California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

First Party Property Insurance

 

“Named Perils” or “Specific Perils” Policies

 

“Specified-Risk” Coverage

 

“All-Risk” Policies

 

Marine Insurance

 

California Law

 

 

Sec. Sources: Tort Trial & Ins. Prac. L.J.; Couch on Insurance; New Appleman on Insurance Law Library Edition (2023).

 

 

 

First party property insurance indemnifies property owners against loss to property. (Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, 1122 (Another Planet), citing 10A Couch on Insurance (3d ed. 2005) § 148:1.) There are two general categories of first-party property insurance. “Named perils” or “specific perils” policies provide coverage only for the specific risks enumerated in the policy and exclude all other risks. (7 Couch on Insurance, supra, § 101:7.) “All-risk” policies provide coverage for all risks unless the specific risk is excluded.  (Ibid.; Another Planet, at p. 1122.) “‘Historically, property insurance grew out of the insurance against the risk of fire which became available for ships, buildings, and some commercial property at a time when most of the structures in use were made wholly or primarily of wood.’ (10A Couch on Insurance, supra, § 148:1.) ‘On this side of the Atlantic, fire insurance first developed in the middle of the eighteenth century. . . . This was insurance against only one cause of loss, or peril—fire. Over time other insured perils, such as wind and hail, were added. These insured perils were each specified in the insurance policy. For this reason, such insurance came to be known as “specified-risk” coverage. It insured property against the risk of damage or destruction resulting from specified causes of loss.’ (Abraham, Peril & Fortuity in Property & Liability Insurance (2001) 36 Tort Trial & Ins. Prac. L.J. 777, 782–783, fn. omitted.) By contrast, marine insurance developed ‘standardized forms that insured an ocean-going vessel and its cargo against “perils of the high seas.” Whereas the development of fire insurance for property on land focused on the danger presented by a specified cause of loss, marine insurance typically provided coverage for all risks associated with a particular shipment or voyage.’ (5 New Appleman on Insurance Law Library Edition (2023) § 41.01[1], fn. omitted.) ‘By the middle of the twentieth century, insurers adopted the marine insurance approach by offering all-risk commercial and homeowners’ property insurance. The operative phrase in such policies is contained in the section labeled “Perils Insured Against,” and provides coverage against the risk of “direct physical loss” to covered property.’ (Abraham, at p. 783, fn. omitted.)“ ‘As with any insurance, property insurance coverage is “triggered” by some threshold concept of injury to the insured property. Under narrow coverages like theft, the theft is itself the trigger. Under most coverages, however, the policy specifically ties the insurer’s liability to the covered peril having some specific effect on the property. In modern policies, especially of the all-risk type, this trigger is frequently “physical loss or damage” . . . .’ (10A Couch on Insurance, supra, § 148:46.)” (Another Planet, supra, 15 Cal.5th at pp. 1122–1123.)

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

Covenant of Good Faith and Fair Dealing

 

Liability in Tort

 

California Law

 

 

 

(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

Punitive Damages

 

California Law

 

 

 

An insurer may be liable for punitive damages if the insured can prove not only that the insurer denied or delayed the payment of policy benefits unreasonably or without proper cause, but, in doing so, was guilty of malice, oppression or fraud. (Jordan, 148 Cal.App.4th at p. 1080, citing Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 305.)

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

“All-Risks” Policy

 

Exclusions

 

Nonaccidental Faulty Workmanship

 

Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing

 

California Law

 

 

 

In 2021, while a building owned by appellant 11640 Woodbridge Condominium Homeowners’ Association (HOA) was being reroofed, two rainstorms penetrated the partially constructed roof and caused extensive interior damage. The HOA made a claim under its condominium policy, which was underwritten by respondent Farmers Insurance Exchange (Farmers). Farmers denied the claim, concluding that the HOA’s losses resulted from nonaccidental faulty workmanship, which the policy did not cover. The HOA then brought the present action, alleging breach of contract and breach of the implied covenant of good faith and fair dealing against Farmers. Farmers moved for summary judgment, and the trial court granted the motion, concluding there was no coverage under the condominium policy as a matter of law. We reverse.  As we discuss, the condominium policy was an “all-risks” policy, which covered all damage to the HOA’s property unless specifically excluded.  There are triable issues of material fact as to whether the exclusions relied on by Farmers—the water damage exclusion and the faulty workmanship exclusion—preclude coverage in the present case. We thus reverse the summary judgment.

