vacating appraisal award for further consideration on the appraiser’ impartiality
How later courts described this case
- vacating appraisal award for further consideration on the appraiser’ impartiality
- “a body that has prejudged the outcome cannot render a decision that comports with due process”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
VIDHI LLC d/b/a Clarion Inn Michigan )
City, )
)
Plaintiff, )
) CASE NO. 3:18-CV-451-JD-MGG
v. )
)
ARCH INSURANCE COMPANY d/b/a )
Arch Specialty Insurance Company, )
)
Defendant. )
OPINION AND ORDER
After denying Defendant’s motion for summary judgment, the Court referred
this case to the undersigned for a judicial settlement conference. [DE 38, DE 39]. After
two telephonic conferences [DE 41, DE 42] attempting to schedule the settlement
conference, the undersigned is persuaded that the parties will not be able to engage in a
meaningful settlement conference before determining the amount of Plaintiff’s loss
from the fire at issue in this insurance coverage case. Plaintiff’s insurance policy
includes an appraisal process for resolving any dispute between the parties over the
amount of loss. However, the parties are unable to proceed with the appraisal process
due to disputes over the selection of Plaintiff’s appraiser and an umpire.
Specifically, Plaintiff has filed a Renewed Motion for Court-Ordered Umpire
(“Motion for Umpire”) [DE 43] while Defendant challenges Plaintiff’s selection of an
appraiser through its Motion to Disqualify Jay Hatfield of Indiana Public Adjusting as
Plaintiff’s Appraiser (“Motion to Disqualify”) [DE 47]. Both motions are ripe and ready
for the Court’s review.
I. RELEVANT BACKGROUND
This case arises from a fire in June 2016 at a hotel and restaurant owned by
Plaintiff. Plaintiff’s operative amended complaint raises counts of breach of contract,
consequential damages, and bad faith against Defendant—its insurance company.
Shortly after the fire, Plaintiff hired Jay Hatfield of Indiana Public Adjusting as
its public adjuster. In that role, Mr. Hatfield assisted Plaintiff with its insurance claim
for almost two years handling all claim communications and payments. Mr. Hatfield
served as Plaintiff’s representative and advocated for Plaintiff in the claims process. He
was the primary, if not only, person communicating with Defendant about Plaintiff’s
claims during that time. For that work, he was paid based on a percentage-based fee.
Notably, Mr. Hatfield’s communications with Defendant included a letter dated
September 1, 2017, outlining his beliefs that Defendant had mistreated Plaintiff in this
process and had acted in bad faith. [DE 47-4].
When Plaintiff terminated Mr. Hatfield as its public adjuster, it then appointed
him as its appraiser for purposes of the Appraisal Process in its insurance policy.
Plaintiff contracted to pay Mr. Hatfield at an hourly rate for his appraisal services.
The Appraisal Provision of Plaintiff’s policy states:
E. Loss Conditions
The following conditions apply in addition to the Common Policy
Conditions and the Commercial Property Conditions: . . .
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2. Appraisal
If we and you disagree on the value of the property or the amount of loss,
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.
[DE 47-1 at 53]. The Appraisal Provision requires each party to select a competent and
impartial appraiser and then allows either party to ask a court select an umpire if the
two appraisers cannot agree on one.
Here, the parties agree that an appraisal is necessary to determine the amount of
loss from the fire. Defendant hired an appraiser that Plaintiff does not challenge.
However, Defendant challenges the ability of Plaintiff’s selected appraiser, Mr. Hatfield,
to serve impartially because of his long service as Plaintiff’s public adjuster. As such,
the appraisers have not yet attempted to choose an umpire or otherwise proceed with
the substantive work of the appraisal.
II. ANALYSIS
As a preliminary matter, Plaintiff’s Motion for Umpire is premature. Plaintiff has
presented no evidence to suggest that the parties’ appraisers have reached an impasse
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in identifying an umpire—a condition precedent under the Appraisal Provision of the
Policy for seeking a court order naming an umpire. [See DE 47-1 at 53 (“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.”)]. Plaintiff has not shown that the
appraisers even tried to select an umpire. Moreover, such an effort is likely impossible
at this time because Plaintiff’s selection of Mr. Hatfield as its appraiser remains up in
the air in light of Defendant’s pending Motion to Disqualify. Therefore, the Court will
turn its attention to Defendant’s Motion to Disqualify.
