6700 Arrowhead Owners Association v. State Farm Fire and Casualty Company et al

Filing 22

ORDER granting 5 Motion to Compel; granting 7 Motion to Dismiss Party; party Unknown Parties (named as: John and Jane Does I-X, ABC Corporations I-X, and XYZ Partnerships I-X) terminated. Signed by Judge David G Campbell on 11/19/2012.(NVO)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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6700 Arrowhead Owners Association,
Plaintiff,

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ORDER

v.

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No. CV-12-1677-PHX-DGC

State Farm Fire and Casualty Company, et
al.,

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Defendants.

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On August 9, 2012, 6700 Arrowhead Owners Association (“Plaintiff”) filed a

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motion to compel appraisal based on the appraisal provision in its contract with State

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Farm Fire and Casualty Company (“Defendant”). Doc. 5. Plaintiff also filed a motion to

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dismiss all fictitious parties named in the suit. Doc. 7. Defendant filed a response to the

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motion to compel appraisal (Doc. 18) and Plaintiff filed a reply (Doc. 19).1 For the

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reasons that follow the court will grant the motion to compel appraisal with additional

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instructions, and grant the motion to dismiss all fictitious parties.

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I.

Factual Background.

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Plaintiff is a condominium owners association for residential condominiums

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located at 17100 North 67th Avenue in Glendale, Arizona. Its property contains seven

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buildings and six carports. On October 5, 2010, a particularly strong hailstorm damaged

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The request for oral argument is denied because the issues have been fully
briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b);
Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

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the property and prompted Plaintiff’s insurance claim. Defendant dispatched an adjuster

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to the property and determined that portions of the property sustained covered hail

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damage. Defendant paid Plaintiff $238,522.82 for the losses that it deemed covered.

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Doc. 18 at 7. That amount did not include compensation for damage to bitumen roofs on

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all of the buildings on the property or damage to the north and west exterior elevations of

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all the buildings because Defendant determined that damage to those areas did not result

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from the hailstorm and therefore was not covered by the policy. Doc. 18 at 9. Defendant

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also refused to cover a 5% management fee that Plaintiff allegedly owes to a third-party

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property manager for overseeing the general contractor. Doc 18 at 8. Unsatisfied with

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that determination, Plaintiff attempted to invoke the appraisal clause in the insurance

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contract. Doc. 18-3 at 2. Defendant expressed willingness to submit the uncontested

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portions of the claim for appraisal, but was unwilling to submit all of Plaintiff’s claimed

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damages to an appraiser because it contested portions of the claim and believed

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submitting it would require the appraiser to go beyond the scope of the appraisal clause

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and make determinations about what damages were covered under the policy. Doc. 18-5

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at 2 (“If the association is contesting the amount of the loss for the damages addressed in

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State Farm’s repair estimate, please advise and we will immediately identify an appraiser.

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If, on the other hand, the association is disputing State Farm’s coverage determination

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regarding the modified Bitumen roofs, the north and west exterior elevations and your

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company’s 5% management fee, these items are simply not susceptible to resolution

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through appraisal.”).

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submitted for appraisal, and so on July 5, 2012, Plaintiff filed this suit for breach of

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contract and breach of the covenant of good faith and fair dealing in Maricopa County

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Superior Court. Doc. 18-6 at 2; Doc. 1-1 at 4. Defendant removed the case to this Court

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on August 7, 2012. Doc. 1. Plaintiff now moves to compel appraisal under the contract

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and pursuant to 9 U.S.C. § 4.

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II.

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Plaintiff asserted that all of the claimed damages should be

Legal Standard.
In Arizona, appraisal provisions are analogous to arbitration provisions and are
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governed by arbitration principles. See Meineke v. Twin City Fire Ins. Co., 892 P.2d

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1365, 1369 (Ariz. App. 1994). The primary purpose of arbitration is to “obtain an

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inexpensive and speedy final disposition of the matter involved.” Gates v. Arizona

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Brewing Co., 95 P.2d 49, 50 (1939). A court is “very limited in its power to refuse a

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motion to compel arbitration.” Ori v. American Family Mutual Ins. Co., No. CV-2005-

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697-PHX-ROS, 2005 WL 3079044, at *2 (D. Ariz. Nov. 15, 2005) (referring to

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arbitration principles when ordering appraisal). Moreover, when considering whether or

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not to compel arbitration, any doubts concerning the scope of arbitrable issues are to be

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resolved in favor or arbitration. Id. at *4.

