UrbCamCom/WSU I, LLC v. Lexington Insurance Company

Filing 82

ORDER denying 72 defendant's Motion to appoint disinterested and impartial umpire. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

URBCAMCOM/WSU I, LLC,
Plaintiff,
Case No. 12-CV-15686
HON. GEORGE CARAM STEEH

vs.
LEXINGTON INSURANCE CO.,
Defendant.
_____________________________/

ORDER DENYING DEFENDANT’S MOTION TO APPOINT
DISINTERESTED AND IMPARTIAL UMPIRE (Doc. 72)
Now before the court is defendant’s motion for the court to (1) appoint an umpire,
(2) to declare that Richard Guider, who presided as umpire over the property damage
appraisal, is not disinterested or impartial and thus cannot preside over the appraisal of
plaintiff’s business interruption loss claim, and, (3) to disqualify plaintiff’s appraiser
Ethan Gross. Oral argument was heard on July 15, 2014. For the reasons set forth
below, defendant’s motion shall be denied in its entirety.
Background
Plaintiff UrbCamCom/WSU, LLC owns a student housing apartment complex
near Wayne State University which sustained significant water damage when two fire
sprinklers ruptured on January 16, 2012. Defendant paid business interruption losses
for six months (until September 30, 2012) totaling about $900,000. The issue of
building damage was submitted to appraisal and an appraisal award was made on
October 10, 2012 in the amount of $5.04 million actual cash value. Plaintiff claimed
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business interruption losses were owing beyond the six months paid and sought to have
the issue resolved by appraisal. Defendant refused to submit the business interruption
loss to appraisal arguing that the matter was a coverage issue for the court to decide.
This lawsuit addressed the sole issue of whether the business income loss claim, extra
expenses, and content storage claims, were also subject to appraisal. On April 23,
2014, this court granted plaintiff’s motion for partial summary judgment and ordered that
the parties submit to an appraisal to determine the period of restoration and the amount
due for business interruption losses, extra expenses, and contents storage. The court
then stayed the case pending the appraisal process and administratively closed the
case.
During the earlier appraisal of the building damage claim, plaintiff selected Ethan
Gross and defendant selected Thomas Costantini as their appraisers. Gross and
Costantini selected as umpire Richard Guider of Grand Rapids. Plaintiff plans to use
Gross again and expects Guider to continue as the umpire. Although in its initial
motion to appoint a neutral umpire, it appeared that defendant planned to use
Constantini again, in their reply brief, defendant advised the court that as of June 20,
2014, (two weeks after plaintiff filed its response brief) defendant retained a new
appraiser - Peter Fogarty - who objected to continuing to use Guider as umpire for the
remaining business interruption damages. (Doc. 80, Ex. 3A). Plaintiff contends that
Constantini and Gross mutually agreed to appoint Guider to serve as umpire on all of
plaintiff’s claims in July, 2012. Defendant, on the other hand, contends that Guider was
selected as the umpire only as to the property damage claim, and not as to the business
interruption loss claim.
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According to Guider’s CV, he has 46 years of insurance experience, beginning as
a claims adjuster, and he is now working as executive general adjuster with Chenard &
Osborn in Grand Rapids. He has worked as an appraiser on disputed property claims
298 times, and has been appointed as an umpire on 102 occasions.
Procedure for Selecting Umpire
According to Michigan law, in an appraisal, each party selects its own appraiser,
and it is the two appraisers who then select the umpire, not the parties. Where they
cannot agree, the court will appoint the umpire. Mich. Comp. Laws § 500.2833(1)(m).
The statute provides:
That if the insured and insurer fail to agree on the actual cash value or amount of
the loss, either party may make a written demand that the amount of the loss or
the actual cash value be set by appraisal. If either makes a written demand for
appraisal, each party shall select a competent, independent appraiser and notify
the other of the appraiser’s identity within 20 days after receipt of the written
demand. The 2 appraisers shall then select a competent, impartial umpire. If the
2 appraisers are unable to agree upon an umpire within 15 days, the insured or
insurer may ask a judge of the circuit court for the county in which the loss
occurred or in which the property is located to select an umpire.
Id. The insurance policy includes a similar provision:
29.

