Opinion
A118683
4-25-2008
WILLIE ROBERSON et al., Plaintiffs and Respondents, v. ALLSTATE INSURANCE COMPANY, Defendant and Appellant
NOT TO BE PUBLISHED
Willie and Maggie Roberson filed a bad faith insurance action against Allstate Insurance Company and also sued several inspectors and contractors who were involved in the repair of their home after a fire. Allstate filed a petition to compel appraisal of the amount of the Robersons loss. The trial court granted the petition but indefinitely stayed the appraisal and denied a stay of the court action. We affirm.
BACKGROUND
Willie and Maggie Roberson (Robersons) sued Allstate Insurance Company (Allstate) for damages arising out of a fire in their home. In a second amended complaint filed May 22, 2007, the Robersons identified the defendants as Allstate, related Allstate companies, and several building inspectors or contractors (Paul Davis Restoration, A-1 Remediation, Dominion Environmental and P.W. Stephens.). According to the amended pleading, both the fire and the fire departments suppression measures damaged the Robersons home and personal property. The Robersons reported the incident to Allstate, their homeowner insurer, which arranged for Paul Davis Restoration to repair the fire and water damage, and for P.W. Stephens to remove asbestos. While P.W. Stephens carried out repairs, it left the home unlocked and the home was burglarized. Meanwhile, Paul Davis Restoration did not begin work on the home for weeks and this delay caused extensive mold contamination. The company failed to remediate the contamination and its other repair work was performed below industry standards. Allstate retained Dominion Environmental to inspect the home for mold and identify necessary remediation work, but the inspection failed to identify the full extent of the mold contamination. Allstate next retained A-1 Remediation to remediate the mold damage; however, the company performed its work negligently. Allstate refused to pay the full cost of the mold remediation, claiming without supporting evidence that some of the mold predated the fire. Allstate also declined to pay the Robersons temporary housing costs beyond the 12-month limit in the policy.
Allstate Property and Casualty Insurance Company and Allstate Property-Casualty Claims Service Organization.
The full names of these defendants are JBCC, Inc. dba Paul Davis Restoration; David E. Brooks dba A-1 Remediation; Dominion Environmental; and P.W. Stephens, Inc. Dominion Environmental was dismissed from the action on June 4, 2007.
The Robersons pleading contained causes of action against Allstate for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, fraud, negligent misrepresentation, and negligence. They also sued the related Allstate companies for fraud, negligent misrepresentation, and negligence; Paul Davis Restoration for breach of contract, intentional infliction of emotional distress, fraud, negligent misrepresentation, and negligence; and A-1 Remediation, Dominion Environmental, and P.W. Stephens for negligence.
Allstate filed a petition to compel appraisal pursuant to the insurance policy it had issued to the Robersons. The appraisal provision in the policy read:
"If you and we fail to agree on the amount of loss, either party may make written demand for an appraisal. Upon such demand, each party must select a competent and impartial appraiser . . . . The appraisers will select a competent and impartial umpire. . . . [¶] The appraisers shall then determine the amount of loss, stating separately the actual cash value and the amount of loss to each item. If the appraisers submit a written report of an agreement to you and to us, the amount agreed upon shall be the amount of the loss. If they cannot agree, they will submit their differences to the umpire. A written award agreed upon by any two will determine the amount of loss. [¶] Each party will pay the appraiser it chooses, and equally bear expenses for the umpire and all other appraisal expenses."
This provision complies with Insurance Code sections 10082.3 and 2071, which require residential and fire insurance policies to contain substantially equivalent appraisal provisions. Allstate also requested a stay of the court action pending completion of the appraisal. The Robersons opposed the petition and two defendants, Paul Davis Restoration and P.W. Stephens, filed notices of non-opposition to the petition.
On July 20, 2007, the court granted the petition but stayed the appraisal "until the other issues [in the court action] are determined or until such earlier time as the court specifies." At the same time, Allstates request for a stay of the court action was denied. The court explained, "[T]he appraisal provision only applies to disputes between Allstate and Plaintiffs . . . regarding the actual cash value or the amount of loss. [Citations.] There are other issues between Allstate and Plaintiffs that are not subject to appraisal and which are the subject of this pending action, and a determination of such issues may also resolve the issues encompassed by the appraisal. (See C.C.P. § 1281.2(c).) [¶] Further, the remaining defendants in this action are not a party to the appraisal agreement. Plaintiffs claims against the remaining defendants arise out of the same transactions or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. (See C.C.P. § 1281.2(c).)" Allstate filed a notice of appeal of the courts July 20 order "effectively denying Allstates petition to compel appraisal and motion to stay the action."
