B.R.S. Real Estate, Inc. v. Certain Underwriters at Lloyd's, London ( 2024 )

United States Court of Appeals
For the First Circuit
No. 23-1531
B.R.S. REAL ESTATE, INC.,
Plaintiff, Appellant,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY
NUMBER QMF1760087; QUAKER SPECIAL RISK; LAMARCHE ASSOCIATES,
INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. John J. McConnell, Jr., U.S. District Judge]
Before
Kayatta, Lipez, and Gelpí,
Circuit Judges.
Nicole M. Labonte, with whom Law Offices of Richard Palumbo,
LLC was on brief, for appellant.
William A. Schneider, with whom Richard R. Hennessey and
Morrison Mahoney LLP were on brief, for appellees.
August 12, 2024
KAYATTA, Circuit Judge. This appeal arises out of a
dispute over the amount of an insurance award owed to B.R.S. Real
Estate, Inc. for water damage to its commercial warehouse. B.R.S.
challenges the appraisal decision issued by a panel of two party-
appointed appraisers and a neutral umpire. B.R.S. also contends
that the district court erred in granting summary judgment on its
claim that defendants breached the terms of the insurance contract
by refusing to pay B.R.S. $141,787.33 in withheld depreciation.
For the following reasons, we affirm the district court's judgment
and decline to vacate the appraisal award.
I.
On review of the district court's decision on summary
judgment, we accept the facts in the light most favorable to B.R.S.
as the nonmoving party and draw all reasonable inferences on its
behalf. See Ciarametaro v. City of Gloucester, 87 F.4th 83, 85
(1st Cir. 2023).
B.R.S. owns a commercial property located at 820-
824 Main Street, West Warwick, Rhode Island (the "Property"). From
1974 to 1994, the Property housed a grocery store. It then sat
vacant until 2017, when B.R.S. entered into a commercial lease
with DC 88 Express, Inc., to convert the building into a grocery
warehouse.
B.R.S. insured the Property under a policy (the
"Policy") issued by Certain Underwriters at Lloyd's, London and
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managed by Quaker Special Risk (collectively, the "Insurers"). In
2018, the pipes at the Property froze and burst, causing extensive
damage to the building. B.R.S. filed a claim for insurance
coverage under the Policy, invoking its "Loss Payment" provision,
pursuant to which:
In the event of loss or damage covered by this
Coverage Form, at [the Insurers'] option, [the
Insurers] will either:
(1) Pay the value of lost or damaged property;
[or]
(2) Pay the cost of repairing or replacing the
lost or damaged property . . . .
The Policy's "Valuation Condition" specified that the Insurers
would "determine the value of Covered Property in the event of
loss or damage . . . [a]t actual cash value as of the time of loss
or damage."
B.R.S. retained Douglas Soscia of RI Adjusting Services
as its public insurance adjuster for the claim. The Insurers
retained Rebecca Girouard from LaMarche Associates as their loss
adjustment investigator.
With the Insurers' consent, B.R.S. hired a contractor to
perform initial remediation work on the Property. After initial
remediation was completed, the Insurers sent engineers from The
Vertex Companies, Inc. ("Vertex") to inspect the Property and draw
up an estimate for the total value of the loss claim. On behalf
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of the Insurers, Girouard issued a preliminary replacement cost
estimate of $165,846.49 plus remediation expenses of $23,196.28.
Soscia responded on behalf of B.R.S. with an estimate totaling
$464,505.03. The Insurers then issued a $141,027.11 payment to
B.R.S., which reflected the undisputed portion of the claim.
With the parties unable to reach an agreement as to the
remaining amount, B.R.S. demanded an appraisal under the terms of
the Policy, which provided that:
If [the Insurers] and [B.R.S.] disagree on the
value of the property or the amount of loss,
either may make written demand for an
appraisal of the loss. In this event, each
party will select a competent and impartial
appraiser. The two appraisers will select an
umpire. If they cannot agree, either may
request that selection be made by a judge of
a court having jurisdiction. The appraisers
will state separately the value of the
property and amount of loss. If they fail to
agree, they will submit their differences to
the umpire. A decision agreed to by any two
will be binding.
The Insurers requested time before the appraisal to
evaluate the electrical portion of B.R.S.'s claim. B.R.S. agreed
and Soscia followed up with an additional estimate for repairs,
bringing B.R.S.'s total claim to $1,168,624.12. Girouard advised
Soscia that she would also have to review this supplemental
estimate, and hired James Boudreau, a building consultant working
for Vertex, to assess the additional claims.