Appraisal
If the Insured and the Company fail to agree on the amount of the loss,
each upon written demand either of the Insured or of the Company made
within sixty (60) days after receipt of proof of loss by the Company, shall
select a competent and disinterested appraiser. The appraisers shall then
select a competent and disinterested umpire. If they should fail for fifteen
(15) days to agree upon such umpire, then upon the request of the
Insured or of the Company such an umpire shall be selected by a judge of
a court of record in the county and state in which the appraisal is pending.

(Doc. 1, Ex. A at ¶ 29).

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Analysis
1.

The Parties’ Appraisers Agreed to have Guider Adjudicate the Business
Interruption Claim
The appraisers, Gross and Constantini, previously agreed to have Guider act as

umpire over all claims, which necessarily includes the business interruption loss claim.
It is undisputed that Guider served as umpire on three successive and separate awards
so far. In addition to deciding the building loss claim, he also decided the emergency
water mitigation; and the pack-out, testing, cleaning, storage and return of appliances,
electronics and general contents awards. On June 29, 2012, Gross wrote to
Constantini about the need to appoint an umpire to preside over all disputed losses.
Specifically, Gross wrote, “I think we should try to agree on an umpire at this time so we
have someone on board and ready to participate on any areas of disagreement that
may arise.” (Doc. 75, Ex. A2) (emphasis added). Plaintiff has submitted a copy of
Constantini’s e-mail to Gross on July 13, 2012, in which Constantini stated that “I had a
phone interview with Dick Guider and find him acceptable as an umpire.” (Doc. 75, Ex.
A5). No evidence in the record suggests that the umpire was limited to adjudicating
only the property damage claim, and in fact, he has already decided several other
claims.
Defendant’s arguments to the contrary lack merit. In support of its position that
the appraisers failed to agree that the umpire would decide the business interruption
loss, defendant has submitted a copy of plaintiff’s request for an appraisal dated May
10, 2012, which states, in relevant part, “[a]t this time we are not requesting appraisal
on the business interruption/extra expense portion of the claim except as to how it
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relates to the period of reconstruction.” (Doc. 80, Ex. 1). Plaintiff explains that its initial
request for appraisal qualified the scope of the business interruption claim because
defendant was paying those damages at that time. Plaintiff emphasizes its current
business interruption claim is squarely within the reserved determination of the period of
reconstruction; moreover, when the appraisers selected Guider in July, 2012, he was to
act as umpire over all losses. Plaintiff further responds that because the court’s April
23, 2014 order remanded the issue of contents storage to appraisal, and there is no
dispute that Guider was previously appointed to adjudicate that claim, appointing a new
umpire for the business interruption loss claim now will require that two umpires resolve
the remaining claims.
Defendant has cited no precedent for the proposition that multiple umpires may
preside over an appraisal on a piecemeal basis, with different umpires appointed to
adjudicate different loss claims even though all of the losses arise out of the same
incident. Because umpires act as quasi-judges, that would be akin to splitting a civil
lawsuit arising out of a tort claim to one judge to decide pain and suffering damages, to
another to decide lost wages, and to another to decide the question of attorney fees.
This is not done in the judicial system, nor should it be done in the appraisal process.
To appoint a new umpire now would significantly delay appraisal of the remaining
claims. Although some portion of the initial appraisal proceeding was transcribed,
reading the partial transcript will not substitute for listening to the live testimony of ten
experts and conducting an in person examination of the building prior to repairs. There
is no possibility that a new umpire could physically examine the apartment building as it
existed prior to repairs. For this reason alone, Guider is in a better position than any
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newly appointed umpire to determine the business interruption loss. Although the
experts could be recalled to testify again, using the same umpire will avoid
unnecessarily elongating the proceedings either because the witnesses will not be
required to testify again, or because their testimony could be significantly shortened.
Guider is in the best position to preside over the business interruption loss
appraisal based on his prior experience in the appraisal of this matter. He is intimately
familiar with the facts and circumstances surrounding the damage to the apartment
building and his adjudication of the building damage claim will significantly overlap with
the analysis to be done to determine the business interruption loss. He will need to
determine the period of restoration which necessarily depends on the severity of the
building damage which was clearly within the scope of his prior analysis.
In sum, the record is clear that Constantini and Gross selected Guider to act as
umpire to preside over all claims to be appraised. The court having now determined
that the business interruption loss, extra expense, and contents storage claim, are
subject to appraisal, Guider is to continue as the umpire over those claims. Continuing
with Guider promises to yield the most expeditious and efficient adjudication of the
remaining matters to be appraised. Given the strong policy considerations in favor of
continuing with the same appraiser, even if the court were to find that the parties’
appraisers had not agreed to Guider’s appointment and that it was necessary for the
court to appoint an umpire for them; in its discretion, this court would appoint Guider.
2.

