Kacha v. Allstate Ins. Co., 140 Cal. App. 4th 1023 (2006), demonstrates that insurers must be careful when seeking to expand the scope of appraisal beyond the mere valuation of the items claimed.
Heat and smoke from a wildfire damaged Kacha’s home. Allstate questioned whether certain items included in Kacha’s claim had been damaged in the fire. Allstate also disputed Kacha’s valuation of his losses. Kacha successfully moved to compel appraisal.
The parties jointly submitted a form for the appraisers to use in rendering their award. The form began with a preamble that the appraisers had “made the following determination and award of damage, if any, to the structure of the insured’s residence attributable to the fire of October 26, 2003.” (Emphasis added.) The form then listed all of the items in the claim and provided space for an award for each item.
The appraisers returned an award that included a value of zero for many items. It appeared that in some instances, the appraisers disallowed items because they were persuaded by Allstate that the items had not been damaged in the fire. Kacha applied to the appraisers for an amended award, arguing that the appraisers were not authorized to decide causation issues. The appraisers declined, based on the joint appraisal form that had charged them with determining the damage “attributable to the fire.”
Kacha petitioned a trial court to vacate the award. The trial court denied the petition and confirmed the award. However, the Court of Appeal reversed.
Reviewing California Insurance Code § 2071 (the “standard fire policy” statute, which provides for appraisal clauses) and the case law, the court reaffirmed the principle that insurance policies authorize appraisers to determine only “the amount of damage” to “items submitted for their consideration.” Absent a separate stipulation between the parties, appraisers may not determine “questions of coverage” such as causation.
The court found that the appraisal form jointly submitted by the parties failed to qualify as such a stipulation. The court found that throughout the appraisal process, Kacha had objected to the appraisers making any determinations as to what was damaged in the fire. The court interpreted the appraisal form as authorizing the appraisers to award nothing for an item only if they found that the item was not damaged at all, whether by the fire or any other cause.
The court also rejected Allstate’s argument that Kacha waived his right to object to the appraisal award by keeping settlement checks that Allstate had sent pursuant to the award. The court noted that Kacha had not asked for the checks, had not cashed them, and had promptly and consistently objected to the award. On these facts, the court distinguished the case from those where an insured’s post-award conduct precluded the insured from suing to correct or vacate the award.
The Kacha decision cites and builds upon Safeco Ins. Co. v. Sharma, 160 Cal. App. 3d 1060 (1984). There, the court held that when an insured claims the theft of an item, appraisers can only determine the value of the item as described and may not decide whether the item was in fact stolen. When an insurer disputes what was actually lost, the court held, its position sounds in misrepresentation and fraud, which are issues that must be litigated.
Kacha acknowledges that there can be such a thing as a “Sharma waiver” – an agreement that issues other than valuation will be decided by appraisal. However, the case demonstrates that courts will find such a waiver only upon clear and convincing evidence. The best evidence probably will be a written stipulation, signed by both parties, expressly stating that the parties authorize the appraisers to decide coverage issues and explicitly referring to and waiving Insurance Code § 2071 and Sharma/Kacha.