 

(…)

 

— “Covered Causes of Loss” are “Risks of Direct Physical Loss” unless the loss is “excluded in Section B” or “limited in Paragraph A.4.” (Italics added.) 

 

The policy also contained two coverage exclusions that are relevant to our analysis:

—Water damage exclusion: Farmers will not pay for loss or damage caused directly or indirectly by “water,” “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  However, Farmers will pay for “water damage to the interior of any building or structure caused by or resulting from rain, . . . whether driven by wind or not, if . . . the building or structure first sustains damages by a Covered Cause of Loss to its roof or walls through which the rain . . . enters.” 

—Faulty workmanship exclusion: Farmers will not pay for loss or damage “caused by or resulting from” specified exclusions, including, among others, “faulty, inadequate or defective . . . planning, zoning, development, surveying, siting . . . and workmanship, repair, construction or renovation.” (Italics added.) However, “if an excluded cause of loss . . . results in a Covered Cause of Loss,” Farmers “will pay for the loss or damage caused by that Covered Cause of Loss.”

 

 

(…) Consistent with Dewsnup, Victory Peach, and Wellsville Manor, we conclude that there are triable issues of fact as to whether the water exclusion applied in the present case. As an initial matter, we reject Farmers’s contention that the property was without a “roof” when it suffered rain damage in October 2021. The policy does not define “roof,” and we agree with the cited cases that a common sense meaning of “roof” includes a covering over a building that provides structural integrity and protection from the elements. We note in this regard that because no roof is permanent, all roofs must be periodically replaced. Replacing a roof requires removing worn outer layers and replacing them with new materials, thus leaving a structure not fully protected from the elements for a least a short time. Yet, nothing in the relevant condominium policy informed an insured that it would be without coverage for rain damage during periodic reroofing. To the contrary, the policy defines “covered property” to include “additions under construction, alterations and repairs to the building or structure,” unless covered by other insurance. In view of this language, we conclude that a roof under repair remains a “roof” within the meaning of the policy. In the present case, therefore, the property was never without a “roof” because Bardales removed just some of the roof’s outer layers, leaving the lower layers intact. Specifically, at the time of the first rainstorm, Bardales had removed much of the roof’s top layers, but other layers, including the plywood sheathing and insulation, remained. By the time of the second rainstorm, Bardales had replaced about 80 percent of the insulation and plywood, added a layer of “base paper” and “base felt,” hot-mopped and tarred much of the roof, and covered the entire roof with tarps. Like the courts in Dewsnup, Victory Peach, and Wellsville Manor, we conclude that the remaining layers of roof, even without the roof membrane, were sufficient to constitute a “roof” within the meaning of the policy.

 

 

Having concluded that the property had a “roof” at all points during the repairs, we must consider whether rain entered the property through “damage” to the roof caused by a “Covered Cause of Loss.”

 

 

(…) The policy does not purport to exclude losses that result from workmanship generally, but only from such “workmanship, repair [or] construction” that is “faulty, inadequate or defective.” Under the maxim expression unius est exclusio alterius, “the fact that [a] contract expressly so provides tends to negate any inference that the parties also intended another consequence to flow from the same event.” (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1175; G & W Warren’s, Inc. v. Dabney (2017) 11 Cal.App.5th 565, 576.)  Accordingly, the exclusion for damages caused by negligent workmanship suggests that the policy does not exclude damages caused by workmanship that was not negligent. We therefore conclude that rain damage resulting from roof repairs are covered unless expressly excluded by another provision of the policy, such as the faulty workmanship exclusion. We turn now to that question.

 

 

The parties disagree about the proper characterization of Bardales’s alleged negligence: The HOA asserts Bardales’s alleged negligence was “faulty workmanship,” while Farmers characterizes it as defecting “planning.” We need not decide whether the alleged negligence constitutes faulty “workmanship” or faulty “planning” because both are excluded under the policy if they are direct causes of loss. (Fn. 7).