Defendant’s Motion to Declare Guider Unfit
In deciding whether to order Guider to continue as umpire, the court next

considers defendant’s motion that he be disqualified on the grounds that he is biased.
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The umpire “may not favor either party; he must serve only equity, fairness, and justice.”
Auto-Owners Inc. v. Allied Adjusters & Appraisers, Inc., 238 Mich. App. 394, 401 (1999).
In an appraisal, the party seeking to remove an umpire has the burden of proof and
must show actual partiality or bias. Emmons v. Lake States Ins. Co., 193 Mich. App.
460, 466 (1992); Roehrig v. State Auto. Mut. Ins. Co., No. 252742, 2005 WL 1579518,
*2 (Mich. App. July 5, 2005). Defendant has not shown that Guider was biased as its
claims of impropriety are refuted by Guider’s and plaintiff’s counsel’s affidavits.
Defendant argues this court should appoint a neutral umpire and should declare
that Guider is not “disinterested”1 because he (1) allegedly drove to the previous
appraisal with plaintiff’s appraiser Gross; (2) allegedly engaged in ex parte
communications with Gross; (3) is not disinterested because plaintiff’s counsel
frequently uses him in other litigation; and (4) plaintiff has used information supplied by
Guider in support of its claims and defenses in this case. Plaintiff refutes each point by
way of sworn affidavits.
In his affidavit, Guider states that he (1) has never driven in a car with Gross
(Doc. 75, Ex. C at ¶ 5);2 (2) has never had any ex parte communications with Gross or

