27 Fla. L. Weekly Supp. 360a

Online Reference: FLWSUPP 2704RUIZInsurance — Appraisal — Disinterested appraiser — Financial interest in outcome — Insured’s selected appraiser was not disinterested as mandated by the policy where appraiser’s employer was entitled to receive a percentage of the appraisal award pursuant to a contingency agreement between appraiser’s employer and the insured — One who has a direct financial interest in the outcome of a case is, by definition, not “disinterested” — Court is convinced that previous appellate court decisions which held that a “contingent fee-appraiser” was qualified have been called into question by subsequent material changes to the Code of Ethics for Arbitrators in Commercial Disputes, which the prior holdings heavily relied upon

MINA RUIZ, Plaintiff, v. STATE FARM FLORIDA INS. CO., Defendant. Circuit Court, 11th Judicial Circuit in and for Miami-Dade County, Circuit Civil Division. Case No. 2018-025910-CA-01. May 30, 2019. Michael A. Hanzman, Judge. Counsel: Matthew A. Barket, South Miami, for Plaintiff. Ubaldo J. Perez, Miami Lakes, for Defendant. Kara Rockenbach, Appellate Counsel, West Palm Beach, for Defendant.

ORDER

Before the Court are: (a) Defendant’s “Motion to Compel Compliance with the Court’s Order of December 10, 2018 Ordering the Parties to Appraisal in Accordance with the Policy, Motion to Compel the Plaintiff to Name a Qualified, Disinterested Appraiser and for Sanctions”; and (b) Plaintiff’s “Motion to Compel Defendant to Comply with this Court’s Order dated December 10, 2018 and for Sanctions.” These cross-motions raise one issue: Is the appraiser selected by Plaintiff “disinterested” and therefore qualified to serve. For the reasons discussed herein, the Court finds that he is not and, as a result, grants Defendant’s Motion (except to the extent it seeks sanctions).

I. PROCEDURAL HISTORY AND RELEVANT FACTS

On December 10, 2018, this Court entered its Order granting Defendant State Farm Florida Insurance Company’s (“Defendant” or “State Farm”) “Motion to Compel Appraisal and Stay Litigation,” ordering both parties to proceed to appraisal pursuant to the terms of their insurance contract.¹ On December 14, 2018 State Farm named Eduardo Goyanes, a General Adjuster employed by Sedgwick Claims Management Services, Inc., as its appraiser. Mr. Goyanes is not employed by State Farm, owes no duty of loyalty to State Farm, and has no financial stake in the outcome of the appraisal.

On January 3, 2019 Plaintiff named her proposed appraiser, Eric O. Jimenez. Mr. Jimenez is an employee of the public adjusting firm, Rapid Public Adjusters (“RPA”), retained by Plaintiff to assist her in submitting and processing the claim. The “Authority to Represent and Contingency Fee Agreement” between Plaintiff and RPA provides that RPA will “advise and assist in the adjustment and or appraisal and negotiation of his/her claim for the loss of damages caused by Hurricane Irma. . . .” As consideration for these services Plaintiff agreed to pay RPA “10-20%” of the “proceeds of any funds received in the settlement of his/her insurance claim.” The RPA contract also obligates Plaintiff to pay RPA out of any insurance proceeds “any cost associated with services (i.e. appraiser, general contractor. . .) rendered to settle his/her claim.”

Based on the disclosure of financial interest by Mr. Jimenez (his employer RPA will receive a percentage of the appraisal award) State Farm objected to his selection and asked Plaintiff to name a “qualified, disinterested appraiser” as mandated by the insurance contract. Plaintiff politely declined that invitation and insisted that Mr. Jimenez was competent to serve, prompting the filing of the pending cross-motions. So the question presented is again singular and simple. Does Mr. Jimenez fit the definition of a “qualified disinterested appraiser”?