 

 

We conclude, in line with other cases that have declined to follow Allstate, that “workmanship” unambiguously refers both to the way a contractor creates a finished product and the finished product itself. (See, e.g., Fourth Street Place, LLC v. Travelers Indem. Co., supra, 270 P.3d at p. 1242 [“the plain and ordinary meaning of the term ‘workmanship’ encompasses the quality of the process utilized to achieve the finished product and the quality of the finished product itself” (italics added)]; Wider v. Heritage Maintenance, Inc. (2007) 14 Misc.3d 963, 975 [827 N.Y.S.2d 837] [“An ordinary business-person applying for a commercial property insurance policy and reading the language of this exclusion would understand that, depending on the type of work done, the faulty workmanship exclusion could apply to the process of doing the work or the finished product”]; Schultz v. Erie Ins. Group (Ind. Ct. App. 2001) 754 N.E.2d 971, 976 [“while the term ‘faulty workmanship’ allows at least two definitions, we see no reason why it must mean either a ‘flawed product’ or a ‘flawed process.’ ”Since ‘workmanship’ denotes both ‘process’ and ‘product,’ an insurer could just as likely have both perils in mind when it drafts a policy’s list of exclusions”].)

 

 

However, although we do not adopt Allstate’s reasoning, we nonetheless conclude that the faulty workmanship exclusion does not unambiguously exclude coverage in this case. To establish the absence of coverage, Farmers had to demonstrate that there were no triable issues regarding the cause of the damage to the HOA’s property—or stated, differently, that the undisputed evidence established that the damage to the HOA’s property was “caused by or resulted” from Bardales’s negligence. But there was evidence that roof damage was caused not only by Bardales’s alleged negligence, but also by wind and rain. Specifically, Bardales testified that rain damaged the exposed plywood and insulation layers on October 4, and wind blew off tarps Bardales placed over the partially constructed roof on October 25. Farmers did not establish that the damage to the plywood, insulation, and tarps—that is, to the “roof”—did not contribute, at least in part, to the interior water damage. Moreover, as the HOA notes, Farmers introduced no evidence that the roof repairs could have been done in a way that would have fully protected the property in the event of a rainstorm. That is, while Farmers’s evidence suggested that Bardales failed to follow industry standards by removing nearly the entire roof membrane at once, it did not establish that compliance with industry standards would have avoided rain damage entirely—and thus that the damage resulted entirely from Bardales’s alleged negligence.

 

 

(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)

 

 

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

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California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication

 

 

California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Principles of Insurance Interpretation

 

California Law

 

 

 

 

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. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; see Civ. Code, § 1636.) “If contractual language is clear and explicit, it governs.” (Bank of the West, at p. 1264; see Civ. Code, § 1638.) 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.’” (Bank of the West, at p. 1265, quoting AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822.) 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. (Bank of the West, at p. 1264).’ (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 501.) 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. (See Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 552; La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 37–38.)” (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321 (Minkler).) To ensure that coverage conforms to the objectively reasonable expectations of the insured, “in cases of ambiguity, basic coverage provisions are construed broadly in favor of affording protection, but clauses setting forth specific exclusions from coverage are interpreted narrowly against the insurer. 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.” (Minkler, supra, 49 Cal.4th at p. 322.) The court is not required “‘to select one “correct” interpretation from the variety of suggested readings;’” instead, where there are multiple plausible interpretations of a policy, a court must find coverage if there is a “‘reasonable interpretation under which recovery would be permitted.’”  (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 655.)

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

 

 

Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, Docket No. 2023-335

Subject Matter Jurisdiction

 

Jurisdiction

 

Rhode Island Law

 

 

 

(…) We first turn our attention to NEPSG’s argument as to subject matter jurisdiction. This Court has long acknowledged that a “challenge to subject matter jurisdiction may not be waived by any party and may be raised at any time in the proceedings.” E.T. Investments, LLC v. Riley, 262 A.3d 673, 676 (R.I. 2021) (quoting Federal National Mortgage Association v. Malinou, 101 A.3d 860, 866 (R.I. 2014)). We would note at the outset that it is our view that in actuality NEPSG is not genuinely contesting the Superior Court’s jurisdiction over this matter. It is clear that the Superior Court had jurisdiction under G.L. 1956 § 8-2-14 and the Arbitration Act. Rather, NEPSG is actually questioning the nature of the appraisal process and, more specifically, whether it should be considered arbitration. Thus, it appears to us that NEPSG is questioning the authority of the Superior Court to decide this particular issue and not the court’s jurisdiction as such. Simply put, NEPSG is contending that the Superior Court improperly exercised its jurisdiction. See Cronan v. Cronan, 307 A.3d 183, 191 (R.I. 2024) (“This Court has noted* * * that the term subject-matter jurisdiction is often misused; when properly used, it refers only to a court’s power to hear and to decide a particular case, and not to whether a court, having the power to adjudicate, should exercise that power.”) (internal quotation marks, brackets, and deletion omitted); see also Pollard v. Acer Group, 870 A.2d 429, 433 (R.I. 2005) (“The term ‘lack of jurisdiction over the subject matter’ means quite simply that a given court lacks judicial power to decide a particular controversy.”).