Defendant argues that Mr. Hatfield is not—and cannot be—an impartial
appraiser and should therefore be disqualified from the Appraisal Process. Under
Indiana law, public adjusters are certified by the State and must comply with
requirements that ensure their competence and capability as advocates for the insured
they represent. See Ind. Code § 27-1-27-3, et seq. A public adjuster’s actions, as the agent
of an insured party, are imputed to the insured party they represent. See Meridian Sec.
Ins. Co. v. Hoffman Adjustment Co., 933 N.E.2d 7, 12 (Ind. Ct. App. 2010). No one disputes
that Mr. Hatfield served as Plaintiff’s agent in his role as its public adjuster. However,
Defendant’s Motion to Disqualify poses the question of whether Mr. Hatfield—who
served as Plaintiff’s agent and advocate with regard to the insurance claim directly at
issue in the appraisal—is impartial and therefore qualified to serve as Plaintiff’s
appraiser under the Appraisal Provision of the insurance policy.
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Clearly, an appraiser with a financial interest in the outcome of the appraisal is
not impartial. Shree Hari Hotels, LLC v. Soc’y Ins., No. 1:11-CV-01324-JMS, 2013 WL
4777212, at *2 (S.D. Ind. Sept. 5, 2013) (disqualifying Mr. Hatfield himself in another
appraisal case finding his payment on a contingency basis created a biased, financial
interest in the appraisal). Plaintiff establishes that Mr. Hatfield would be paid on an
hourly basis in this case for his appraisal services suggesting no direct, pecuniary
interest to disqualify him. Even without a pecuniary interest, however, Mr. Hatfield
may not qualify as impartial under the Appraisal Provision.
“While prior service of an appraiser does not disqualify him as a matter of law,
the fact that such appraiser had previously been employed by either the insurer or the
insured is a circumstance that may properly be considered in determining whether he is
disinterested.” Farmers' Conservative Mut. Ins. Co. v. Neddo, 111 Ind. App. 1, 40 N.E.2d
401, 408 (1942). “Previous service, together with other circumstances, may disqualify.”
Id. (citations omitted).1 Other courts have found that persons that served in advocacy
roles for a party cannot satisfy an impartiality requirement in matters related to the
same case. See Verneus v. Axis Surplus Ins. Co., No. 16-218-63-CIV, 2018 WL 4150933, at
*3 (S.D. Fla. Aug. 29, 2018) (striking appraiser who had served as expert witness in same
1 In Neddo, the court affirmed a trial court’s decision to permit the jury to determine if the defendant
insurance company’s appraiser was disinterested where the appraiser had been employed within a week
after the particular fire to adjust the loss involved. 40 N.E.2d at 408. In his role as adjuster, the appraiser
in Neddo also investigated whether the policy had been violated and concluded that it had. Id. Given the
procedural posture of the case, the Neddo court did not need to determine whether the appraiser was
impartial or disinterested. Yet with facts similar to those in this case, the Neddo court established a
standard for evaluating the impartiality of appraisers who served as adjusters regarding the same
insurance claim.
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lawsuit); Verneus v. Axis Surplus Ins. Co., CASE NO. 16-21863-CIV-
MARTINEZ/GOODMAN, 2018 WL 3417905, at *7 (S.D. Fla. July 13, 2018) (striking
appraiser who had represented insured as public adjuster in fire-related case, prepared
original appraisal as adjuster, and was paid a percentage of the valuation for his
appraisal work); Owners Ins. Co. v. Dakota Station II Condo. Ass’n, Inc., 443 P.3d 47, 52–53
(Colo. 2019) (vacating appraisal award for further consideration on the appraiser’
impartiality); see also United States v. Blitch, 622 F.3d 658, 664 (7th Cir. 2010) (requiring
impartial jurors); see generally Bakalis v. Golembeski, 35 F.3d 318, 325-26 (7th Cir. 1994) (“a
body that has prejudged the outcome cannot render a decision that comports with due
process”).
To establish Mr. Hatfield’s impartiality here, Plaintiff focuses on his valuation
methodology, which Plaintiff describes—without supporting evidence—as
“determin[ing] the value of a loss using nothing about the actions of the parties during
the claim, whether he likes the other appraiser or does not like the other appraiser.” [DE
49 at 2]. But Mr. Hatfield’s feelings about Defendant’s appraiser are not at issue here.