The Robersons filed new motions in the trial court to compel discovery responses. Allstate took the position that its appeal had effected an automatic stay of all trial court proceedings as they related to Allstate, including discovery proceedings. On August 28, 2007, the trial court rejected a blanket stay of trial court proceedings, but granted Allstate leave to renew its argument as to particular proceedings. The court ordered Allstate to respond to the Robersons discovery motions and scheduled a hearing on the motions.
Allstate next filed a writ petition challenging the courts August 28, 2007 order. On September 14, this court granted a temporary stay of the order. On the same date, we issued an order in this appeal (A118683) directing the parties to file supplemental briefs on the appealability of the trial courts July 20 order on the appraisal petition. Allstate then filed a protective writ petition challenging the July 20 order in the event this court ultimately ruled the order was not appealable (A119113).
We subsequently held that the trial courts July 20, 2007 order granting but staying the appraisal was an appealable order. And on November 30, we denied the two pending writ petitions (A119062, A119113), dissolved the temporary stay that had been granted in case number A119062, and denied the Robersons motion for sanctions. After Allstate asked this court to clarify the scope of the automatic stay in action A118693, we issued the following order: "Counsels letter acknowledges that the superior court has devised a mechanism for resolving disputes concerning the scope of the stay, and this court presumes that such issues will be resolved appropriately."
Discussion
An appraisal provision in an insurance policy is an agreement to arbitrate within the meaning of Code of Civil Procedure section 1280, subdivision (a), and is governed by Californias contractual arbitration law (Code Civ. Proc., § 1280 et seq.). (Louise Gardens of Encino Homeowners Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 658.) Under section 1281.2, a court must order parties to arbitrate a dispute if it determines an agreement to arbitrate the dispute exists, unless it concludes, as relevant here, that "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact." (§ 1281.2, subd. (c) [hereafter, § 1281.2(c)].) If the court determines section 1281.2(c) applies, "the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding." (§ 1281.2.) Here, the trial court stayed appraisal of the amount of the Robersons loss pursuant to section 1281.2(c) (and apparently also pursuant to subsection (4), although that subsection was not expressly cited by the court).
All statutory references are to the Code of Civil Procedure unless otherwise indicated.
The trial court also stayed the appraisal pursuant to the following paragraph in section 1281.2: "If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies." It is not clear how resolution of the Robersons claims against Allstate would obviate the need to determine the amount of the Robersons loss. However, Allstate did not challenge this ruling on appeal before oral argument, and thus has forfeited the issue. (See REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [refusing to entertain argument first raised in reply brief].) We will nevertheless consider Allstates challenge to the other basis for the courts ruling under section 1281.2(c), the possibility of conflicting rulings on issues affecting third parties.
An order staying or denying appraisal under section 1281.2(c) is ordinarily reviewed for abuse of discretion. (Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 484 (Whaley).) Where issues of statutory interpretation are raised, review is de novo. (Ibid.)
I. Applicability of Section 1281.4
Allstate argues the court had no choice but to grant its petition to compel appraisal because appraisal was statutorily mandated in the circumstances. The court in fact expressly "granted" the petition, but indefinitely stayed the appraisal. According to Allstate, once the court granted its petition, it was required by section 1281.4 to stay the court action, rather than the appraisal. These arguments raise questions of statutory interpretation that we review de novo. (Whaley, supra, 121 Cal.App.4th at p. 484.)
A. Whether Appraisal was Statutorily Mandated
We do not agree with Allstates first contention, namely that the trial court had no choice but to order appraisal because appraisal was statutorily mandated.
California law mandates only that residential and fire insurance policies include appraisal provisions. (Ins. Code, §§ 2070, 2071, subd. (a), 10082.3.) It does not mandate that all disputes covered by the appraisal provision be resolved only through appraisal. The contractual arbitration law including section 1281.2(c), "broadly applies to all contractual arbitration, whether freely chosen by the parties or imposed on them by law . . . ." (Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 347, 348 (Mercury), second italics added, approving Prudential Property & Casualty Ins. Co. v. Superior Court (1995) 36 Cal.App.4th 275 (Prudential).) Under section 1281.2(c), arbitration can be denied when there is a possibility of conflicting rulings in the arbitration and a related court action involving third parties.
