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March 2011

Kirkwood v. California State Automobile Association ? Insured Entitled to Seek Declaratory Relief on Claim that Insurer Misapplied Statutory Guidelines for Conducting Appraisals

Insured Properly Invoked the Court's Declaratory Relief Powers in Requesting a Declaration as to Whether the Insurer Misapplied Statutory Guidelines for Calculating Depreciation

(February 28, 2011) ___ Cal.App.4th ___; 11 C.D.O.S. 2799

The California Court of Appeal, First Appellate District, affirmed the trial court's denial of an insurer's motion to compel appraisal to determine the actual cash value of the insured's personal property losses.  The insured was entitled to first seek a declaration as to whether the insurer's practice of calculating depreciation violates applicable statutory guidelines.
California State Automobile Association ("CSAA") issued an "open" homeowner's policy to Kirkwood, in which the value of the covered items was not agreed upon but would be determined in the event of a loss.  The policy required CSAA to pay actual cash value or the replacement cost of lost or damaged personal property.

During the term of the policy, Kirkwood's home and personal property were destroyed as a result of fire.  Kirkwood tendered his personal property claim to CSAA, which included a physical depreciation amount based on the actual condition of each item at the time of loss.  CSAA countered with a settlement offer based on its own calculation, which applied a blanket depreciation schedule to certain categories of property based on age but without regard to condition.

Kirkwood challenged the settlement offer, asserting "excessive depreciation" and accused CSAA of violating Insurance Code section 2051(b).   Section 2051(b) provides that under an open policy that requires payment of the actual cash value to settle claims, either in whole or in part, the settlement amount is the "amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based on its condition at the time of the injury or the policy limit, whichever is less."  (Emphasis supplied.)  In the event the insurer and the insured disagree as to the settlement amount, section 2071 requires the parties to take part in an appraisal proceeding.  However, the appraisal procedure does not limit the parties' recourse to other remedies.  (Cal. Code Regs., Tit. 10, § 2695.9(e).)

Kirkwood sued CSAA for declaratory relief and other claims premised upon CSAA's use of standardized depreciation schedules allegedly in violation of section 2051(b).  Kirkwood sought "a declaration that defines the rights and obligations under the policy," as well as a "judicial determination of the parties' rights and obligations regarding section 2051."  In response, CSAA demanded Kirkwood dismiss the lawsuit and proceed with an appraisal.

When Kirkwood refused, CSAA moved to compel appraisal pursuant to the appraisal provision in the policy, which essentially tracked section 2071.  The trial court denied the motion without prejudice so CSAA could raise the issue after the court resolved the issue of interpretation of section 2051(b).
CSAA appealed, arguing Kirkwood's claim was premised on CSAA's failure to pay the full amount of the actual cash value for his personal property.  Such a dispute, according to CSAA, is subject to mandatory appraisal under section 2071.  Kirkwood, on the other hand, insisted the matter hinged on the meaning of section 2051(b) and CSAA's obligations there under, and therefore, a proper matter for declaratory relief. 

The Court of Appeal agreed with Kirkwood, concluding that appraisal was not mandated "right now."  The trial court correctly "bifurcated" Kirkwood's case, determining that it should first issue a declaration on the statutory interpretation issue, and then "have it inform the appraisal when it goes forward." 

The Court of Appeal relied in large part on the limited role of the appraiser in the appraisal process under section 2051(b).  Section 2071 constrains the role of the appraiser to that of appraising "the loss, stating separately actual cash value and loss to each item."  Appraisers have no power to interpret the insurance contract or applicable statutes.  Their sole function is to determine the damage resulting to various items submitted for their consideration, nothing more. 

Kirkwood invoked the court's declaratory relief powers by seeking a declaration that CSAA violated section 2015 by calculating depreciation based solely on age, and not physical depreciation or actual condition.  Declaratory relief operates prospectively, serving to set controversies at rest before obligations are repudiated, before rights of invaded or wrongs are committed.  The remedy of declaratory relief is cumulative and does not restrict other remedies.  (Cal. Code Civ. Proc. § 1062.) 

Accordingly, the Court of Appeal held the contractual and statutory interpretation issues presented by Kirkwood were not encompassed within the appraisal process under Section§ 2071.  Thus, appraisal was properly deferred.

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This opinion is not final. Though it has been certified for publication, it may be modified on rehearing, or granted review by the Supreme Court of the State of California. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.

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Jordan S. Altura