Mullowney v. USAA Casualty Insurance Company

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
JAMES MULLOWNEY, JR., )
)
Plaintiff, )
)
v. ) C.A. No. 22-404 WES
)
USAA CASUALTY INSURANCE )
COMPANY, )
)
Defendant. )
___________________________________)
MEMORANDUM AND ORDER
WILLIAM E. SMITH, District Judge.
This case involves a claim for insurance coverage under a
homeowner’s insurance policy issued by Defendant USAA Casualty
Insurance Company to Plaintiff James Mullowney. Plaintiff alleges
that a water loss occurred at his insured property in Newport,
Rhode Island, on July 5, 2021, that resulted in extensive damage.
See Am. Compl. ¶ 9, ECF No. 9. Pursuant to the insurance contract,
the parties had an appraisal on the claims on which they could not
reach an agreement, and the appraisal panel issued an award in
June 2022. Before the Court is Defendant’s Motion to Confirm
Arbitration Award (“Def.’s Mot.”), ECF No. 12. For the reasons
that follow, Defendant’s motion is DENIED.
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I. Background
Plaintiff is the owner of a property located at 38 Pelham
Street in Newport, Rhode Island. Am. Compl. ¶ 5. Defendant issued
a homeowner’s insurance policy, effective August 9, 2020, to August
9, 2021, to Plaintiff, covering the property. Id. ¶ 6. The water
loss occurred at Plaintiff’s property on July 5, 2021. Id. ¶ 9.
Following the water loss, the parties reached agreement on
some aspects of Plaintiff’s claim, including fair rental value,
temporary repairs, emergency services, personal property
(contents), miscellaneous expenses, and building repairs (less
depreciation), which have been paid to Plaintiff. Def.’s Mot.
¶¶ 4-5. The parties were unable, however, to reach an agreement
as to the complete damages to the dwelling, contents, ordinance-
and law-required code upgrades, and outstanding additional living
expenses or fair rental value. Id. ¶ 5.
On January 7, 2022, Plaintiff demanded an appraisal of the
outstanding claims in accordance with the policy, id. ¶ 6, which
contains a clause, titled “Appraisal,” providing a mechanism for
the resolution of disputes over the value of claims.1 Ins.
1 The clause states, in relevant part:
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 and impartial
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
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Contract, DX1 at 37-38, ECF No. 8-1; Def.’s Mot. ¶ 3. Following
the completion of the procedure outlined in the clause, see supra
at note 1, the appraisers and umpire issued an award in June 2022,
after which Defendant issued the remaining payments less the
holdback to Plaintiff.2 Def.’s Mot. ¶¶ 10-12.
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
“resident premises” is located. The appraisers will
separately set the amount of the loss. If the appraisers
submit a written report of an agreement to us, the amount
agreed upon will be the amount of the 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 is not a provision providing for or requiring
arbitration. The appraisers and umpire are only
authorized to determine the “actual cash value,”
replacement cost, or cost to repair the property that is
the subject of the claim. They are not authorized to
determine coverage, exclusions, conditions, forfeiture
provisions, conditions precedent, or any other
contractual issues that may exist between you and us.
The appraisal award cannot be used by either you or us
in any proceeding concerning coverage, exclusions,
forfeiture provision, conditions precedent, or other
contractual issues. However, once contractual liability
is admitted or determined, the appraisal award is
binding upon you and us. This appraisal process and
authority granted to the appraisers and the umpire can
only be expanded and modified by written mutual consent
signed by you and us.
Ins. Contract, DX1 at 37-38, ECF No. 8-1.
2 Defendant alleges that, to date, Plaintiff has not submitted
all the necessary invoices and documentation required for the
holdback to be released under the insurance policy. Def.’s Mot.
¶ 13.
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Plaintiff filed this lawsuit in November 2022.3 In March
2023, Defendant filed this motion to confirm the award. See ECF
No. 12. On May 5, 2023, the Court held a hearing on the motion.