Instead, Defendant is concerned about Mr. Hatfield’s explicitly reported “beliefs”
regarding Defendant’s handling of Plaintiff’s insurance claim. In a letter dated
September 1, 2017, and addressed to Defendant’s independent adjuster, Mr. Hatfield
opined that Defendant and/or its consultants (1) acted in bad faith; (2) purposely
treated Plaintiff unfairly; (3) was misled by its independent adjuster; (4) benefited from
reports that were wrongfully altered; (5) denied certain claims for coverages without
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cause; (6) improper stalled and delayed its work on Plaintiff’s claim; and (7) conducted
unfair, biased investigations. [DE 47-4 at 2–3]
Plaintiff asks the Court to accept that Mr. Hatfield’s valuation methodology
would allow him to impartially assess the amount of loss in this case despite these
negative opinions about Defendant’s handling of Plaintiff’s claim. Plaintiff notes that
Mr. Hatfield reached no opinion about the value of Plaintiff’s loss while working as
Plaintiff’s public adjuster. As such, Plaintiff seems to suggest that Mr. Hatfield has no
interest in presenting an appraisal favoring it over Defendant. Yet, Plaintiff has not
accounted for Mr. Hatfield’s professional interest in affirming the substance of his
opinions against Defendant. Even though Mr. Hatfield does not have a specific loss
valuation of his own to target or otherwise affirm, he could inadvertently appraise
Plaintiff’s loss higher based on his knowledge of the issues surrounding the claim.
Tangentially, Plaintiff uses Mr. Hatfield’s familiarity with its claim to argue that
using him as its appraiser would increase the efficiency of the Appraisal Process.
Defendant’s motion, on the other hand, suggests that allowing Mr. Hatfield to serve as
Plaintiff’s appraiser would likely delay this case unnecessarily because Defendant
would probably file a motion to vacate the appraisal award or something similar to
address the same question of impartiality raised in its instant Motion to Disqualify.
While Mr. Hatfield’s familiarity may speed things along a bit, his familiarity is also the
primary source of concern about his impartiality. Therefore, ensuring an impartial
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appraiser before the Appraisal Process begins is more likely to save time and resources
for the parties and this Court.
In the end, the Court is not persuaded that Mr. Hatfield can be impartial even if
he intends to be. With all deference to Mr. Hatfield’s professional competence and
integrity, the Court is not particularly worried that he will opine against Defendant
intentionally in his appraisal. It is the unconscious or implicit bias Mr. Hatfield’s
experience as Plaintiff’s adjuster could foster that raises red flags that cannot be
ignored.
To allow Mr. Hatfield to serve as Plaintiff’s impartial appraiser after he
advocated for Plaintiff as its public adjuster would be like a new judge not recusing
himself from a case in which she had previously advocated for one of the parties in the
same case before taking the bench. The judicial codes of conduct preclude such conflicts
and the Appraisal Provision’s impartiality requirement similarly precludes Mr.
Hatfield’s service as Plaintiff’s appraiser here. Indeed, any efficiency potentially gained
by Mr. Hatfield’s familiarity with this case would be outweighed by the risk of an
inadvertently unfair appraisal process.
III. CONCLUSION
As demonstrated above, Plaintiff has failed to show that Mr. Hatfield qualifies as
an impartial appraiser of Plaintiff’s loss despite his valuation methodology because of
the effects of implicit bias arising from his service as Plaintiff’s public adjuster and
advocate. Therefore, without reaching any conclusion as to Mr. Hatfield’s competence
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as an appraiser generally, the Court GRANTS Defendant’s Motion to Disqualify. [DE
47]. Plaintiff shall select an alternate competent and impartial appraiser on or before
September 6, 2019. The parties will then comply with the remaining parts of the
Appraisal Provision set forth in Plaintiff’s insurance policy. [See DE 47-1 at 53]. The
appraisal shall be completed by October 7, 2019. The parties shall jointly file the
Appraisal Award by October 14, 2019.
The Court SETS this case for a telephonic scheduling conference on October 22,
2019, at 11:00 a.m. (E.D.T.) to determine the status of the Appraisal Process and
schedule a judicial settlement conference as previously ordered by the Court. [See DE
38, DE 39]. The Court will call all counsel listed on the docket sheet unless it is notified
that specified attorneys need not be contacted. If, at the time of the scheduled
conference, you will not be at the telephone number identified on the docket please
contact chambers.
Lastly, the Court DENIES AS MOOT Plaintiff’s Motion for Umpire [DE 43] to
allow the appraisers a chance to agree upon an umpire as provided in the Appraisal
Provision.
SO ORDERED this 13th day of August 2019.
s/Michael G. Gotsch, Sr.
Michael G. Gotsch, Sr.
United States Magistrate Judge
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