 

 

 

(Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, March 20, 2025, Docket No. 2023-335-Appeal)

 

 

 

Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, Docket No. 2023-335

Statute of Frauds

 

Arbitration Process

 

Right to Waive

 

Rhode Island Law

 

 

 

There are some instances where parties are free to contract in ways that effectively waive protective provisions that are contained within a relevant civil statute. For example, under some circumstances, competent parties might be deemed to have waived the protective provisions of the Statute of Frauds if they did so knowingly and voluntarily. Nevertheless, there are some public policies that are so important that statutes relating to those policies should be understood to preclude the right to waive a protective statutory provision. One of those overarching public policies is the need to maintain the integrity of the alternative dispute resolution process as well as the public’s appreciation of that integrity. We are of the same mind as our predecessors on this Court, who expressly noted that they were “cognizant of the need for public confidence and integrity in the arbitration process.” Grabbert, 590 A.2d at 92. This Court has encouraged parties to “contract to use arbitration as an expeditious and informal means of private dispute resolution, thereby avoiding litigation in the courts.” Id. And we are keenly aware that the existence of evident partiality undermines these crucial aspects of arbitration. Id. (“Any impropriety that undermines public confidence in and the integrity of the arbitration process detracts from its legitimacy as an alternative method of private dispute resolution.”).

 

 

 

 

 

(Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, March 20, 2025, Docket No. 2023-335-Appeal)

 

Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, Docket No. 2023-335

Appraisal

 

Arbitration

 

Partiality

 

Petition to Vacate the Appraisal Award

 

Assignment of Insurance Claim

 

Insurance Law

 

Rhode Island Law

 

 

 

The plaintiff, Vermont Mutual Insurance Company (Vermont Mutual), appeals from a July 27, 2023 Superior Court order denying its petition to vacate an appraisal award and granting the cross-petition of the defendant, New England Property Services Group, LLC (NEPSG), to confirm said appraisal award. Vermont Mutual contends on appeal that the hearing justice erred in failing to vacate the award because, in its view, there was evident partiality on the part of the defendant’s appraiser. For the reasons set forth in this opinion, we vacate the order of the Superior Court, and we remand this case for further proceedings consistent with this opinion.

 

 

Vermont Mutual received a claim by or on behalf of Ms. St. Vil for windstorm damage to the Rumford property that was alleged to have occurred on December 25, 2020.

 

 

At some point, Ms. St. Vil executed an assignment of her insurance claim to NEPSG in exchange for its work on the property.

 

 

Significantly, Mr. Ceceri is the sole owner and operator of NEPSG.

 

 

On April 13, 2022, counsel for NEPSG directed correspondence to Vermont Mutual, indicating that NEPSG “demanded appraisal concerning the underlying claim.” The Vermont Mutual insurance policy at issue provides that, in the event an insured demands an appraisal of the loss, each party will choose “a competent appraiser within 20 days after receiving a written request from the other,” and it also provides that “the two appraisers will choose an umpire.” The policy further requires that the appraisers separately “set the amount of loss.” If the appraisers do not agree as to the amount, they are to submit their differences to the umpire, and a “decision agreed to by any two will set the amount of loss.” According to Vermont Mutual, Mr. Ceceri was named as the appraiser on behalf of NEPSG despite “his clear and undisputed financial interest in the outcome of the appraisal.” In its petition to vacate the appraisal award, Vermont Mutual asserted that it had objected to Mr. Ceceri acting as an appraiser because he was not “disinterested;” however, Vermont Mutual further asserted that it had “agreed to go forward with the appraisal and reserved any and all rights to dispute the award.” The appraisal ultimately went forward with Mr. Ceceri serving as the appraiser for NEPSG, Vincent Cicci serving as the appraiser for Vermont Mutual, and Felix Carlone serving as the appraisal umpire. According to an exhibit attached to NEPSG’s cross-petition, Mr. Ceceri’s appraisal was $207,053.11, while Mr. Cicci’s appraisal was $67,645.99. The final award appraised the loss at $144,855.37. (With interest, the total amount of the award was $185,797.02.) The “Agreement Award” indicates that Mr. Ceceri and Mr. Carlone signed the award, but Mr. Cicci did not sign on behalf of Vermont Mutual.