II. ANALYSIS

An insurance policy is a contract, and sitting both as an associate appellate and circuit judge this Court has written, time and time again, that “contracts are voluntary undertakings, and contracting parties are free to bargain for — and specify — the terms and conditions of their agreement.” Okeechobee Resorts, LLC v. E Z Cash Pawn, Inc., 145 So.3d 989, 993 (Fla. 4th DCA 2014) [39 Fla. L. Weekly D1871a]; City of Pompano Beach v. Beatty, 222 So. 3d 598, 600 (Fla. 4th DCA 2017) [42 Fla. L. Weekly D1556a]; Sky Bell Asset Mgmt., LLC And Sky Bell Select, L.P., vs. National Union Fire Ins. Co. of Pittsburgh, P.A., 23 Fla. L. Weekly Supp. 535a (11th Jud. Cir., Dec. 17, 2015); DePrince v. Starboard, 23 Fla. L. Weekly Supp. 1022a (11th Jud. Cir., April 7, 2016; JDJ of Miami, Inc., v. Valdez, et. al., 23 Fla. L. Weekly Supp. 1026a (11th Jud. Cir., March 23, 2016); Regalia Beach Developers, LLC, vs. MVW Mgmt. LLC, 24 Fla. L. Weekly Supp. 286a (11th Jud. Cir., June 30, 2016). Put another way, “[c]ontracting parties are at liberty to address any issue they see fit . . .,” Perera v. Diolife LLC, 44 Fla. L. Weekly D1067a (Fla. 4th DCA Apr. 24, 2019), and when they do so the Court’s task is “to enforce the contract as plainly written.” Okeechobee Resorts, L.L.C, supra at 993; Gulliver Sch., Inc. v. Snay, 137 So. 3d 1045, 1047 (Fla. 3d DCA 2014) [39 Fla. L. Weekly D457a].

Like any contract an insurance policy must be interpreted in accordance with its plain and ordinary meaning. See, e.g., Fayad v. Clarendon Nat. Ins. Co., 899 So. 2d 1082 (Fla. 2005) [30 Fla. L. Weekly S203a] (“insurance contracts are construed in accordance with “the plain language of the polic[y] as bargained for by the parties”). Anthony v. Anthony, 949 So. 2d 226 (Fla. 3d DCA 2007) [32 Fla. L. Weekly D153a] (courts must enforce clear and unambiguous contract terms); Kel Homes, LLC v. Burris, 933 So. 2d 699, 702 (Fla. 2d DCA 2006) [31 Fla. L. Weekly D1953a] (“words in a contract are presumed to have been used with their ordinary and customary meaning”). And when terms or words in a contract are not defined, a court will look “to the dictionary” in order to ascertain that “plain and ordinary meaning.” Beans v. Chohonis, 740 So. 2d 65, 67 (Fla. 3d DCA 1999) [24 Fla. L. Weekly D1592a]; citing City of Miami Beach v. Royal Castle System, Inc., 126 So.2d 595 (Fla. 3d DCA 1961). Though the insurance contract at issue here does not define the phrase “qualified, disinterested appraiser,” or the word “disinterested,” that word is generally defined as “[f]ree from self-interest; having no personal interest or private advantage in a question or affair; not influenced or dictated by private advantage; unselfish; uninterested.” Webster’s Encyclopedia Dictionary (1980 Ed). See also Black’s Law Dictionary (5th Edition 1979) defining “disinterested” as: “not concerned, in respect to a possible gain or loss in the result of the pending proceedings or transaction.” Id.

