ZAROUR v. CHUBB & SON, INC.

Background

Simon and Lori Zarour sued Pacific Indemnity Company over insurance coverage for damage to their home from Superstorm Sandy on October 29, 2012. The original complaint also named Chubb & Son Inc., but Chubb was dismissed from the action in 2015. The case was later transferred to the Southern District of New York.

In 2015, the court dismissed the Zarours’ claims for consequential and punitive damages and for breach of the implied covenant of good faith and fair dealing. The court also ordered an appraisal under the insurance policy and stayed the case while that process proceeded. A 2016 appraisal awarded the Zarours $110,490.20. Because that appraisal did not address mold damage, a February 2017 order directed the panel to determine whether, and to what extent, the Zarours suffered losses from mold damage under the policy.

The mold appraisal was delayed. After the court denied Pacific’s 2021 request to dismiss for failure to prosecute, it ordered the parties to complete the appraisal. The court later appointed Justin Lewis as umpire and rejected the Zarours’ attempt to expand the appraisal beyond mold damage to broader damage allegedly caused by wind-driven rain. In March 2022, Pacific’s appraiser, Frank Antonucci Jr., and Umpire Lewis agreed on an award of $5,016.80 for additional mold damage replacement costs, while the Zarours’ appraiser, Soli Foger, objected.

Arguments and legal standard

Pacific moved to confirm the 2022 appraisal award and to dismiss the case. The Zarours opposed confirmation. They argued that the difference between Foger’s estimate of $731,317.03 and the final award showed corruption or partiality. They also argued that the appraisal did not substantially comply with the February 2017 order because the appraisers did not conduct an invasive inspection of all wall and ceiling cavities.

Under New York law, an insurance appraisal determines certain factual issues, including the amount and extent of loss, but does not decide whether the policy covers a claimed loss. An appraisal must substantially comply with the terms of the court’s or policy’s submission. Courts generally uphold an appraisal unless there is evidence of fraud, bias, or bad faith.

Court’s analysis

The court rejected the Zarours’ argument that the difference between the two estimates itself showed corruption or partiality. It explained that the authority cited by the Zarours concerned an appraisal included within an arbitration, while this case involved a standalone insurance appraisal. The court also found that Foger’s estimate was not based on demonstrated mold damage. Instead, it assumed the presence and extent of mold and included work beyond the mold-only scope ordered by the court. The court further noted that Foger’s estimate did not change after the court rejected an effort to expand the appraisal to broader wind-driven-rain damage.

The court also rejected the argument that the appraisal failed to substantially comply with the February 2017 order. Pacific’s mold consultant conducted visual inspection, environmental testing, moisture testing, and sampling, including samples from inspection holes cut by Mr. Zarour. The consultant concluded that mold remediation was required in one pantry closet but nowhere else at the property at that time. Although Umpire Lewis apparently did not conduct additional testing, he reviewed the submitted materials with a mold specialist. The court held that the appraisal substantially complied with the order and that disagreement with the appraisal methods was not enough to replace the appraisers’ judgment with the court’s judgment.

Because the appraisal substantially complied with the court’s order, the Zarours needed to show fraud, bias, or bad faith to have it vacated. The court found that they had not made that showing.

Disposition

Judge John P. Cronan granted Pacific’s motion in part. The court granted Pacific’s request to confirm the appraisal award in the total amount of $115,507: $110,490.20 from the 2016 appraisal and $5,016.80 for additional mold damage. The court understood that Pacific had already paid both amounts.

The court declined to dismiss the case at that point. It ordered each party to submit a letter brief within two weeks explaining whether any issues remain to be litigated or whether the case should be dismissed. The court stated that if the Zarours fail to file their letter brief by the deadline, it will dismiss the case with prejudice. The court also denied the Zarours’ request for oral argument and directed the clerk to close the pending motion.