 

 

In due course, Vermont Mutual filed a petition to vacate the appraisal award, noting that, pursuant to G.L.1956 chapter 3 of title 10 (the Arbitration Act), the Superior Court has “jurisdiction to vacate, modify, or correct an award.” Vermont Mutual asserted that, as a result of what it alleged to be Mr. Ceceri’s evident partiality, the appraisal award should have been vacated in accordance with §10-3-12. NEPSG then filed its response and cross-petition to confirm the appraisal award, in which it admitted that the Superior Court had jurisdiction pursuant to the Arbitration Act and requested that the court grant its cross-petition “and order that the appraisal award issued in this matter be confirmed pursuant to” the Arbitration Act.

 

(General Laws 1956 § 10-3-12(2) provides in pertinent part that a court “must make an order vacating the award upon the application of any party to the arbitration” in the event of “evident partiality or corruption on the part of the arbitrators, or either of them.” (Emphasis added.) (Fn. 2)).

 

 

On appeal, Vermont Mutual contends that, in denying its petition to vacate the appraisal award and granting NEPSG’s cross-petition, the hearing justice erred “by failing to apply the relevant standard in determining whether the appraisal award should have been vacated pursuant to * * * § 10-3-12(2) due to the presence of evident partiality on the part of Mr. Ceceri.”

 

 

Section10-3-11 of the Arbitration Act provides that a party to arbitration “may apply to the court for an order confirming the award” within one year after the award is made. The court must vacate an award if one of the circumstances listed in §10-3-12 is present. In view of the fact that the General Assembly has authorized the Superior Court to either confirm or vacate an award, it logically follows that the Superior Court has subject matter jurisdiction over petitions filed pursuant to the Arbitration Act. In the instant case, this Court is left with no doubt that the Superior Court had jurisdiction over Vermont Mutual’s petition to vacate the award and NEPSG’s cross-petition to confirm the award; and we are also of the view that the court acted properly in exercising its jurisdictional power. See Pollard, 870 A.2d at 433.

 

 

Having established that the Superior Court had subject matter jurisdiction over this case, we next proceed to address whether the appraisal process in this case can be equated with arbitration.

 

 

Turning to the specific language of the appraisal provision in Vermont Mutual’s policy, which sets forth its appraisal procedure, we are of the opinion that the process at issue in the instant case can be equated with arbitration. Vermont Mutual’s policy includes the following pertinent language: “If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the ‘residence premises’ is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.” This language can reasonably be interpreted as providing for a dispute resolution process that, for all intents and purposes, is an arbitration. Significantly, the policy appraisal language at issue here comes tantalizingly close to mirroring the policy appraisal language at issue in Waradzin as well as the policy appraisal language at issue in the Grady case. See Waradzin, 570 A.2d at 649-50; Grady, 27 R.I. at 436-37, 63 A. at 173.

 

 

(…) We are not persuaded by the argument that the absence of the term “disinterested” from Vermont Mutual’s policy somehow materially differentiates it from the appraisal processes that this Court in Waradzin and Grady has held to be an arbitration.

 

 

(…) We hold that the appraisal procedure outlined in Vermont Mutual’s policy can be equated with arbitration and that the Arbitration Act is therefore applicable.

 

 

(…) While we have acknowledged that arbitrators are not expected to be totally impartial or disinterested and that there is an expectation that party-appointed arbitrators will serve as nonneutrals, flagrant partiality serves to undermine the integrity of the arbitration process. See Aetna Casualty & Surety Company v. Grabbert, 590 A.2d 88, 92-95 (R.I. 1991).