This definition — as well as common sense — leads to the inexorable conclusion that an appraiser whose employer stands to gain financially in direct proportion to the size of an award is clearly not “disinterested,” as they have a “personal interest” in the appraisal “affair,” Webster, supra, and are obviously “concerned in respect to a possible gain or loss in the result of the [proceeding].” Blacks, supra. Indeed, this Court is at a loss to see how one could argue or conclude otherwise, as the plain, obvious and rational meaning of the word “disinterested” undoubtedly excludes an appraiser who stands to gain financially from the award; a conclusion any reasonable lady or “man-on-the-street” would reach without hesitation. See, e.g., State Farm Fire & Cas. Co. v. Castillo, 829 So. 2d 242 (Fla. 3d DCA 2002) [27 Fla. L. Weekly D1845a] (“[i]n accordance with well-established rules of interpretation, terms utilized in an insurance policy should be given their plain and unambiguous meaning as understood by the ‘man-on-the-street’ ”). Put another way, it does not take the proverbial “Philadelphia Lawyer” to figure out that one who has a financial stake in the outcome of a proceeding is not “disinterested” in it. Warter v. Bancroft Hotel Associates, 285 So. 2d 676, 678 (Fla. 3d DCA 1973) (“astuteness of the proverbial ‘Philadelphia Lawyer’ was not required to determine” intent of the parties).

Notwithstanding how open and shut this Court believes the question to be, Plaintiff claims that our appellate court has concluded otherwise no less than three times. See Rios v. Tri-State Ins. Co., 714 So. 2d 547 (Fla. 3d DCA 1998) [23 Fla. L. Weekly D1522b]; Galvis v. Allstate Ins. Co., 721 So. 2d 421 (Fla. 3d DCA 1998) [23 Fla. L. Weekly D2594a]; Brickell Harbour Condo. Ass’n, Inc. v. Hamilton Specialty Ins. Co., 256 So. 3d 245 (Fla. 3d DCA 2018) [43 Fla. L. Weekly D2321a]. State Farm insists that these decisions are either distinguishable or no longer controlling, as subsequent revisions to the Code of Ethics for Arbitrators in Commercial Disputes promulgated jointly by the American Arbitration Association (AAA) and American Bar Association (ABA) (Code of Ethics) have drastically altered the relevant landscape. State Farm also says that the Third District’s decisions in Rios and Galvis do not address the “fiduciary duty of loyalty argument” made by State Farm here and embraced by the Fifth District in Florida Ins. Guar. Ass’n v. Branco, 148 So. 3d 488 (Fla. 5th DCA 2014) [39 Fla. L. Weekly D2020a] — a case State Farm suggests is persuasive and meaningfully indistinguishable from the situation at hand.

In Rios, the first relevant reported decision, our appellate court addressed the requirement that each party select “a competent, independent appraiser.” 714 So. 2d at 548. The insured had designated East Coast Appraisers, Inc., an entity that would “be compensated based on a contingency percentage of the award.” Id. at 549. In addressing the question of whether that appraiser was qualified the court first noted that the parties were free “to specify the credentials of party-appointed appraisers,” and that they had done so, albeit in a policy which — like the present policy — contained “no definition” of the operative term. Id. The court therefore looked to the dictionary definition of “independent” and concluded that the contract language used called for the “appointment of an outside appraiser, unaffiliated with the parties.” Id. Rejecting the carrier’s claim that a “direct financial interest in the award” rendered the proposed appraiser “not independent,” the Rios court pointed out that: (a) the contract did not limit the type of compensation which may be paid; and (b) the “[t]he insurance policy must be read favorably to the insured.” Id.

Aside from a pure contract/definitional analysis, the Rios court also emphasized that the then existing Code of Ethics required that persons requested to serve as arbitrators disclose “any direct or indirect financial or personal interest in the outcome of the arbitration. . . .” Id. at 550. According to the Rios court “[t]he balance struck by the Code is that such an interest will not be a basis for disqualification, but it must be disclosed so that the other arbitrators are aware of it before they proceed with their work.” Id.