At the hearing, the Court ordered the parties to provide additional
briefing on the issue of whether the appraisal clause in the policy
constitutes an arbitration provision under Rhode Island law and
whether that question should be certified to the Rhode Island
Supreme Court. Both parties submitted supplemental briefs arguing
that certification is unnecessary.4 See Def.’s Supp. Mem. 1, ECF
No. 20; Pl.’s Supp. Mem. 1, ECF No. 21.
3 In his Complaint, Plaintiff asserted claims of breach of
contract, breach of the duty of good faith and fair dealing,
negligence, common law bad faith, statutory bad faith, and
violation of the Unfair Trade Practice and Consumer Protection Act
against Defendant. See Compl., ECF No. 1. Plaintiff subsequently
filed an amended complaint omitting his claim under the Unfair
Trade Practices and Consumer Protection Act, see Am. Compl., ECF
No. 9, and the Court granted Defendant’s motion to dismiss as to
Plaintiff’s negligence claim, see Mem. & Order, ECF No. 18.
4 The question of whether the Court may certify a question of
Rhode Island state law to the Rhode Island Supreme Court is
controlled by Rule 6 of the Rhode Island Supreme Court Rules of
Appellate Procedure, which provides that the federal district
court may certify “questions of law of this state which may be
determinative of the cause then pending in the certifying court
and as to which it appears to the certifying court there is no
controlling precedent in the decisions of the Supreme Court.” R.I.
Sup. Ct. R. App. Proc. 6. However, the mere fact that the Rhode
Island Supreme Court has not had occasion to address an issue does
not, by itself, require certification. A “federal court may
attempt to predict how [a] state’s highest court would rule on
[an] issue in a pending federal case,” based upon existing state
law or “better reasoned authorities” from other jurisdictions.
Lieberman-Sack v. HCHP-NE, 882 F. Supp. 249, 254 (D.R.I. 1995).
In light of the parties’ consensus that certification is
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II. Discussion
Arbitration awards are governed by Title 10, Chapter 3 of the
Rhode Island General Laws (“Arbitration Act” or “Act”). Under the
Act, “[a]t any time within one year after the award is made, any
party to the arbitration may apply to the court for an order
confirming the award, and thereupon the court must grant the order
confirming the award unless the award is vacated, modified or
corrected, as prescribed in §§ 10-3-12 – 10-3-14.” R.I. Gen. Laws
§ 10-3-11. Under § 10-3-12, an award may be vacated only under
certain circumstances:
(1) Where the award was procured by corruption, fraud
or undue means.
(2) Where there was evident partiality or corruption on
the part of the arbitrators, or either of them.
(3) Where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient
cause show, or in hearing legally immaterial
evidence, or refusing to hear evidence pertinent
and material to the controversy, or of any other
misbehavior by which the rights of any party have
been substantially prejudiced.
(4) Where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted
was not made.
In addition, § 10-3-14(a) provides for modification or correction
of the award in other circumstances:
(1) Where there was an evident material miscalculation
of figures, or an evident material mistake in the
description of any person, thing, or property
referred to in the award.
unnecessary here, the Court opts not to certify the question to
the Rhode Island Supreme Court.
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(2) Where the arbitrators have awarded upon a matter
not submitted to them, unless it is a matter
affecting the merits of the decision upon the
matters submitted.
(3) Where the award is imperfect in matter of form not
affecting the merits of the controversy.
The Court is only permitted to vacate, modify, or correct an award
under the Arbitration Act “upon the application of any party to
the arbitration,” and that application must be “served upon the
adverse party or [their] attorney within sixty (60) days after the
award is filed or delivered, and before the award is confirmed.”
R.I. Gen. Laws § 10-3-15.
Defendant filed its motion to confirm the award on March 29,
2023, within the one-year limitation period imposed by § 10-3-11.
