How Do You Set Aside an Appraisal Award?

 Umpire Must Be Unbiased Appraisal awards are almost impossible to set aside. However, if it is shown that the umpire is biased or even has a potential for bias, the award can be set aside. In Zurich American Ins. Co. v. Omni Health Solutions, LLC, — S.E.2d —, 2015 WL 4034465 (Ga.App., 7/2/2015) the question of potential bias resulted in litigation and an appeal to the Georgia Court of Appeal.

FACTS Omni Health Solutions, LLC (“Omni”) filed an insurance coverage claim with its insurer Zurich American Insurance Company (“Zurich”) for hail damage to Omni’s commercial property. When a dispute arose over the amount of the covered loss under Omni’s policy (hereinafter the “Policy”), Omni invoked the Policy’s appraisal provision which provided for the appointment of two appraisers and an umpire. The original umpire resigned, however, after the discussions on the loss had begun, so the parties filed a joint petition in Superior Court for appointment of a new umpire. The Superior Court granted the parties’ joint petition, and subsequently ruled that the appraisal awards made by the original umpire were not binding because there was a question regarding the original umpire’s impartiality. Zurich appealed, contending that the Superior Court erred in ruling that the original umpire’s appraisal awards were non-binding.

The record shows that the Policy provided $2.7 million in commercial property coverage for Omni’s building in Macon, Georgia (the “Insured Property”). The Insured Property consisted of a 17,200 sq. ft. building containing several doctors’ offices. On February 14, 2011, while the Policy was in effect, the roof of the Insured Property was extensively damaged by hail, resulting in damage to the building’s contents and equipment, as well as subsequent water and mold damage to the building’s ceilings, walls and floors. The damage to the building also resulted in business interruption losses for the doctors and their offices. As a result of those losses, Omni filed an insurance claim with Zurich.

Zurich and Omni disputed the amount of the covered loss to the Insured Property. In order to resolve the dispute, an appraisal of the damage to the Insured Property was undertaken pursuant to the terms of the Policy.

The two appraisers and the original umpire agreed to an award of more than $800,000 for the structural damage to the Insured Property (the “Structural Damage Award”). Thereafter, Zurich’s appraiser and the original umpire also agreed to an award of $322,445.61 for Omni’s business interruption claim (hereinafter the “Business Interruption Award”).

When the original umpire was initially appointed, he was an independent adjuster. At some point during the appraisal process, the original umpire joined a firm that performed work for Zurich. At Omni’s request, the original umpire stepped down from the appraisal process.

ANALYSIS An appraisement award is the result of a contractual method of ascertaining the amount of loss, and it is binding on the parties as to the amount of loss unless the award is set aside. There exists a presumption in favor of the regularity and fairness of appraisement awards, and it is difficult to set them aside. While an award may be attacked for any reason that would void a contract, where there is no evidence of fraud, oppression, irregularity, or unfairness, other than on the disputed issue of value, and no other circumstances tending to raise the issue, a verdict in the amount of the award is demanded.

The award for structural damages, joined in by both appraisers and the umpire, was affirmed because the issue of bias did not exist at the time it was entered and all that was required to affirm the award was agreement by two of the three.

However, the record shows that the Business Interruption Award was based on an estimate prepared by Zurich’s appraiser, and, unlike the Structural Award, only Zurich’s appraiser and the original umpire agreed to the Business Interruption Award. The record also shows that Omni could only recover business interruption damages for a maximum of twelve consecutive months, and Zurich determined the 12- month time-period for calculation of Omni’s business interruption damages. Moreover, the Business Interruption Award was issued after the original umpire began working for a company that performed work for Zurich.

The Superior Court found that the original umpire’s possible impartiality was sufficient to set aside the Business Interruption Award. Since the Business Interruption Award was based on Zurich’s estimate, it was issued after the umpire joined a company that performed work for Zurich and was not agreed to by Omni’s appraiser. The Court of Appeal, therefore, could not say that the Superior Court abused its discretion in setting aside the Business Interruption Award. The business interruption portion of the claim must be resolved by the two appraisers and a new umpire.

ZALMA OPINION Appraisal was designed to resolve disputes over the amount of a loss quickly and fairly. Sometimes, however, it becomes a burden. Here, because the umpire changed employment to a firm that did business with the insurer, a conflict arose and he should have withdrawn. Since the award of an amount for business interruption was made by the appraiser for the insurer and the umpire, after the umpire took a new job and created a conflict, it had to be set aside. Insurers and insureds should take care to avoid appointment of umpires with conflicts and umpires should consider concluding an award before taking new employment that creates a conflict.