 

 

Pursuant to § 10-3-12(2), a court must vacate an award upon the application of any party to the arbitration “where there was evident partiality or corruption on the part of the arbitrators, or either of them.”  This Court has acknowledged that evident partiality “will be found ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’”Grabbert, 590 A.2d at 96 (quoting Morelite Construction Corp. v. New York City District Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984)). In Grabbert, this Court established a two-step test for determining whether there is evident partiality on the part of a party-appointed appraiser. First, a party seeking to vacate an award must establish an improper interest on the part of the appraiser. Grabbert, 590 A.2d at 92. Secondly, there must be a “causal nexus” between the party-appointed appraiser’s conduct and the appraisal award. Id. In Grabbert, the arbitrator appointed by the insured was working on a contingent fee basis (ten percent of the ultimate award would be his fee), which this Court stated “gave him a direct financial interest in the award that was absolutely improper * * *.” Grabbert, 590 A.2d at 90, 92. Nonetheless, this Court went on to state that the defendant had “failed to demonstrate the required causal nexus between the party-appointed arbitrator’s improper conduct and the award ultimately decided upon.” Id. at 96. In arriving at that conclusion, this Court emphasized inter alia that the award in that case “was a unanimous decision of three experienced arbitrators.” Id.

 

 

In McGinity v. Pawtucket Mutual Insurance Co., 899 A.2d 504 (R.I. 2006), this Court was again faced with the question of whether an arbitration award should be vacated due to the existence of evident partiality. McGinity, 899 A.2d at 505. This Court determined that the failure on the part of the arbitrator to disclose to the opposing party and to the other two arbitrators his position as an attorney for the defendant satisfied the first step of the test articulated in Grabbert. Id. at 507. In addressing the question of causal nexus, this Court in McGinity pointed out that, unlike the award in Grabbert, the award at issue in the case then on appeal was not unanimous. Id. at 508. The Court also noted that the “plaintiff’s party-appointed arbitrator not only declined to agree with the other two arbitrators, but also arrived at a drastically different amount as evidenced by his minority opinion.” Id. The Court further emphasized that the “fact that the neutral arbitrator voted for the arbitration award does not disprove a causal nexus between the *  *  * arbitrator’s relationship to defendant and the arbitration award that two of the panel members reached.” Id. The Court in McGinity ultimately held that an attorney-client relationship between the arbitrator and the insurer was sufficient to supply the causal nexus between the improper conduct and the award. Id. In the instant case, it is quite evident that Mr. Ceceri had a direct financial interest in the award. Mr. Ceceri is the sole owner and operator of NEPSG as well as the assignee of Ms. St. Vil’s insurance claim. Therefore, NEPSG in this case acted as its own appraiser with the entire appraisal award ultimately being payable to Mr. Ceceri. In other words, Mr. Ceceri stood to benefit solely on the basis of his being the party-appointed appraiser, thereby standing to exclusively benefit from the award. To that end, NEPSG’s emphasis on the fact that Vermont Mutual continued to partake in the appraisal process in spite of the disclosure of Mr. Ceceri as NEPSG’s appraiser is unavailing. In its petition to vacate the appraisal award, Vermont Mutual asserted that it objected to Mr. Ceceri acting as an appraiser because he was not “disinterested.” These largely undisputed facts establish an improper interest on the part of Mr. Ceceri, and the first step of the test articulated in Grabbert has therefore been satisfied.

 

 

As for the second step of the Grabbert test, it is quite clear that there was a causal nexus between Mr. Ceceri’s conduct and the final appraisal award. As was the case in McGinity, the award at issue here was not unanimous. In the instant case, Mr. Ceceri’s appraisal was $207,053.11, while Mr. Cicci’s appraisal was $67,645.99. The final award appraised the loss at $144,855.37, exclusive of interest.

 

 

It is clear from these numbers that Mr. Ceceri and Mr. Cicci arrived at drastically different amounts. We do not believe it to beat all irrational to suggest that Mr. Ceceri’s inflated amount was potentially motivated by his direct financial interest in the award. Moreover, the “Agreement Award” indicates that Mr. Ceceri and Mr. Carlone signed the award, whereas Mr. Cicci declined to sign on behalf of the insurer. In our view, these uncontroverted facts thus establish a causal nexus similar to the one identified in McGinity. See McGinity, 899 A.2d at 508. Accordingly, we hold that the award should have been vacated due to the presence of evident partiality and that the hearing justice erred in failing to conduct this necessary analysis. See generally Morelite Construction Corp., 748 F.2d at 85.

 

 

Bearing in mind the authorities that we have cited and our convictions about the integrity of the alternative dispute resolution process, we have concluded that the appraisal award at issue in this case must be vacated due to the evident partiality of the appraiser for NEPSG.

 

 

We vacate the order of the Superior Court, and we remand this case to that tribunal with the direction that it order a new appraisal.

 

 

 

(Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, March 20, 2025, Docket No. 2023-335-Appeal)