Coral Realty, LLC v. Federal Insurance Company

Background

Coral Crystal, LLC and Coral Realty, LLC owned a building used as a dormitory for New York University students. Construction at a neighboring property caused concrete to damage part of the building’s north wall in December 2012. Federal Insurance Company’s policy covered direct physical loss or damage caused by a covered cause of loss, as well as certain business-income losses and extra expenses. Federal acknowledged that at least some of the damage was covered, but the parties disagreed about the extent and value of the loss.

The policy allowed either side to demand an appraisal when the parties disagreed about the value of property or the amount of loss. The appraisal panel consisted of an appraiser selected by the plaintiffs, an appraiser selected by Federal, and an umpire. With the parties’ agreement, the umpire also retained a neutral engineer. The panel considered competing repair methods, including the plaintiffs’ proposed method of repairing the wall from inside the building and Federal’s proposed exterior method.

The panel issued its award on April 27, 2018. It found an actual cash value of $5,328,016 for the building loss, awarded $200,850 in extra expenses, and stated that loss of rents and other related expenses would be valued as incurred during the repair process. The panel did not separately state a replacement-cost figure because it found that the repair would not improve the building and therefore required no depreciation deduction.

The parties’ motions

The plaintiffs moved to confirm the appraisal award under New York law. Federal cross-moved to vacate or modify it. Federal argued that the award did not separately identify actual cash value and replacement cost, did not comply with the policy, failed to value Federal’s proposed exterior repair method, relied on a physically impossible inside-out method, and resulted from misconduct or procedural unfairness. Federal also sought removal or recalculation of numerous costs, including temporary-stairwell expenses, depreciation, future rental losses, extra expenses, storage, general conditions, overhead, profit, and taxes.

The court explained that an appraisal may decide factual questions about the amount and extent of loss, but may not decide whether the insurance policy covers a particular loss. An appraisal award that stays within the legal and contractual limits is entitled to deferential review. The court may vacate it for exceeding those limits or for fraud, bias, or bad faith; it will not simply reweigh the panel’s factual findings or competing expert opinions.

Ruling

Judge Laura Taylor Swain rejected Federal’s grounds for vacating the award. She held that the panel substantially complied with New York Insurance Law and the policy even though it did not list separate figures for actual cash value and replacement cost. The panel’s finding that there was no betterment supported treating those values as equivalent. The court also held that the panel had considered and rejected Federal’s exterior repair method, and that Federal had not shown that the inside-out method was irrational.

The court likewise found no sufficient evidence of fraud, bias, bad faith, or other misconduct. It declined to disturb the panel’s factual determinations about the repair method, scaffolding, the temporary stairwell, and other costs. It also rejected Federal’s challenges based on alleged withheld documents, settlement discussions, the treatment of water intrusion, and the panel’s consideration of actual cash value.

The court granted Federal’s motion to vacate or modify in part by striking the award’s determination that the amounts were not subject to deduction for prior payments or the policy deductible. That modification was without prejudice to the parties’ positions about how the deductible and prior payments should apply. The court denied Federal’s motion in all other respects. It granted the plaintiffs’ cross-motion to confirm the award in part, except for the stated modification.

The court emphasized that confirmation established the value of the awarded claim elements but did not decide whether the policy covered each element. The court therefore did not enter judgment and directed the parties to address the remaining coverage issues and any unresolved claims through further proceedings.