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IN Martinique Properties, LLC v. Certain Underwriters at Lloyd’s of London, Subscriber to Policy Number W1551E160301; Beazley Lloyd’s Syndicate 2623; Beazley Lloyd’s Syndicate 623, No. 21-3561, The United States Court of Appeals, Eighth Circuit (March 1, 2023) interpreted the Eighth Circuit’s Federal Arbitration Act as applied to an insurance award.
Martinique Properties, LLC sued Certain Underwriters at Lloyd’s of London (the Underwriters) seeking to vacate an arbitration award. The district court dismissed the complaint due to failure to state a claim for vacancy. Martinique Properties appealed.
Martinique Properties owned condominiums in Omaha, Nebraska, for which it had title insurance through Underwriters. In May 2016, while the policy was in effect, the apartments suffered hail and wind damage. Martinique Properties filed an insurance claim for reimbursement of its repair costs and the Underwriters and Martinique disputed the amount owed for the repairs.
The policy contained a valuation provision that governed the process for resolving disputes about the amount of the loss or the value of the property. Under the provision, a panel of appraisers would evaluate the property damage and determine the amount of the loss. If the panel reached a decision, its agreed judgment would be binding on the parties.
Martinique Properties invoked the valuation provision. A panel of appraisers agreed on a binding appraisal award in June 2020. The suit against the Underwriters sought a declaration that the appraisal process and award were invalid. According to Martinique Properties, the price included incorrect numbers and measurements.
The trial court granted the Underwriters’ motion to dismiss, finding that none of Martinique Properties’ allegations provided adequate grounds for vacatur.
The Arbitration Act is a congressional declaration of a liberal federal policy favoring arbitration agreements. Under the law, a court may set aside an arbitration award only in four limited circumstances, and in the absence of any of these grounds, the arbitration award must be affirmed.
Martinique Properties argued that the valuation award must be vacated because the appraisers used figures and measurements that contradicted the actual conditions of the property and failed to consider certain buildings and certain parts of a damaged roof in determining the valuation award.
Martinique Properties alleged only factual errors challenging the merits of the award, and the Eighth Circuit lacked jurisdiction to review the merits of an arbitration award, even when the parties claim the award rests on factual error.
An arbitrator does not exceed his authority by making a mistake of fact. Accordingly, the appraisers’ use of certain figures and measurements in calculating the amount of loss and their alleged failure to consider certain buildings and portions of roof damage, while erroneous, are not sufficient to vacate as a matter of law.
After the parties have negotiated the arbitrator’s decision; if the arbitrator was wrong, then that was part of the bargain.
Adjudication of the extent of loss in a first-party property insurance policy is, in the Eighth Circuit, a matter of arbitration. Arbitration is designed to avoid or limit litigation. When the insured and the insurer agree that valuation in accordance with the terms of the policy is binding on both parties except in cases of fraud or misconduct. Arguments over the facts belong in the appraisal process, and neither a state nor a federal court may supersede its judgment over that of the appraisers. Martinique chose valuation and must accept the valuers’ findings.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com
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