At issue in Mercury was an Insurance Code provision that generally requires automobile liability policies to provide that uninsured motorist claims be resolved by arbitration. (Ins. Code, § 11580.2, subds. (a), (f); Mercury, supra, 19 Cal.4th at pp. 341-342.) The plaintiffs in Mercury were injured in a car accident they alleged was caused by both a known person and an unidentified driver who fled the scene. The plaintiffs filed an uninsured motorist claim for damages caused by the unidentified driver and also sued both drivers for personal injuries. The uninsured motorist claim proceeded to arbitration. On the plaintiffs motion, the trial court consolidated that arbitration proceeding with nonbinding judicial arbitration of the plaintiffs personal injury claims. (Mercury, at p. 338.) The insurer moved for severance of the two arbitration proceedings and appealed the courts denial of its motion. (Id. at p. 339.) The trial court was found to have acted within its discretion under section 1281.2(c) when it consolidated the proceedings. (Mercury, at pp. 337-338, 345.)
Our Supreme Court held "there is no preemptive effect arising from any requirement under the uninsured motorist coverage law that . . . the issues [subject to arbitration] may be resolved only by means of contractual arbitration . . . ." (Mercury, supra, 19 Cal.4th at p. 346.) "It is true that an uninsured motorist coverage provision gives both the insurer and the insured a general right, as a matter of contract, to contractual arbitration of uninsured motorist coverage issues, and that contractual arbitration generally results in a binding and final decision. [¶] It is also true that the uninsured motorist coverage law, which generally mandates such an uninsured motorist coverage provision, gives both the insurer and the insured a general right, as a matter of law, to a contractual right of this sort. [¶] But a general right to contractual arbitration . . . does not amount to an absolute prohibition against the resolution of such questions by any other means in any other manner." (Ibid.) Under section 1281.2(c), the contractual right to arbitration "may have to yield if there is an issue of law or fact common to the arbitration and a pending action or proceeding with a third party and there is a possibility of conflicting rulings thereon." (Id. at p. 348.) We see no basis for distinguishing Mercury from this case.
Allstate argues that Mercury is distinguishable, but its argument is relevant to the appropriate exercise of discretion under section 1281.2(c), which we discuss further below, not to its argument that appraisal was statutorily mandated.
Allstate cites language in Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. that "Insurance Code section 2071 requires appraisal for resolution of contested claims. . . . [T]he Legislature has provided the remedy to which the parties must resort for determination of the amount of the loss." (Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92 Cal.App.4th 886, 893.) In the same passage, however, the court wrote, "The appraisal term creates an arbitration agreement subject to the statutory contractual arbitration law. [Citations.]" (Ibid.) That is, the appraisal term is subject to 1281.2(c), which allows a court to deny a petition to compel appraisal or stay appraisal if there is a possibility of conflicting rulings. The question presented in Community Assisting Recovery, Inc. was whether the defendant insurers standard for valuing the amount of loss in the appraisal process was an unfair business practice under Business and Professions Code section 17200. (Id. at p. 891.) The court discussed the appraisal process generally in support of its conclusion that the plaintiff had failed to state a valid cause of action (id. at pp. 892-893), but was not asked to determine whether appraisal was mandated in all circumstances. Consequently, its opinion is not authority for that point of law. (People v. Castellanos (1999) 21 Cal.4th 785, 799, fn. 9.)
B. Whether Section 1281.4 Required a Stay of the Court Action
Allstate argues that the courts express ruling granting its petition to compel appraisal, a ruling that was not appealed by the Robersons and thus is not subject to review in this appeal, led to another statutory mandate: that the court stay the court action pending the appraisal pursuant to section 1281.4.
Under section 1281.4, when a court "has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies." (Italics added.) Allstate equates the courts granting the petition to compel appraisal with the courts ordering appraisal within the meaning of section 1281.4. The court did not simply grant the petition, however; it granted the petition and stayed the appraisal. When asked at the hearing on the petition what circumstances would lead it to lift the stay, the court suggested the stay would last until the Robersons claims against the other defendants were resolved. That is, the stay could be expected to last a substantial period of time and might never be lifted. Under these circumstances, the court has not "ordered arbitration" within the meaning of section 1281.4 and the section does not apply. As we have previously held in this appeal, "an order granting but then staying arbitration has the same effect as an order denying arbitration." (Order filed November 7, 2007.) The substance and effect of the order prevails over its form. (State Farm Fire & Casualty v. Hardin (1989) 211 Cal.App.3d 501, 507.)