Plaintiff never sought to modify, vacate, or correct the award at
any time, and the sixty-day deadline for such action, see § 10-3-
11, which lapsed on approximately August 20, 2022, has long since
passed. And, although the Court is empowered by the Act to “make
an order, to be served with the notice of the motion, staying the
proceedings of the adverse party to enforce the award,” Plaintiff
has requested no such action here. See § 10-3-11. Plaintiff
contends, however, that the motion to confirm should be denied
because the award which Defendant seeks to have confirmed is an
appraisal award, not an arbitration award, and, therefore, the
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Arbitration Act and the deadlines it imposes are inapplicable.5
The Court agrees.
a. Insurance Policy Language
“[I]n the absence of a statutorily declared policy to the
contra, the parties to an insurance agreement are free to contract
as they desire.” Constant v. Amica Mut. Ins. Co., 497 A.2d 343,
345 (R.I. 1985) (citing Faraj v. Allstate Ins. Co., 486 A.2d 582,
585 (R.I. 1984)), superseded by statute on other grounds, R.I.
Gen. Laws § 27-7-2.1(i). There is no provision in the Arbitration
Act that precludes parties to an insurance contract from agreeing
that an appraisal provision is not controlled by the Act.
“It is well established that [Rhode Island courts] appl[y]
the rules for construction of contracts when interpreting an
insurance policy and that [courts] shall not depart from the
literal language of the policy absent a finding that the policy is
ambiguous.” Mallane v. Holyoke Mut. Ins. Co., 658 A.2d 18, 20
(R.I. 1995). To determine whether a policy is ambiguous, the Court
“read[s] [the] policy in its entirety, giving words their plain,
ordinary, and usual meaning.” Peloquin v. Haven Health Ctr. of
Greenville, LLC, 61 A.3d 419, 431 (R.I. 2013) (quoting Sjogran v.
5 Plaintiff also argues that the appraisal panel’s award was
fatally flawed. Pl.’s Obj. Def.’s Mot. Confirm Arb. Award 1-5,
ECF No. 16. Because the Court denies Defendant’s motion to confirm
the award, it need not reach the merits of the award itself at
this juncture.
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Metro. Prop. & Cas. Ins. Co., 703 A.2d 608, 610 (R.I. 1997)). If
the terms of the policy are ambiguous, “the policy will be strictly
construed in favor of the insured and against the insurer.” Id.
at 432.
Here, the appraisal provision of the insurance contract
states, unambiguously: “This is not a provision providing for or
requiring arbitration.” Ins. Contract, DX1 at 37-38. Giving the
words in this provision “their plain, ordinary, and usual meaning,”
it is clear that the policy does not provide for arbitration. See
Peloquin, 61 A.3d at 431. And, in any event, were the Court to
find any ambiguity in this provision, it would be constrained to
resolve that ambiguity in favor of Plaintiff. See Peloquin, 61
A.3d at 431. Thus, the plain language of the insurance policy
lends itself to the conclusion that the appraisal procedure is not
an arbitration and thus is not governed by the Arbitration Act.
b. Rhode Island Approach
However, the Rhode Island Supreme Court “has recognized that
an ‘appraisal’ procedure can be equated with ‘arbitration,’”
noting that “[w]hat labels are used in describing the procedure
called for in a policy are not controlling. Rather . . . it is
the substance of the transaction that determines its character.”
Waradzin v. Aetna Cas. & Sur. Co., 570 A.2d 649, 650 (R.I. 1990)
(citing Grady v. Home Fire & Marine Ins. Co., 63 A. 173 (1906)).
Under Rhode Island law, an “appraisal” is defined as “an analysis,
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opinion, or conclusion relating to the nature, quality, value or
utility of specified interests in, or aspects of, identified real
estate.” R.I. Gen. Laws § 5-20.7-2(1); see also Couch on Ins.
