collect those damages in a blog tomorrow.

In an interesting twist, Chubb attempted to sue its own policyholders for breach of the implied covenant of good faith and fair dealing. The court rejected this attempt, reinforcing that in California, the duty of good faith is “unconditional and independent” of policyholder obligations and primarily protects policyholders from insurers, not vice versa.

This case serves as a reminder that parties to an appraisal typically face an uphill battle when attempting to vacate appraisal awards. It also demonstrates the importance of selecting qualified appraisers and understanding the scope of the appraisal process. While appraisers must remain independent, routine professional relationships with counsel are not automatically disqualifying. A big exception to this is the law in Colorado, where the entire panel is more akin to an unbiased jury rather than how appraisers are often qualified in other states.

For policyholders, this decision provides valuable precedent supporting the finality of appraisal awards and limiting insurers’ ability to challenge them based on alleged appraiser bias or exceeding authority. It also reinforces that insurers cannot turn the tables and sue their policyholders for bad faith in the claims process.

The case is particularly relevant for large loss claims where substantial damages are at stake, and insurers are more often tempted to challenge what they view as “unfavorable” appraisal awards. It shows that courts will generally respect the appraisal process and its results, intervening only when there are clear violations of authority or genuine issues of bias.

For those interested in California appraisals, I suggest reading “Do Typical Insurance Appraisers Follow California Code of Civil Procedure 1282.2?”

Thought For The Day

Every champion was once a contender who refused to give up.
—Rocky Balboa

1 Pollock v. Federal Ins. Co., No. 21-cv-09975, 2024 WL 4700637 (N.D. Cal. Nov. 5, 2024).