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B.R.S. then sent a second demand for an appraisal, to
which the Insurers acquiesced. The Insurers chose Boudreau as
their appraiser, and B.R.S. chose John Zarlenga of Adrien & Son.
Neither party voiced any objections to these selections at that
time. Zarlenga and Boudreau then selected William Monahan of
Monahan & Associates, P.C. to serve as the umpire.
Following an inspection by the appraisers and a series
of back-and-forths between Soscia and Girouard, the umpire,
Monahan, and the Insurers' appraiser, Boudreau, signed on to an
appraisal award on August 15, 2019 as follows:
• $445,010.48 for replacement cost loss;
• Minus $92,746.51 for withheld
depreciation;
• For a total actual cash value loss of
$352,263.97;
• Plus additional coverage of $10,000 for
increased cost of construction.
Zarlenga did not sign the award. The Insurers then issued a
supplemental payment to B.R.S. for $208,736.86.
Soscia subsequently notified defendants that the initial
appraisal award failed to account for the replacement cost value
of certain materials and appliances. Monahan then issued an
amended award as follows:
• $516,067.89 for replacement cost loss;
• Minus $141,787.33 for withheld
depreciation;
• For a total actual cash value loss of
$374,280.56;
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• Plus additional coverage of $10,000 for
increased cost of construction.
Boudreau signed the amended award; Zarlenga again did not. On
March 16, 2020, the Insurers issued a final payment for $34,516.59
to B.R.S. This brought the total amount paid by the Insurers to
B.R.S. to $384,280.56, the value of the appraisal award less
depreciation, plus $10,000 in additional construction costs.
At some point in early 2020, B.R.S. sent an
"Invoice/Letter of Completion" to the Insurers advising that
Soscia Construction, Ltd. had "completed the first phase (rough)
and the second phase required for [] repair" of the Property. It
gave a "total estimate for the repairs" of $975,000, $650,000 of
which was "due through phase 2." B.R.S. argued that this invoice
triggered the Insurers' obligation to pay the $141,787.33 in
withheld depreciation under the amended appraisal award. The
Policy did indeed call for the payment of the full replacement
cost without any deduction for depreciation, but only subject to
the following conditions:
[The Insurers] will not pay on a replacement
cost basis for any loss or damage:
(1) Until the lost or damaged property is
actually repaired or replaced; and
(2) Unless the repairs or replacement are made
as soon as reasonably possible after the loss
or damage.
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So the Insurers did not owe B.R.S. the withheld depreciation unless
and until B.R.S. actually repaired or replaced the Property.
B.R.S. argues that it satisfied this condition precedent
when it sent the Insurers the invoice from Soscia Construction
showing that it had completed the first two phases of repair on
the Property. When Girouard met with Soscia to confirm that the
Property had indeed been repaired, however, she found that the
main level of the Property had been converted to a laundromat.
The Insurers thereby declined to pay the withheld depreciation,
arguing that the Policy only obligated them to pay on a
"Replacement Cost" basis if B.R.S. actually replaced the Property
with other property of similar use.
B.R.S. filed suit against defendants in Rhode Island
state court. The complaint alleged that the appraisal award was
invalid because Boudreau was not an "impartial" appraiser as
required by the Policy, and stated four causes of action:
(1) petition for a complete, proper, and impartial appraisal;
(2) breach of contract for failing to appoint an impartial
appraiser and for subtracting the value of depreciation from the
final award amount; (3) declaratory judgment that B.R.S.'s "full"
claim is covered; and (4) unfair claims settlement practices and
bad faith for use of a biased appraisal process and reliance upon
an invalid appraisal award.
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Defendants removed the case to federal court and moved
to confirm the appraisal award. The court denied the motion
without prejudice, explaining: "This matter is not ripe for
adjudication. Discovery has not yet taken place. This mat[t]er
cannot be decided in the infancy stage of this litigation. The
Plaintiff's complaint, which the Court considers true for purposes
of this motion, states a valid and plausible claim upon which
relief could be granted." The court also denied defendants'
subsequent motion for reconsideration.
In due course, defendants filed a motion for summary
judgment and to confirm the appraisal award. The court granted
summary judgment for defendants. B.R.S. Real Est., Inc. v. Certain
Underwriters at Lloyd's, London, 682 F. Supp. 3d 204 (D.R.I. 2023).
It concluded that, on the record before it, no reasonable jury
could conclude that Boudreau was an impermissibly biased appraiser
or that Monahan was an incompetent umpire. Id. at 208-12. This
appeal follows.