§ 209:8 Appraisal distinguished (3d ed. 2022) (“Although the terms
arbitration and appraisal are sometimes used interchangeably,
appraisal is distinguished by its more limited role. In an
appraisal, the parties refer some ministerial duty or some matter
involving only the ascertainment of facts to selected persons for
disposition. An appraisal requires neither a hearing nor the
exercise of judicial discretion.”); id. at n.3 (“[A]n appraisal
determines only the amount of loss, without resolving issues such
as whether the insurer is liable under the policy.”); Am. Jur.
Ins. § 1652 (“Appraisal establishes only the amount of a loss and
not liability for the loss under an insurance contract.”).
In contrast, “[t]he purpose of arbitration is dispute
resolution, not merely fact-finding.” Aponik v. Lauricella, 844
A.2d 698, 706 (R.I. 2004). While an appraisal “only relates to
the ascertainment of facts,” an arbitration “resolves a dispute on
the merits[.]” New Life Worship Center, Inc. v. Church Mut. Ins.
Co., C.A. No. PC-2019-7574, at *8 (R.I. Super. Ct. Jan. 6, 2020).
“Arbitration is generally a quasi-judicial proceeding that
ordinarily will decide the entire controversy.” Am. Jur. Ins.
§ 1652. However, “arbitrations sometimes do cover only a part of
the overall dispute between the parties,” rather than resolving
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the entire controversy. Fit Tech, Inc. v. Bally Total Fitness
Holding Corp., 374 F.3d 1, 6 (1st Cir. 2004); see also Couch on
Ins. § 210:3, Need for Agreement (3d ed. 2022) (“Unless a statutory
provision mandates the inclusion of particular subject matter, the
arbitration agreement may encompass as few, or as many, issues
which may arise under the policy as the parties may choose.”).
Hallmarks of classic arbitration that have been identified by the
First Circuit are: a remedy that is “final,” “an independent
adjudicator, substantive standards . . ., and an opportunity for
each side to present its case.” Fit Tech, Inc., 374 F.3d at 7.
Here, Plaintiff demanded an appraisal of his outstanding
claims pursuant to the appraisal clause in the policy on January
7, 2022. Def.’s Mot. ¶ 7. Plaintiff named Robert Smith of C&L
Builders as his appraiser, and Defendant selected Dallas Dodge of
A.E. Oberhause, Inc., to act as its appraiser. Id. at ¶ 6. The
appraisers selected Paul Heywood as the umpire. Id. at ¶ 8. The
parties agreed that the appraisal would include the following
determinations: (1) replacement cost and actual cash value for
the resulting water damages to the dwelling; (2) fair rental value
for Plaintiff’s unit and loss of rental value for other units;
(3) building ordinance or law cost to be determined as a result of
the loss but not payable until incurred and documentation
submitted; and (4) replacement cost and actual cash value for the
resulting water damages to the personal property owned by
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Plaintiff. Id. at ¶ 9. The appraisers and umpire issued the
award, $1,782,264.90 in replacement cost value and $1,209,572.57
in actual cash value, on June 21, 2022. Id. at 3.
As specified in the insurance contract, this procedure
consisted solely of a determination of the amount of loss. See
Ins. Contract, DX1 at 37-38 (“The appraisers will separately set
the amount of the loss . . . The appraisers and umpire are only
authorized to determine the ‘actual cash value,’ replacement cost,
or cost to repair the property that is the subject of the claim.”);
Declaration of Appraisers, DXA, ECF No. 12-1 (“The above award
reflects the agreed damages and costs associated with all damages
claimed for the dwelling and other structures.”). The provision
specifically exempts from the scope of the procedure
determinations of “coverage, exclusions, conditions, forfeiture
provisions, conditions precedent, or any other contractual issues
that may exist” between the parties. Ins. Contract, DX1 at 38.