Allstates cited cases do not demonstrate that a stay of the court action was required here. In two of the cases, the trial court had ordered arbitration of the dispute. (Marcus v. Superior Court (1977) 75 Cal.App.3d 204, 208; Federal Ins. Co. v. Superior Court (1998) 60 Cal.App.4th 1370, 1372.) The courts of appeal thus appropriately held the court was required by section 1281.4 to stay the court action as to the issues involved in the arbitration proceeding. (Marcus, at p. 209; Federal Ins. Co., at pp. 1374-1375.) In two other cases, the courts of appeal held the trial court erred in denying a petition to compel arbitration and further held, consistent with section 1281.4, that because the trial courts should have ordered arbitration they also should have granted a motion to stay the court action. (Tas-T-Nut Co. v. Continental Nut Co. (1954) 125 Cal.App.2d 351, 356, 358; Morris v. Zuckerman (1967) 257 Cal.App.2d 91, 97.) Finally, in Twentieth Century Fox Film Corp. v. Superior Court, a different provision of section 1281.4 was under consideration: the statute requires a stay of a court action when a petition to compel arbitration of the controversy is pending in another court. (§ 1281.4; Twentieth Century Fox Film Corp. v. Superior Court (2000) 79 Cal.App.4th 188, 192.) The court of appeal appropriately held that there was no discretion under the statute to deny a stay of the court action in this circumstance. (Ibid.) In none of these cases had the trial court effectively ordered, as it did here, that the arbitration or appraisal not proceed until further order of the court.
II. Exercise of Discretion Under Section 1281.2
Allstate argues that, even if section 1281.2 applies, the trial court abused its discretion under the statute by staying the appraisal.
The trial court found there was a possibility of conflicting rulings on a common issue of law or fact, which authorized it to stay the appraisal pending the outcome of the court action. (§ 1281.2, subds. (c), (4).) The court does not identify those possible conflicts in its written order nor did it clearly explain the basis for its ruling at the hearing on the petition. However, we can easily discern a potential for conflicting rulings regarding the total amount of damage to the Robersons property. Allstate and most of the other named defendants (Paul Davis Restoration and A-1 Remediation) were sued for their respective roles in contributing to the mold contamination to the Robersons property. The Robersons recovery from each would likely be calculated based on some percentage of their total loss due to mold contamination. The appraisal provision in the insurance policy gave Allstate the right to an appraisal of the amount of the Robersons loss, but the other defendants in the court action did not have a right to an appraisal of that loss. Stated differently, the Robersons had the right to a jury determination rather than an appraisal of the amount of that loss as to all defendants other than Allstate. If the total amount of loss as determined by the appraisers differs from the total amount of loss as determined by the jury (i.e., if there are conflicting rulings on this common issue of fact), the Robersons could end up recovering more or less than their total losses. In such a situation, the court may properly exercise its discretion to stay the appraisal.
P.W. Stephens, in contrast, was sued for its alleged negligence in leaving the house unlocked during repairs, which led to the theft of their personal property. At the hearing on the petition to compel appraisal, the Robersons said they were attempting to work out a process to expeditiously resolve the dispute about the value of the stolen personal property in lieu of submitting the total amount of their loss to appraisal, in order to satisfy defendant P.W. Stephens concerns. Allstate makes no argument specifically addressed to the unique circumstances of P.W. Stephens. Therefore, we focus our analysis on the latter defendants.
At oral argument, Allstate for the first time drew a distinction between damages that are attributable to the fire and to fire suppression measures, which it argued would be subject to appraisal, and damages that are attributable to post-fire negligence or bad faith conduct (e.g., mold contamination), which would not be subject to appraisal. Allstate did not draw this distinction in its appellate briefs or its petition to compel appraisal, nor did it support such a distinction with citations to the record or to legal authority. We will not address an argument that is raised for the first time at oral argument. (See REO Broadcasting Consultants v. Martin, supra, 69 Cal.App.4th at p. 500 [refusing to entertain an argument raised for the first time in a reply brief].)
In C.V. Starr & Co., for example, another division of the First District upheld an order staying arbitration of a claim because the arbitration could cause the plaintiff to recover more or less than the whole of its losses. (C.V. Starr & Co. v. Boston Reinsurance Corp., (1987) 190 Cal.App.3d 1637, 1640-1641.) The plaintiff had sued 11 reinsurers for recovery of a $24.9 million liability, where the allocation of the reinsurers respective shares of liability was in dispute. (Id. at p. 1639.) One of the reinsurers had a contractual right to compel arbitration of the issue; as relevant here, the others did not. (Id. at pp. 1639-1641.) The court held that arbitrating only one reinsurers allocation of the total liability could result in either over-indemnifying or under-indemnifying the plaintiff. (Id. at p. 1641.) "The optimal procedure in the present case seems to be a single proceeding bringing together all the affected parties for an orderly decision on the allocations of each reinsurer. Section 1281.2, subdivision (c), expressly authorizes the trial court to proceed in that manner." (Id. at p. 1642.)