II.
B.R.S. first contends that the law-of-the-case doctrine
precluded the district court from granting defendants' renewed
motion to confirm the appraisal award. "The law-of-the-case
doctrine generally provides that 'when a court decides upon a rule
of law, that decision should continue to govern the same issues in
subsequent stages in the same case.'" Musacchio v. United States,
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577 U.S. 237, 244-45 (2016) (quoting Pepper v. United States, 562
U.S. 476, 506 (2011)). And so, B.R.S. argues, having denied
defendants' previous motions to confirm the arbitration award, the
district court could not then grant the renewed motion on summary
judgment.
But the district court based its previous denials on the
fact that "[d]iscovery ha[d] not yet taken place" and therefore
the issue was "not ripe for adjudication." It noted that the
complaint, "which the Court consider[ed] true for purposes of" the
motions, "state[d] a valid and plausible claim upon which relief
could be granted." In contrast, discovery had concluded when the
Insurers later filed their renewed motion to confirm the appraisal
award in conjunction with their motion for summary judgment. And
the district court correctly applied the summary judgment standard
in its decision, asking whether there remained any "genuine dispute
as to any material fact" and whether defendants were "entitled to
judgment as a matter of law." B.R.S. Real Est., Inc., 682 F. Supp.
3d at 206 (quoting Fed. R. Civ. P. 56(a)). In short, the district
court's first ruling merely held that the complaint's allegations
made it plausible that the yet-to-be-evidenced facts might support
a ruling for B.R.S., while the subsequent ruling held that the
evidence that was actually supplied turned out not to provide that
support.
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III.
B.R.S. next argues that the district court erred in
declining to vacate the appraisal award based on Boudreau's
preexisting business relationship with the Insurers, which B.R.S.
claims rendered him an impermissibly partial appraiser.
In challenging the appraisal award, B.R.S. faces an
uphill battle. Rhode Island state law grants "arbitration
awards . . . a strong presumption of validity given the 'strong
public policy in favor of the finality of arbitration awards.'"
Pierce v. R.I. Hosp., 875 A.2d 424, 426 (R.I. 2005) (quoting
Prudential Prop. & Cas. Ins. Co. v. Flynn, 687 A.2d 440, 441 (R.I.
1996)). Under Rhode Island law, a court "must make an order
vacating [an arbitration] award . . . [w]here there was evident
partiality or corruption on the part of the arbitrators, or either
of them." R.I. Gen. Laws § 10-3-12(2).1 "[E]vident partiality"
exists where "a reasonable person would have to conclude that an
arbitrator was partial to one party to the arbitration." V.S.
Haseotes & Sons, L.P. ex rel. Bentas v. Haseotes, 819 A.2d 1281,
1285 (R.I. 2003) (quoting Aetna Cas. & Sur. Co. v. Grabbert, 590
A.2d 88, 96 (R.I. 1991)). It "requires a showing of more than an
1 The Rhode Island Supreme Court has clarified that an
appraisal process involving two party-appointed appraisers and a
disinterested umpire is in substance an arbitration proceeding,
and therefore subject to the same standards of review. See
Waradzin v. Aetna Cas. & Sur. Co., 570 A.2d 649, 650 (R.I. 1990).
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appearance of bias but less than actual bias." Id. (quoting
Grabbert, 590 A.2d at 96). The party challenging the award "bears
'[t]he burden of proving facts that would establish a reasonable
impression of partiality.'" Id. (quoting Taylor v. Delta Electro
Power, Inc., 741 A.2d 265, 267 (R.I. 1999) (per curiam)).
B.R.S. points out that the Insurers had previously
retained Boudreau to appraise the Property and assess B.R.S.'s
supplemental claims. It argues that Boudreau's familiarity with
the Property, as well as his earlier work with the Insurers, biased
him during the appraisal process. But B.R.S. knew well before the
appraisal began that the Insurers had previously retained Boudreau
to reinspect the Property. And Rhode Island's highest court has
expressly refused to "adopt a procedure in which a losing party
may make a post-decision challenge to an arbitrator's neutrality
based upon information that, with the exercise of diligence, ought
to have been discovered before the proceedings commenced."
Haseotes, 819 A.2d at 1286. So, too, here, B.R.S. cannot debut
its challenge to Boudreau post-decision.
B.R.S. next takes aim at the credentials of the umpire,
Monahan. It argues that because Monahan is a lawyer without
specific construction knowledge or an understanding of what is
required to repair a commercial building like the Property, he was
not a "competent" umpire under the terms of the Policy. Nor,
B.R.S. adds, would a competent umpire have "permitted" Girouard
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and Soscia to be so heavily involved in the appraisal process,
treating the process as a "free for all" settlement between the
parties.