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III.

Discussion.

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A.

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Defendants contend that submitting the whole claim for appraisal will cause the

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appraiser to make determinations about the scope of coverage under the insurance policy

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rather than simply determining the amount of damage. This distinction is important,

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because in Arizona appraisers only determine the amount of damage and do not resolve

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questions of coverage. Hanson v. Commercial Union Ins. Co., 723 P.2d 101, 104 (Ariz.

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App. 1986). Furthermore, in Arizona “an arbitrator cannot resolve issues which go

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beyond the scope of the submission agreement.” Clarke v. ASARCO Inc., 601 P.2d 587,

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589 (Ariz. 1979).

Motion to compel appraisal.

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In Carbonneau v. American Family Mutual Ins. Co., No. 06-1853-PHX-DGC,

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2006 WL 3257724 (D. Ariz. Nov. 9, 2006), this Court resolved a similar dispute,

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involving a nearly identical appraisal clause, in favor of appraisal. In that case, both

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parties agreed that the insurance company was required to fix storm damage, but their

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competing appraisals differed as to whether it was necessary to replace the entire roof to

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repair the damage. Id. Another District of Arizona case considered the same issues and

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similarly found in favor of appraisal when the parties could not agree about the repairs

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necessary to remove the smoke odor from a house after a fire. Ori v. American Family

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Mutual Ins. Co., No. CV-2005-697-PHX-ROS, 2005 WL 3079044 (D. Ariz. Nov. 15,
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2005).

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This case differs from Carbonneau and Ori because the parties are not contesting

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the manner and cost of repair for undisputed claims, but rather whether some damage is

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actually a result of the hailstorm and, consequently, whether it is covered at all.

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Defendant has identified particular areas of the buildings which it maintains were not

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damaged by the hailstorm. The question of whether any damage to those areas is covered

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under the policy lies beyond the scope of the appraisal clause. Defendant is entitled to

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contest the scope of coverage in this Court, but should the additional damages be found

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within the scope of policy, the appraisal clause entitles Plaintiff to a determination of the

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amount of damages through an appraisal process.

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Defendant suggests the solution of submitting all of Plaintiff’s alleged damages

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for appraisal, while requiring the appraiser to itemize his report of damages such that

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Defendant will be able to challenge liability for the categories that it claims fall outside

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the scope of the policy. Plaintiff argues that this solution would “defeat the purpose” of

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appraisal because separate line items for disputed damages would make it easier for

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Defendant to litigate liability for those damages before a jury. Doc. 19 at 9. Plaintiff

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further argues that it “makes no sense to arbitrate the covered damages once before an

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appraisal panel, and then have to go back and re-argue the covered damages before a jury

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later.” Id.

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The Court agrees with Defendant’s proposed solution. Should Defendant choose

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to litigate coverage issues after the appraisal – something it is entitled to do – an itemized

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appraisal preserves that option while still allowing Plaintiff to invoke its contractual right

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to an appraisal. This solution also accords with the case law’s deference toward allowing

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the appraisal process to proceed.

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B.

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Plaintiff’s motion to dismiss all fictitious parties is unopposed. The Court will

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dismiss John and Jane Does, I-X, ABC Corporations, I-X, and XYZ Partnerships I-X as

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Defendants.

Motion to dismiss fictitious parties.

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IT IS ORDERED:

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1.

Plaintiff’s motion to compel appraisal (Doc. 5) is granted. The appraisal

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shall value all of Plaintiff’s alleged damages according to procedures outlined in the

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insurance policy, but the appraiser’s opinion shall be itemized to preserve Defendant’s

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ability to assert the coverage issues already raised by Defendant in the parties’

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communications.

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2.

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Dated this 19th day of November, 2012.

Plaintiff’s motion to dismiss all fictitious parties (Doc. 7) is granted.

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