Anderson v. State Farm

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

FREDERICK ANDERSON, et al., Plaintiffs/Appellees,

v.

STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellant.

No. 1 CA-CV 23-0611
FILED 08-13-2024

Appeal from the Superior Court in Maricopa County
No. CV2023-001815
The Honorable Timothy J. Ryan, Judge

VACATED AND REMANDED

COUNSEL

Ahwatukee Legal Office, P.C., Phoenix
By David L. Abney
Co-Counsel for Plaintiffs/Appellees

Dieker Copple, PLLC, Scottsdale
By Douglas F. Dieker
Co-Counsel for Plaintiffs/Appellees

Broening Oberg Woods & Wilson, P.C., Phoenix
By Robert T. Sullivan, Tyler M. Abrahams, Kelley M. Jancaitis
Counsel for Defendant/Appellant
 ANDERSON, et al. v. STATE FARM
Decision of the Court

MEMORANDUM DECISION

Judge James B. Morse Jr. delivered the decision of the Court, in which
Presiding Judge Angela K. Paton and Judge Michael S. Catlett joined.

M O R S E, Judge:

¶1 State Farm Fire and Casualty Company ("State Farm") appeals
from the superior court's order confirming an appraisal award and
awarding attorney fees and costs to Frederick and Linda Anderson
(collectively, "Andersons"). For the following reasons, we vacate the court's
order and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 In January 2021, a storm damaged the roof of the Andersons'
home. The Andersons filed a claim with their insurance carrier, State Farm.
In June 2021, State Farm inspected their roof, determined that six roof tiles
were damaged by "accidental direct physical loss," and estimated a
replacement cost value ("RCV") of $576.77 and an actual cash value ("ACV")
of $536.20. State Farm made no payment after applying the Andersons'
deductible and depreciation. Following the inspection, the Andersons
submitted an estimate with a $143,760.48 RCV and demanded that the
amount of loss be set by appraisal pursuant to their insurance policy. State
Farm agreed to participate in the appraisal process. Each party appointed
an appraiser.

¶3 In October 2022, the appraisers signed and submitted an
award that included a $162,296.21 RCV and a $120,701.29 ACV. The
following month, State Farm confirmed that it received the appraisal award
but reduced the award by $166,826.73 and made no payment to the
Andersons for their claim.

¶4 In February 2023, the Andersons filed suit, alleging breach of
contract and bad faith. After State Farm filed its answer, the Andersons
moved to confirm the appraisal award. At the initial status conference, the
court heard arguments from both parties and took the matter under
advisement.

¶5 In July 2023, the court granted the Andersons' motion to
confirm the appraisal award. The court noted that based on the record

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"State Farm decided to cover property damage resulting from a particular
loss" and "the appraisers acted within their authority" in making "factual
determinations as to the property damage caused by the covered loss event
that should be included in the Award and damage that is unrelated and
properly excluded." Thus, the court concluded that the "appraisers'
findings of fact as to causation are binding on the parties, and State Farm is
not entitled to go through the appraisal and pick out those items that it
believes were not caused by the covered loss event in the guise of litigating
the issue of coverage." The court also provided that the Andersons "may
submit an Application for Attorney Fees and Costs, as well as a proposed
Form of Judgment."

¶6 The following month, the court awarded the Andersons their
attorney fees and costs and entered their proposed form of judgment under
A.R.S. § 12-1514. State Farm timely appealed. We have jurisdiction under
A.R.S. § 12-2101.01(A)(6).

DISCUSSION

I. Appraisal Award.

¶7 We review a court's confirmation of an appraisal award for an
abuse of discretion. See Nolan v. Kenner, 226 Ariz. 459, 461, ¶ 4 (App. 2011)
(confirming an arbitration award); Hanson v. Com. Union Ins. Co., 150 Ariz.
283, 285 (App. 1986) (applying "the general standard of review applicable
to arbitration" to "appraisal enforcement proceedings" (quoting Safeco Ins.
Co. of Am. v. Sharma, 207 Cal. Rptr. 104, 106 (Cal. Ct. App. 1984))).