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As plaintiffs note in their brief, the proper standard under Michigan law is not
“disinterested” but “impartial.” Mich. Comp. Laws § 500.2833(1)(m). The prior standard
of “disinterested” was repealed in 1990. White v. State Farm Fire & Cas. Co., 293 Mich.
App. 419, 423-25 (2011). The policy, however, requires that the umpire be “competent
and disinterested.” The definition of “impartial” is “[f]avoring neither, disinterested;
treating all alike; unbiased; equitable, fair, and just.” Id. (quoting Auto-Owners, 238
Mich. App. at 400-401). As a matter of semantics, it appears there is no real difference
between the terms “impartial” and “disinterested.”
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Plaintiff also points out that it is unlikely that Guider, whose office is in Grand
Rapids, would drive to Detroit with Gross, whose office is in Southfield.
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plaintiff’s counsel; Id. at ¶ 8, 10; and (3) plaintiff’s counsel has never appointed him as
an umpire, but he has been appointed to serve as umpire by agreement of the two
appraisers in a small number of claims where policyholders were represented by
plaintiff’s counsel. Id. at ¶ 9. Plaintiff’s counsel Michael Fabian also submitted an
affidavit stating that he has never had any ex parte communications with Guider, and
did not use any information supplied by Guider in this litigation other than his CV which
he obtained from Gross. (Doc. 75, Ex. D at ¶ 6-7). In its reply brief, defendant attached
Constantini’s affidavit stating that he overheard Gross and Guider discussing driving to
the appraisal together, felt that Guider was not disinterested, and objected to the
property damage award because it did not set forth a break down of the losses. (Doc.
80, Ex. 2 at ¶¶ 3-6). Even if true, Constantini’s “feeling” that Guider was biased, or his
complaint about the manner in which Guider set forth his damages award, does not lead
to the conclusion that Guider was partial to the plaintiff. More problematic is
Constantini’s claim that Gross and Guider “discussed” driving together, but Guider’s
affidavit that they did not do so stands unrefuted.
At oral argument, defendant argued that Guider must be disqualified because he
submitted an affidavit in this case. Plaintiff responds persuasively that Guider only filed
an affidavit here in response to defendant’s personal attacks on his professional
integrity, credibility, and reputation. It would be inappropriate for this court to disqualify
Guider solely because he responded to defendants’ allegations of ethical misconduct.
Such a result is inequitable because it would require the court to disqualify Guider either
for failing to respond to claims of misconduct, or conversely, because he in fact
defended himself. Either way, Guider would be disqualified. The court must reject
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defendant’s argument, lest all umpires face disqualification whenever mere accusations
of impropriety are made, whether grounded in fact or not. Such a result is untenable.
Defendant also argues that Guider acted improperly as the umpire in the building
damage appraisal as he did not itemize the amount of the loss. Defendant has not
shown that the policy required such an itemization. See Arkin Distrib. Co. v. American
Ins. Co., 85 Mich. App. 359, 366 (1978) (no further itemization of appraisal award
needed where not required under the policy). In his affidavit, Guider states that neither
the policy nor Michigan law requires an itemization beyond stating the replacement cost
and actual cash value, and that in his experience in scores of appraisals, he has never
itemized damages unless both appraisers agree to do so, which did not happen here.
(Doc. 75, Ex. C at ¶ 6). In sum, defendant has failed to show that Guider is biased or
incompetent, and defendant’s motion to disqualify him is denied.
3.

Defendant’s Motion to Disqualify Plaintiff’s Appraiser Ethan Gross
In its motion, defendant also moves to disqualify plaintiff’s Appraiser Ethan

Gross; however, defense counsel did not address the issue at oral argument. Thus, the
court decides the issue based solely on the submissions. Defendant moves to dismiss
Gross on the grounds that he (1) allegedly drove to the appraisal hearing with Guider;
(2) allegedly engaged in ex parte communications with Guider; (3) submitted an affidavit
in support of plaintiff’s claims and defenses in this litigation; and (4) allegedly submitted
an intentionally inflated replacement cost claim. Plaintiff refutes the above allegations
by affidavit. In his affidavit, Gross states that he has never driven in a vehicle with
Guider and has never engaged in any ex parte communications with him. (Doc. 75, Ex.
A at ¶¶ 15-16.). He further states that he submitted an affidavit in this lawsuit only to
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refute allegations of fraud made by defendant that he knowingly misrepresented
estimates he prepared during the appraisal process. Id. at ¶ 17. Gross’s affidavit states
that having served as an appraiser or umpire in hundreds of claims, appraisal awards
routinely set forth replacement cost and actual cash value figures without further
itemization. (Doc. 75, Ex. A at ¶ 14). Moreover, the court has already rejected
defendant’s allegations of fraud when it denied defendant’s motion to add a fraud
counterclaim or affirmative defense. Defendant has failed to show that Gross is not
“disinterested” as required under the policy, or that he is not “competent” or
“independent” as required under Mich. Comp. Laws § 500.2833(1)(m). Accordingly,
defendant’s motion to disqualify Gross is denied.
Conclusion
For the reasons stated above, defendant’s motion (Doc. 72) to disqualify Guider
is DENIED. Because the appraisers selected Guider to act as umpire over all loss
claims, defendant’s motion that this court name a new umpire is DENIED. IT IS
FURTHER ORDERED that defendant’s motion to disqualify Gross is DENIED.
IT IS SO ORDERED.
Dated: July 21, 2014
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

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CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
July 21, 2014, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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