Allstate attempts to distinguish this case from C.V. Starr & Co. on the ground that the parties who are protected by the stay of the appraisal—the defendants who were not parties to the arbitration agreement—supported the petition to compel appraisal or at least did not actively oppose it. This argument assumes that the purpose of section 1281.2(c) is to protect only those parties to the court action who are not subject to the arbitration agreement. Allstate implies that because the Robersons are contractually bound to appraise the amount of their loss as to any claims it submitted to Allstate, it was an abuse of discretion to stay the appraisal to protect their rights to a jury determination of the amount of their loss as to the other defendants. We are unpersuaded by Allstates argument. Nothing in the language of the statute suggests that the court may exercise its discretion to stay an appraisal only if the possibility of conflicting rulings prejudices parties that are not subject to the appraisal provision. (§ 1281.2(c).)
Allstate cites Madden v. Kaiser Foundation Hospitals for the principle that a plaintiff cannot avoid its duty to arbitrate a dispute by joining other defendants in the controversy. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 714.) In Madden, the plaintiff filed a medical malpractice action against Kaiser and two blood banks and opposed Kaisers motion to compel arbitration of the dispute under the terms of their medical services contract. (Id. at pp. 704-705.) The court, citing section 1281.4, held the plaintiff could not "avoid her duty to arbitrate any dispute with Kaiser" by joining other defendants to her court action. (Id. at p. 714.) At the time Madden was decided, the contractual arbitration law did not include section 1281.2, subdivision (c), which authorizes a stay of arbitration to avoid the possibility of conflicting rulings. (Stats. 1961, ch. 461, § 2 at p. 1541; cf. Stats. 1978, ch. 260, § 1 at pp. 543-544.) Under the version of section 1281.2 in effect at the time, the trial court was required to order arbitration unless it found there was a waiver or grounds for revocation of the arbitration agreement. (Stats. 1961, ch. 461, § 2 at p. 1541.) Given the change in the law, Madden is no longer good authority for the proposition that it would be an abuse of discretion to stay an arbitration based on the presence of other defendants. We further note, as the trial court observed during the hearing on the petition to compel appraisal, there is no evidence the Robersons sued the non-Allstate defendants merely to avoid appraisal of the amount of the loss. (See also Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 102 [distinguishing Madden and observing, "nothing in the record before us suggests plaintiff named these third parties as defendants for the primary purpose of attempting to avoid arbitration with Alcove"].)
Allstate argues the absence of subdivision (c) in former section 1281.2 is a distinction that makes no difference because under section 1281.4 (both then and now) the court was authorized to limit its stay of the court action to those issues that were subject to arbitration. This argument is off point. That the court could have mitigated the effect of a stay in this manner sheds absolutely no light on the courts authority under the former statute to stay the arbitration due to the possibility of conflicting rulings. Because the court lacked that authority under the former statute, the holding in Madden is not applicable to this case.
Finally, Allstate attempts to distinguish Mercury regarding the appropriate exercise of discretion to stay an arbitration under section 1281.2(c). It notes that uninsured motorist arbitrations are far more comprehensive than insurance appraisals and thus are more naturally consolidated with personal injury actions. In contrast, Allstate implies, an insurance appraisal should be allowed to proceed independent of a court action, either while the court action is stayed or concurrently with litigation of the action. This argument fails to address the possibility of conflicting rulings as a result of the appraisal and the separate court action. Allstate also argues that in Mercury the plaintiff faced a risk of prejudice by conflicting rulings (thus justifying the consolidation order), whereas here it is the other defendants who face the risk of prejudice, yet those defendants do not oppose appraisal. For the reasons already stated, the Robersons also faced a risk of prejudice from conflicting rulings in the appraisal and the court action and Allstate has failed to demonstrate that section 1281.2(c) is intended only to protect the interests of nonparties to the arbitration agreement. Finally, Allstates additional distinction of the Prudential decision, on the ground the Prudential court was motivated by judicial estoppel considerations, fails to support its contention that the trial court abused its discretion in this case.
DISPOSITION
The courts July 20, 2007 order is affirmed. The Robersons shall recover their costs on appeal.
We concur:
JONES, P. J.
SIMONS, J.