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The Court of Appeal, First District, affirmed in part and reversed in part an order of the San Francisco County Superior Court sustaining a demurer to appellants' complaint against an appraiser and an expert alleging negligence for failing to adequately advance appellant's position in a fire insurance appraisal proceeding pursuant to Insurance Code section 2071. The Court of Appeal concluded an appraisal proceeding pursuant to section 2071 is an arbitration and, therefore, the appraiser has arbitral immunity protecting him from suits over his role as an arbitrator. However, the Court of Appeal reversed the trial court's order sustaining the demurrer as to appellant's expert, concluding the litigation privilege under Civil Code section 47 does not protect an expert from a suit concerning his role as an expert in the appraisal proceeding filed by the retaining party.
Appellants Winston and Elaine Lambert's ("Appellants") home was completely destroyed by an accidental fire in March 1995. The damage was covered by a policy issued by Fire Insurance Exchange ("FIE"), which provided "guaranteed replacement cost coverage," as well as a "'building ordinance or law coverage' endorsement." The coverage pays the full replacement cost to replace or repair the home in conformity with applicable laws. FIE hired two appraisers and paid Appellants based on the appraisers' reports.
It took four years for Appellants to obtain permits to replace their homes. They incurred substantial costs, including rent, architectural, legal, surveying and engineering. Appellants and FIE did not agree on replacement value to rebuild Appellants' home. Appellants sought an appraisal pursuant to the terms of their insurance policy and section 2071. Appellants hired attorneys who retained Robert Dailey "to define, describe and estimate the replacement cost" of Appellants' home. Appellants also hired Chris Carneghi "to provide appraisal services" and "essentially to determine replacement cost and to be their advocate in the appraisal process."
Appellants' attorneys selected an umpire that "demonstrated a fundamental misunderstanding" of replacement costs. Appellants contended that no one could adequately define the correct standard for replacement costs during the appraisal process, so they were not awarded proper replacement costs and suffered damages of $1.8 million. Appellants sued Carneghi and Dailey for negligence in connection with the flawed appraisal process. Carneghi and Dailey demurred. The trial court sustained their demurrers. Appellants appealed.
The Court of Appeal first considered Appellants' challenge to Carneghi's demurrer, on the grounds the appraisal process set forth in section 2071 is not an "arbitration." The Court of Appeal noted Appellants failed to raise this argument before the trial court and it was arguably waived. Nevertheless, it rejected Appellants' argument. It is well-established in California that "[a]n agreement to conduct an appraisal contained in a policy of insurance constitutes an 'agreement' within the meaning of [Code of Civil Procedure] section 1280, subdivision (a), and therefore is considered to be an arbitration agreement subject to the statutory contractual arbitration law."
Appellants then challenged appraiser Carneghi's arbitral immunity, noting no case had specifically extended arbitral immunity to appraisers. Appellants contended an appraiser's duties are analogous to lawyers as opposed to arbitrators, and even if Carneghi was considered an arbitrator, he should not be entitled to immunity because he was a party arbitrator, not a "true neutral arbitrator."
In rejecting Appellants' arguments, the Court of Appeal stated "[i]t has long been recognized that, in private arbitration proceedings, an arbitrator enjoys the benefit of an arbitral privilege because the role that he or she exercises is analogous to that of a judge." Although no decision has expressly stated that appraisers are entitled to arbitral immunity, several decisions opined on the similarities between both arbitrations and appraisals and arbitrators and appraisers. The Court of Appeal also held an appraiser under section 2071 must be "disinterested" and, therefore, should not be subject to tort liability in that role even if the appraiser was party appointed.
In evaluating Dailey's demurrer, the Court of Appeal noted the litigation privilege applies to "any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action." The litigation privilege protects statements made in private, contractual arbitration. It has also been used to protect opposing party expert witnesses and experts jointly retained.
Appellants contended the litigation privilege only protects experts of a party opponent, not a party's own experts. The Court of Appeal agreed, noting several California decisions that did not limit application of the litigation privilege to cases where the expert did not testify, and a majority of the out-of-state courts holding the same.
The Court of Appeal also analyzed the policy considerations behind the litigation privilege and found as a whole they did not favor applying the litigation privilege to Dailey. The Court noted the litigation privilege promotes truthful testimony. An expert retained by a party is not an unbiased witness and the threat of liability for negligence "may actually encourage more careful and reliable evaluation of the case by the expert."
The Court of Appeal found no reason why the attorney hiring a negligent expert should be potentially liable for malpractice while the most culpable party, the negligent expert, should "totally escape accountability." The Court of Appeal reversed the trial court's decision sustaining Dailey's demurrer, concluding the litigation privilege does not apply to prevent a party from suing her or his own expert witness, even if that suit is based on the expert's testimony.
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This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the California Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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