This Court takes no issue with Rios and finds that it actually supports State Farm’s position here, as the contract sub-judice does not merely require independence — it requires disinterest, terms that are not necessarily synonymous. And in this case there is no doubt that Mr. Jimenez is “interested” in the outcome. Thus, applying the contract/definitional principles embraced by the Rios court (and all other courts interpreting an insurance policy or other contract) these parties were “free” to bargain for “the credentials of [their] party-appointed appraisers,” and they placed a reasonable and rational qualification on eligibility to serve. That bargain should be honored. See also Lee v. Marcus, 396 So. 2d 208 (Fla. 3d DCA 1981) (parties may by contract place words of limitation on the identity, status, or qualifications of arbitrators).

Though Rios itself presents no problem, four months later the Third District issued its single paragraph opinion in Galvis v. Allstate Ins. Co., 721 So. 2d 421 (Fla. 3d DCA 1998) [23 Fla. L. Weekly D2594a], a case involving an appraisal clause that — like the clause here — required each party to select a “competent and disinterested,” not merely an “independent,” appraiser. Id. In holding that the insureds “contingent-fee appraiser” was qualified, the court found that this distinction made no “legal difference,” quashed the order under review, and directed that the parties make the disclosure required by the Code of Ethics. Id. So Galvis, following the lead of Rios, relied heavily upon that then existing Code.

As brief as it may be — and as much as this Court may disagree with it — Galvis is controlling unless subsequent events or legal developments call its holding into serious question. See, e.g., State v. Washington, 114 So. 3d 182 (Fla. 3d DCA 2012) [37 Fla. L. Weekly D1535a] (“[w]hile a lower court is free to disagree and to express its disagreement with an appellate court ruling, it is duty-bound to follow it”). Claiming that such is the case, and that Galvis is no longer good law, State Farm relies heavily upon Florida Ins. Guar. Ass’n v. Branco, 148 So. 3d 488 (Fla. 5th DCA 2014) [39 Fla. L. Weekly D2020a], and suggests that: (a) an argument made there — but not in Rios or Galvis — should carry the day; and (b) subsequent changes to the Code of Ethics enacted post Rios and Galvis undermine the holdings in these cases.

In Branco the insured selected “a partner in the law firm representing them as their appraiser,” notwithstanding a contractual requirement that appointees be “disinterested.” Id. at 490. Concluding that an attorney representing the insured was clearly “interested” and hence disqualified, the Branco court — like the Rios court — first observed that parties “are free to contract for the qualifications of the decision makers in their preferred form of alternative dispute resolution.” Id. at 495. The court then eschewed the insured’s reliance on Rios and Galvis, emphasizing that these decisions were “in large part premised on, and extensively quoted from, the then existing version of the Code of Ethics,” which at the time “did not explicitly address the neutrality of arbitrators, but simply required disclosure of any direct or indirect financial interest in the outcome of the proceeding.” Id. The court then pointed out that the Code has since been revised and now establishes a “presumption of neutrality for all arbitrators, including party-appointed arbitrators, which applies unless the parties’ agreement, the arbitration rules agreed to by the parties or applicable laws provide otherwise.” Id., citing AAA, the Code of Ethics for Arbitrators in Commercial Disputes (Oct. 21, 2011). In the Branco court’s view this revision changed the “landscape considerably, thus, undercutting the continued viability of the holding in Rios” (and by extension Galvis), particularly in circumstances where the parties’ “contract requires the appointment of ‘disinterested’ appraisers.” Id. at 495.

Applying the plain meaning of the contract before it, the Branco court concluded that the appraisal provision, which required “disinterested” fact finders, expressed the parties “clear intention to restrict appraisers to people who are, in fact, ‘disinterested.’ ” Id. at 496. And if an appraiser — such as the attorney selected by the Brancos — owes his nominating party a “fiduciary duty of loyalty,” or has a “confidential relationship” with that party, he is not — in the Branco court’s view — disinterested. This Court agrees because, as one court put it, “[t]he existence of such a relationship between a litigant and an arbitrator creates too great a likelihood that the arbitrator will be incapable of rendering a fair judgment.” Donegal Ins. Co. v. Longo, 610 A.2d 466, 469 (1992). The same can be said for an appraiser who has a direct financial interest in the outcome of the proceeding.