¶8 Generally, decisions of appraisers "are entitled to the same
degree of finality accorded decisions of arbitrators." Hanson, 150 Ariz. at
285 (quoting Hirt v. Hervey, 118 Ariz. 543, 545 (App. 1978)). Thus, "once
parties have agreed to value an asset by appraisal, judicial review of
appraisals should be no broader than that which applies to arbitration
awards, which are 'entitled to finality in all but narrowly defined
circumstances such as fraud, corruption, or other prejudicial misconduct.'"
Chapman v. The Westerner, 220 Ariz. 52, 54, ¶ 7 (App. 2008) (quoting Hirt,
118 Ariz. at 545).

¶9 But "appraisers have no authority to adjudicate issues beyond
those submitted to them." Hanson, 150 Ariz. at 285. "The boundaries of the
arbitrators' powers are defined by the agreement of the parties. Within
those boundaries, the arbitrators' decision is final . . . ." Smitty's Super-Valu,
Inc. v. Pasqualetti, 22 Ariz. App. 178, 180 (1974) (citations omitted). We
presume that the appraisers "decided only the matters submitted for

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[appraisal] unless the party seeking review carries the burden of showing
otherwise." Einhorn v. Valley Med. Specialists, P.C., 172 Ariz. 571, 573 (App.
1992).

¶10 Though the parties did not provide the appraisers a written
submission agreement for appraisal, the record shows that the parties
agreed to set the amount of loss by appraisal pursuant to the policy. See
Hanson, 150 Ariz. at 286 ("The absence of a written submission agreement
specific to the controversy at issue did not render inapplicable the provision
of the policy which defined the scope of the appraisal panel's function.");
e.g., Allstate Ins. Co. v. Cook, 21 Ariz. App. 313, 315 (1974) (arbitrating the
dispute pursuant to the policy). "An insurance policy is a contract, and in
an action based thereon the terms of the policy must govern." Dairyland
Mut. Ins. Co. v. Andersen, 102 Ariz. 515, 517 (1967) (quoting D.M.A.F.B. Fed.
Credit Union v. Emps. Mut. Liab. Ins. Co. of Wis., 96 Ariz. 399, 402 (1964)).

¶11 Under the policy's appraisal provisions, if the parties "fail to
agree on the amount of loss, either party can demand that the amount of
the loss be set by appraisal." After either party demands that the amount
of loss be set by appraisal and provides "the other party with written,
itemized documentation of a specific dispute as to the amount of the loss,
identifying separately each item being disputed," the appointed "appraisers
will then attempt to set the amount of the loss of each item in dispute as
specified by each party." After setting the amount of the loss, the appraisers
must "jointly submit to each party a written report of agreement signed by
them" that itemizes and states "separately the actual cash value,
replacement cost, and if applicable, the market value of each item in
dispute." The "written report of agreement will set the amount of the loss
of each item in dispute and will be binding upon" the parties. Notably, the
policy provides that appraisal "is only available to determine the amount of
the loss of each item in dispute" and appraisers have no authority to decide
"(1) any other questions of fact; (2) questions of law; (3) questions of
coverage; (4) other contractual issues; or (5) to conduct appraisal on a
class-wide basis."

¶12 State Farm argues the court clearly erred in finding that the
appraisers made factual determinations "as to causation." We review the
court's findings for an abuse of discretion and will affirm the court's
findings unless they are clearly erroneous. Smith v. Town of Marana, 254
Ariz. 393, 396, ¶ 10 (App. 2022). A finding "is clearly erroneous only when,
considering the totality of the evidence, the reviewing court 'is left with the
definite and firm conviction that a mistake has been committed.'" Valdez v.

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Delgado, 254 Ariz. 495, 499, ¶ 14 (App. 2019) (quoting State v. Burr, 126 Ariz.
338, 339 (1980)).

