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Philadelphia Indemnity Insurance Co. v. WE Pebble Point

United States District Court, S.D. Indiana, Indianapolis Division

January 28, 2016

WE PEBBLE POINT, Defendant/Counterclaimant.


          Debra McVicker Lynch United States Magistrate Judge.

         Before the court for a report and recommendation on its appropriate disposition is a motion filed by defendant/counterclaimant WE Pebble Point (“Pebble Point”), the insured, to set aside an appraisal award. (Dkt. 39). Pebble Point contends the appraisal process leading to the award was tainted and the award should not stand or bind it. The plaintiff, Philadelphia Indemnity Insurance Company (“Philadelphia Insurance”), opposes the motion. As addressed below, the Magistrate Judge recommends that the District Judge GRANT the motion, set aside the appraisal award, and order that the parties' insurance dispute may now be adjudicated in this court.


         The court first will summarize events that led to the initiation of this litigation and to the District Judge's order requiring the parties to proceed with an appraisal procedure described in the subject insurance policy. Next, the court will recite the appraisal language of the policy and describe the process by which the court selected an umpire to act in the appraisal procedure. The court will then describe the events occurring within the appraisal process leading to an appraisal award, at least as those events are illuminated by documents and affidavits filed with the court. Finally, the court will analyze the issues raised by Pebble Point's motion to set aside in light of the governing law and the facts and inferences gleaned from the evidence submitted by the parties.

         The court held a hearing on October 1, 2015, on Pebble Point's motion to set aside the appraisal award. The parties stated they had no materials or evidence to offer other than the documents they had submitted to the court at various times. The court will consider these documents, the authenticity of which was not disputed by the parties. They consist of:

• The appraisal award in the amount of $29, 743.27, dated June 8, 2015, by umpire David J. Balistreri, and dated June 9, 2015, by appraiser Steve Zwolfer (the appraiser selected by Philadelphia Insurance). Dkt. 40-10.
• Affidavit of Don Lamont, the appraiser selected by Pebble Point. Dkt. 39-1.
• Affidavit (with attached emails) of appraiser Steve Zwolfer. Dkt. 41-5.
• Additional emails between or among Mr. Lamont (Pebble Point's appraiser), Mr. Zwolfer (Philadelphia Insurance's appraiser), and Mr. Balistreri (the umpire). Dkts. 41-3 and 41-4.
• Mr. Zwolfer's December 2014 damages estimate at replacement cost value in the amount of $6, 114.75.
• Mr. Lamont's December 2014 damages estimates at actual cost value (without recoverable depreciation) in the amount of $562, 040.00 and at replacement cost value (with recovery for depreciation) in the amount of $641, 005.26.

         Relevant Facts

         I. Procedural History

         This case is an insurance coverage dispute. Pebble Point owns an apartment complex in Indianapolis, Indiana. Philadelphia Insurance issued two materially identical policies to Pebble Point that cover certain losses at the apartment complex for the periods November 22, 2011, to November 22, 2012, and November 22, 2012, to November 22, 2013 (together, the “Policy”). In December 2012, Pebble Point made a claim against the Policy for damages to apartment buildings within the complex-primarily to the roofs of the 22 buildings making up the complex- allegedly caused by an October 2012 storm. Pebble Point also made a second claim against the Policy because of a different, later storm. For ease of reference, the court groups the policies, claims, and storms, and will refer to only one Policy, one claim, and one storm. The issues currently before the court do not require distinction between different storms and claims or the two separate policies, and it is simpler to refer to them collectively.

         Philadelphia Insurance investigated the claim and determined that the majority of losses claimed by Pebble Point were not caused by the storm (the Policy covers loss caused by “windstorm or hail” and “water damage”) but by non-covered causes such as improper installation or maintenance of roofing shingles, other roofing construction defects, or wear and tear. Philadelphia Insurance paid Pebble Point an amount equal to the damages it found were caused by a covered event minus Pebble Point's $10, 000 deductible, or a total of $6, 288.56. When Pebble Point challenged Philadelphia Insurance's evaluation of the claim, Philadelphia Insurance took another look but reached essentially the same conclusion, i.e., that few of the problems with Pebble Point's roofs were the result of the storm and thus covered losses.

         Pebble Point disagreed that the damages were the result of non-covered causes. It maintained its losses ranged in the hundreds of thousands of dollars, and demanded Philadelphia Insurance to participate in an appraisal proceeding as outlined in the Policy. Philadelphia Insurance declined to do so on the ground it believed the parties' dispute concerned the extent of covered losses rather than the “amount of loss.” Philadelphia then brought this suit seeking a declaratory judgment that it had fully satisfied its obligations under the Policy for the claim made by Pebble Point.

         Pebble Point moved to dismiss Philadelphia Insurance's complaint on the ground Pebble Point was entitled to enforce the appraisal provision of the Policy. This court agreed with Pebble Point. The court ruled:

[Philadelphia Insurance's] [P]olicy makes clear that the results of an appraisal do not necessarily constitute the last word; appraisers' competence is limited to assessing the amount of loss, and not to interpreting other provisions of the [P]olicy. Where, as here, the parties dispute the amount of loss and one has demanded appraisal, however, we conclude that it is premature to consider [Philadelphia's] suit for a declaratory judgment enshrining its own estimates of the amount of covered damage. We accordingly GRANT Defendant's motion to dismiss Plaintiff's complaint for declaratory judgment, which we dismiss WITHOUT PREJUDICE, and we order the parties to proceed to the appraisal process as provided in the [P]olicy.

(Dkt. 29 at p. 14).

         II. The Appraisal Provision and Selection of an Umpire

         Pebble Point's claim sought coverage under the Commercial Property section of the Policy, which contains this Appraisal Provision at Section E.2:

         2. Appraisal

If we and you disagree on the value of the property or the amount of “loss”, [1] either may make written demand for an appraisal of the “loss”. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of “loss”. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.

(Policy, Dkt. 40-2, at p. 37).

         Pebble Point and Philadelphia Insurance each selected its own appraiser- men each had hired many months before to provide an opinion about the extent of Pebble Point's loss. Each party filed a motion asking the court to appoint an umpire, and each provided the court with curriculum vitae of various persons they represented to be neutral and competent. See Pebble Point's motion, Dkt. 30, at p. 2; Philadelphia's motion, Dkt. 31, at p. 2. The court selected Mr. David J. Balistreri, who had been proposed by Philadelphia Insurance, to act as the umpire, after finding that its review of the candidates' curriculum vitae indicated all appeared to be competent to work as an umpire, and that an umpire located geographically close to Indiana might save time and money.[2] (Dkt. 33).

         III. The Appraisal Process and the Award

         A. Initial Communications and Scheduling a ...

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