Since Branco our appellate court has had one other occasion to address this issue. In Brickell Harbour, supra, the policy in question required the appointment of a “competent and impartial appraiser.” 256 So. 3d at 246. The insured appointed an employee of J. S. Held, a building consultant it had hired. But unlike the situation in Rios and Galvis, there was no “indication in the record” that any part of appraiser’s [or his employer’s] compensation for work on the appraisal or the [Plaintiff’s] claim would include a contingent fee. Id. at 248. Under those circumstances the court concluded that the disclosure protocol adopted in Rios remains a “workable approach to this issue,” Id. at 249, and that on “the record before it” the “appointment of Mr. Ison did not warrant disqualification.” Id. The Court did, however, cite with approval Verneus v. Axis Surplus Ins. Co., 16-21863-CIV, 2018 WL 3417905 (S.D. Fla. July 13, 2018), which found that the existence of a contingency fee payable to a party appointed appraiser is a “factor” in assessing partiality. And the Brickell Harbour court again emphasized that the appraiser had no financial stake in the outcome (i.e., contingency fee).

Upon a careful review of these decisions, the Court believes that in a case such as this where: (a) the contract requires the appointment of “disinterested” appraisers; and (b) a party appoints someone with a direct financial interest in the outcome, our appellate court would no longer continue to follow Galvis due to the material changes that have been made to the Code of Ethics and the increasing role appraisal clauses now play. Unlike in 1998, this alternate dispute resolution mechanism is now found in virtually all property insurance policies, and the decision of appraisers on scope and pricing is — for all practical purposes — final and binding on the parties. Given this reality, and the outcome-determinative nature of the appraisal process, parties should be free to contract for “disinterested” appraisers, and one who has a direct financial interest in the outcome of a case is — by definition — not disinterested. To the contrary, one who has a financial interest in the outcome of an adversary proceeding, including one adjudicated via a form of alternative dispute resolution, is the antithesis of disinterested.

In this Court’s view this case presents nothing more than a “run-of-the-mill” question of contract interpretation and it is not a close call. And while Galvis would obviously be binding precedent, the Court again agrees with the Branco court that its holding has been undermined by material changes in the Code of Ethics upon which the Rios court, and Galvis as its progeny, relied heavily in reaching their decisions. Given those significant (and in the Court’s view warranted) changes, the Court believes that our appellate court would now sanction the disqualification of an appraiser who has a direct financial interest in the outcome of a case where, as here, the parties bargained for “disinterested” fact finders.

III. CONCLUSION

This Court fully understands and appreciates that our judicial system is built on a vertical hierarchy, and it would never fail to apply precedent out of mere disagreement — however strong that disagreement might be. But like the Branco court, this Court is convinced that the holdings of Rios and Galvis (or at the very least Galvis) have been called into question by subsequent material changes to the Code of Ethics, and that our appellate court — like the Branco court — would apply that existing Code (just as it applied it in Rios) and conclude that one who has a direct financial stake in the proceeding may not serve when the parties’ contract mandates appointment of “disinterested” arbiters.

Even putting aside the fact that the parties bound themselves to this qualification, the Court sees no reason why appraisal/arbitration proceedings should be tainted by self-interest — a taint that infects any outcome and — equally importantly — undermines the public’s respect for, and confidence in, this adversarial process. Where parties have expressly agreed to have a dispute decided by neutral fact finders, courts should enthusiastically enforce that agreement — not look for ways to thwart it through over analysis and judicial wheel-spinning. Indeed, the Court finds it ironic that for over fifty years we (meaning the judiciary) have chastised insurance carriers for failing to draft policies “so that the average person can clearly understand” them, and have repeatedly warned that if policies continue to be “drawn in such a manner that it requires the proverbial Philadelphia Lawyer to comprehend the terms” the judiciary will continue to construe them liberally in favor of insureds. Hartnett v. S. Ins. Co., 181 So. 2d 524, 528(Fla. 1965). Then when a carrier heeds that warning, and drafts a plain term understandable to any common man, we dance on the head of a pin in a struggle to “interpret” that which needs no interpretation.