¶13 Here, the signed appraisal award provided that the date of
loss was January 25, 2021, provided a $162,296.21 RCV and a $120,701.29
ACV, and awarded "the amounts established above for the described loss."
The "described" or type of loss on the appraisers' itemized report was
"Hail." The Andersons and State Farm estimates also state the "Type of
Loss" was "hail and wind damage" and "Hail" or "Windstorm and Hail,"
respectively. According to the appraisers, they examined the information,
facts, and evidence of record notwithstanding coverage, loss causation, or
any other policy exclusions, and determined the "loss and value of same."
The appraisers did not decide that the loss was covered by the policy or
determine the cause of the loss. Nor does the policy allow the appraisers to
make such a determination. See supra ¶ 11. The appraisers' award and
itemized report was limited to the amount of the loss.

¶14 But the court found that the "appraisers acted within their
authority" to determine the "property damage caused by the covered loss
event" after "State Farm decided to cover property damage resulting from
a particular loss." (Emphasis added.) Based on this, the court concluded
that the "appraisers' findings of fact as to causation are binding on the
parties, and State Farm is not entitled to go through the appraisal and pick
out those items that it believes were not caused by the covered loss event in
the guise of litigating the issue of coverage." The court further described
State Farm's argument that the award should not be confirmed as taking "a
second bite at the apple after appraisal" and inconsistent with "the rationale
behind the appraisal process."

¶15 On appeal, and at oral argument before this Court, the
Andersons contend that by determining the loss amount, the appraisal
award implicitly determined causation and coverage. Thus, despite the
policy limitations discussed above, the Andersons assert that causation and
coverage cannot be litigated further. Echoing the superior court's order, the
Andersons argue that State Farm should not be allowed to argue such
issues post-confirmation and should have filed a declaratory judgment
action to preserve any coverage or causation arguments before submitting
to the appraisal process. We can easily reject this argument. The appraisal
process is a "creature" of the insurance contract. See Chang v. Siu, 234 Ariz.
442, 447, ¶ 19 (App. 2014). And parties are "not required to mount a
collateral challenge" to preserve an argument that an appraisal has
exceeded its contractual authority. Smith v. Pinnamaneni, 227 Ariz. 170, 178,
¶ 25 (App. 2011) (quoting MCI Telecomms. Corp. v. Exalon Indus., Inc., 138

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F.3d 426, 430 (1st Cir. 1998)). Instead, we have rejected any requirement of
"a pre-arbitration judicial determination of arbitrability" because Arizona
law specifically allows a party to "object to confirmation of the award on
the ground that 'the arbitrators exceeded their powers.'" Brake Masters Sys.,
Inc. v. Gabbay, 206 Ariz. 360, 363, ¶ 6 (App. 2003) (quoting A.R.S. §
12-1512(A)(3)).

¶16 We conclude that the appraisers did not decide causation and
coverage issues and did not exceed their authority under the policy.
However, the superior court erred in finding the appraisal award
dispositive as to those issues and in faulting State Farm for opposing
confirmation while causation and coverage issues remained unresolved.
Thus, we vacate the superior court's order confirming the appraisal award
to the extent it determines causation or coverage and remand for further
proceedings. We also vacate the judgment based on the confirmed
appraisal. We express no opinion on how causation and coverage issues
should be resolved.

¶17 State Farm also requests, "in addition to reversing the order
in this case," that we adopt the "well-reasoned solution" in 6700 Arrowhead
Owners Ass'n v. State Farm Fire & Cas. Co., No. CV-12-1677-PHX-DGC, 2012
WL 5868969 (D. Ariz. Nov. 19, 2012). The Andersons similarly highlight
federal and other state court cases that consider the extent to which
appraisers may determine causation when evaluating the amount of loss
for a covered event. But because the policy's appraisal provisions govern
and determine the scope of an appraiser's authority, we decline their
invitations either to adopt or rely on the cited cases. See Andersen, 102 Ariz.
at 517.