And, although the provision provides that “once contractual
liability is admitted or determined, the appraisal award is
binding,” it does not give the appraisers authority to determine
contractual liability. Id. Overall, the procedure here is best
characterized as an appraisal rather than an arbitration because
the scope was limited to fact-finding to determine the amount of
loss, the procedure did not resolve a dispute on the merits, and
the provision specifies that the remedy only becomes final once
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contractual liability is determined. Therefore, the appraisal
procedure is not subject to the limitations imposed by the
Arbitration Act.
Defendant points to the Rhode Island Supreme Court case
Waradzin, 570 A.2d at 650, to support its contention that the
appraisal procedure here should be treated as an arbitration.
Def.’s Supp. Mem. 6–7. However, Waradzin is inapt for two reasons.
First, the Waradzin court did not closely examine the factors
differentiating an arbitration from an appraisal and rather relied
on the fact that the party opposing confirmation of the award
referred to the procedure as an arbitration in numerous filings,
effectively acceding to that characterization. Waradzin, 570 A.2d
at 650-51. Defendant has made no such allegation here and
Plaintiff has not adopted the characterization of the procedure as
arbitration, either explicitly or implicitly. Second, Waradzin
cabined its holding by stating that “the arbitration confirmation
proceeding was appropriate in this case.” Id. at 650 (emphasis
added). By including this language, the Waradzin court made clear
that its holding was not intended as a blanket statement that an
appraisal must always be treated as an arbitration; rather, the
case mandates that the question must be considered on a case-by-
case basis. See id. But see B.R.S. Real Estate, Inc. v. Certain
Underwriters at Lloyd’s, C.A. No. 1:20-cv-228-JJM-PAS, 2023 WL
3620268, at *2 (D.R.I. May 24, 2023) (“[T]he appraisal process
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constitutes arbitration under Rhode Island law.”).
c. Standard Fire Appraisal Provision
Finally, Defendant points out that the language of this
provision is derived from Rhode Island’s statutory standard fire
appraisal provision, see R.I. Gen. Laws § 27-5-3, which has
historically been interpreted as an arbitration provision,
suggesting that a similar interpretation should be applied here.
Def.’s Supp. Mem. 4; Waradzin, 570 A.2d at 650 (interpreting
standard fire appraisal provision and concluding that it can be
equated with arbitration). The first paragraph of the appraisal
provision here is substantially similar to the standard fire
appraisal provision. Compare R.I. Gen. Laws § 27-5-3,6 with Ins.
6 The standard fire appraisal provision provides:
“In case the insured and this company shall fail to agree
as to the actual cash value or the amount of loss, then,
on the written demand of either, each shall select a
competent and disinterested appraiser and notify the
other of the appraiser selected within twenty (20) days
of that demand. The appraisers shall first select a
competent and disinterested umpire; and failing for
fifteen (15) days to agree upon the umpire, then, on
request of the insured or this company, the umpire shall
be selected by a judge of a court of record in the state
in which the property covered is located. The appraisers
shall then appraise the loss, stating separately actual
cash value and loss to each item; and, failing to agree,
shall submit their differences, only, to the umpire. An
award in writing, so itemized, of any two (2) when filed
with this company shall determine the amount of actual
cash value and loss. Each appraiser shall be paid by
the party selecting him or her and the expenses of
appraisal and the umpire shall be paid by the parties
equally.”
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Contract, DX1 at 37-38. However, neither the standard fire
appraisal provision nor the similar provisions in the cases cited
by Defendant contain the final paragraph of the provision in this
policy, which states: “[t]his is not a provision providing for or
requiring arbitration,” and limits the scope of the procedure to
determining costs. Ins. Contract, DX1 at 38. Because of this
additional language, the Court concludes that it is not constrained
to apply the same interpretation of the provision here that other
courts have applied when interpreting the standard fire appraisal
provision.
III. Conclusion
For the foregoing reasons, Defendant’s Motion to Confirm
Arbitration Award, ECF No. 12, is DENIED.
IT IS SO ORDERED.
William E. Smith
District Judge
Date: June 27, 2023
R.I. Gen. Laws § 27-5-3.
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