The bottom line is that these parties bargained for “disinterested” appraisers and this Court will enforce that bargain as clearly written — no more or less. And while the Court understands that it may be going out on a limb by concluding that the rationale underlying Galvis no longer holds, and that this decision is therefore not controlling, it has never embraced the philosophy that “if you don’t throw it, they can’t hit it.”² So if my judicial colleagues on a higher court conclude that Plaintiff’s appraiser is disinterested despite his employer’s direct financial interest in the outcome of the proceeding, and this Order gets “hit,” so be it. But the Court is convinced — beyond any doubt — that permitting Plaintiff’s proposed appraiser to serve would run afoul (and amount to a judicial re-write) of the parties’ contract.

For the foregoing reasons it is hereby ORDERED:

1. Defendant’s Motion is GRANTED in part. Plaintiff shall select a “disinterested” appraiser within twenty (20) days of this Order.

2. Plaintiff’s Motion is DENIED.

3. Both parties’ motions for sanctions are DENIED.

__________________

¹The general purpose behind appraisal, an alternative dispute resolution process, is to expeditiously resolve disputed claims where coverage exists, but the parties disagree on the value of the claim. See generally Citizens Prop. Ins. Corp. v. Mango Hill 6 Condo. Ass’n, 117 So.3d 1226, 1230 (Fla. 3d DCA 2013) [38 Fla. L. Weekly D1507c] (“[a]ppraisal exists for a limited purpose — the determination of ‘the amount of the loss.’ ”). Florida Courts prefer appraisal and other similar dispute resolution mechanisms over prolonged and unnecessary litigation. See First Protective Ins. Co. v. Hess, 81 So. 3d 482, 485 (Fla. 1st DCA 2011) [36 Fla. L. Weekly D2705d] (“[a]ppraisal clauses are preferred, as they provide a mechanism for prompt resolution of claims and discourage the filing of needless lawsuits”) (citing Fla. Ins. Guar. Ass’n, Inc. v. Olympus Ass’n, Inc., 34 So. 3d 791, 794 (Fla. 4th DCA 2010) [35 Fla. L. Weekly D1117b]; First Floridian Auto & Home Ins. Co. v. Myrick, 969 2d 1121, 1125 (Fla. 2d DCA 2007) [32 Fla. L. Weekly D2672a]; New Amsterdam Casualty Co. v. JH Blackshear, Inc., 116 Fla. 289, 291 (Fla. 1934) (appraisal clauses “are valid and are binding upon the parties if they are appropriately invoked”); Preferred Mut. Ins. Co. v. Martinez, 643 So. 2d 1101, 1102 (Fla. 3d DCA 1994) (“courts have construed appraisal provisions in insurance policies and have treated these provisions as arbitration provisions”); State Farm Fire & Cas. Co. v. Middleton, 648 So. 2d 1200, 1201-02 (Fla. 3d DCA 1995) [20 Fla. L. Weekly D99b]; Soler v. Secondary Holdings, Inc., 771 So. 2d 62 (Fla. 3d DCA 2000) [25 Fla. L. Weekly D2505a]; State Farm Fire & Cas. Co. v. Middleton, 648 So. 2d 1200, 1201 (Fla. 3d DCA 1995) [20 Fla. L. Weekly D99b]; EMSA Ltd Partnership v. Mason, 677 So. 2d 105, 107 (Fla. 4th DCA 1996) [21 Fla. L. Weekly D1727a].

²A quote attributable to the great Yankee pitcher, Lefty Gomez.