II. Attorney Fees & Costs.

¶18 State Farm argues that "A.R.S. § 12-341.01(A) does not provide
a statutory basis authorizing an interim award of fees, before final
disposition on the merits of the parties' contract claims and defenses." We
review a court's award of attorney fees and costs for an abuse of discretion,
Skydive Ariz., Inc. v. Hogue, 238 Ariz. 357, 369, ¶ 50 (App. 2015), "and will
affirm unless there is no reasonable basis for the award," Hawk v. PC Vill.
Ass'n, Inc., 233 Ariz. 94, 100, ¶ 19 (App. 2013). The application of statutes
authorizing an award of attorney fees and costs is a question of law we
review de novo. Skydive Ariz., Inc., 238 Ariz. at 369, ¶ 50.

¶19 Under A.R.S. § 12-1514, the court confirming an arbitration
award may award attorney fees and costs incurred during the confirmation

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proceedings. See Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., Inc., 180 Ariz.
148, 153–54 (1994) ("[W]e find it unnecessary to consider attorney's fees
based on A.R.S. § 12–341.01 because we find that fees for the confirmation
can be awarded under the Uniform [Arbitration] Act itself."); Steer v.
Eggleston, 202 Ariz. 523, 528, ¶ 23 (App. 2002) ("We are permitted under
A.R.S. § 12–1514 to award attorneys' fees incurred during the confirmation
stage."). Here, the Andersons sought to confirm the appraisal award and
obtained a confirmation of the award under A.R.S. § 12-1514, which permits
the "confirming court" to award attorney fees and costs "to a prevailing
party for the fees incurred in the confirmation proceeding itself." See Canon
Sch. Dist. No. 50, 180 Ariz. at 154. But because we decide the superior court
erred to the extent it determined issues of causation and coverage in
confirming the appraisal award, the court erred in awarding the Andersons
their attorney fees and costs, as the prevailing party, on those issues. See id.
Thus, we need not review the award under A.R.S. § 12-341.01(A). See Hawk,
233 Ariz. at 100, ¶ 19; Canon Sch. Dist. No. 50, 180 Ariz. at 153 (quoting Pima
County v. Heinfeld, 134 Ariz. 133, 134 (1982) ("[W]here two statutes deal with
the same subject, the more specific statute controls.")).

¶20 We vacate the court's attorney fees and costs award and
remand to the superior court for a redetermination of attorney fees and
costs consistent with this decision.

III. Attorney Fees & Costs on Appeal.

¶21 State Farm requests its attorney fees and costs on appeal
under A.R.S. § 12-341.01(A) and Wagenseller v. Scottsdale Mem'l Hosp., 147
Ariz. 370, 393–94 (1985). The Andersons request their attorney fees and
costs on appeal under A.R.S. §§ 12-331, 12-332, 12-341, 12-341.01(A), and
12-342, and ARCAP 21. "Even when attorneys' fees are authorized by
contract or statute, we may still exercise our discretion to deny an award of
attorneys' fees on appeal." Premier Consulting & Mgmt. Sols., LLC v. Peace
Releaf Ctr. I, --- Ariz. ---, ---, ¶ 73, 544 P.3d 658, 673 (App. 2024). We exercise
our discretion to deny attorney fees on appeal. But because we vacate the
court's order and remand for further proceedings, State Farm is entitled to
recover its taxable costs incurred on appeal upon compliance with ARCAP
21. See cf. Steer, 202 Ariz. at 528, ¶¶ 23, 25 (permitting this Court to award
costs on appeal under A.R.S. § 12-1514).

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CONCLUSION

¶22 For the above-stated reasons, we vacate the court's order
confirming the appraisal award and the judgment based on that appraisal
award. We remand for further proceedings consistent with this decision.

AMY M. WOOD • Clerk of the Court
FILED: AGFV

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