The simple rejoinder is that, once again, B.R.S. seeks
a redo based on information that it had before the appraisal was
undertaken. Indeed, B.R.S.'s appointee helped pick the umpire.
That B.R.S. now claims to have second thoughts provides no basis
for challenging the award.
The longer rejoinder is that in the context of insurance
awards, "it is not essential to competency that an arbitrator be
an expert qualified to determine the submitted matters from
personal knowledge and examination without the aid of the other
evidence." 15 Couch on Insurance § 211.27 (3d ed. 2024). Instead,
"an attorney, otherwise qualified, may act as an appraiser . . .
even though he or she is not a contractor or architect." Id. By
all standards, then, Monahan was fully capable of serving as an
umpire for the parties' insurance dispute. Neither does B.R.S.
cite to any authority beyond their say-so that allowing Soscia and
Girouard to be involved in the appraisal process was improper or
otherwise led to an award that "substantially prejudiced" the
rights of any party. See R.I. Gen. Laws § 10-3-12(3). In sum,
B.R.S.'s challenge to the umpire on his conduct is too little and
too late.
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IV.
B.R.S. separately argues that the district court erred
in granting defendants' motion for summary judgment on its claim
for breach of contract and breach of the implied duty of good faith
and fair dealing.2 We review de novo a district court's grant of
a motion for summary judgment. Nantucket Residents Against
Turbines v. U.S. Bureau of Ocean Energy Mgmt., 100 F.4th 1, 12
(1st Cir. 2024). We affirm if we agree that "there is no genuine
dispute as to any material fact" and defendants are therefore
"entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).
Because under Rhode Island Law "the implied covenant of good faith
and fair dealing does not create an independent cause of action
but must be connected to a breach-of-contract claim," we dispose
of both claims simultaneously. Premier Home Restoration, LLC v.
Fed. Nat'l Mortg. Assoc., 245 A.3d 745, 750 (R.I. 2021) (cleaned
up) (quoting Ferreira v. Child & Fam. Servs., 222 A.3d 69, 76 (R.I.
2019)).
B.R.S. contends that the Insurers violated the terms of
the Policy when they refused to pay the $141,787.33 in withheld
depreciation listed in the amended award. Recall that the Policy
2 The Policy's appraisal clause establishes only the
procedure by which the Insurers and B.R.S. will resolve
disagreements about the value of the lost property, and does not
apply to disputes over the Insurers' obligation to pay under the
terms of the Policy.
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required the Insurers to pay the replacement cost of the Property
including any costs for depreciation once B.R.S "actually repaired
or replaced" the Property. B.R.S. argues that the receipt from
Soscia Construction showing that the first two phases of
construction had been completed on the Property satisfied this
"actually repaired" requirement, thus triggering the Insurers'
obligation to pay the withheld appreciation as assessed in the
amended appraisal award.
The Policy, though, further provided that the Insurers:
[W]ill not pay more for loss or damage on a
replacement cost basis than the least of[:]
(1) The Limit of Insurance applicable to the
lost or damaged property;
(2) The cost to replace the lost or damaged
property with other property:
(a) Of comparable material and quality;
and
(b) Used for the same purpose; or
(3) The amount actually spent that is
necessary to repair or replace the lost or
damaged property.
By the time Soscia sent the Insurers the invoice for repair work
on the Property, the Insurers had already paid B.R.S. $384,280.56
on its insurance claim. At summary judgment, B.R.S. presented no
evidence showing that "the least of" the three replacement-cost
bases rang in at more than this sum. Most fatal to B.R.S. is the
third such basis -- the amount "actually spent" to repair or
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replace the Property. At summary judgment, B.R.S. offered as
evidence three checks made out to Soscia Construction for repair
work on the Property: two for $5,218.42, and one for $187,863.18.
That comes to a total of $198,300.02, far less than the $384,280.56
already paid by the Insurers. As for the $975,000 invoice from
Soscia Construction, the repair work turned the Property into a
laundromat rather than a grocery space.3 That precludes B.R.S.
from claiming those expenditures as the cost to replace the
Property with other property "[u]sed for the same purpose."4
V.
We therefore affirm the judgment of the district court.
3 The invoice, moreover, does not show that B.R.S. actually
paid Soscia Construction anything close to $975,000 -- only that
Soscia Construction charged B.R.S. that amount.
4 B.R.S. offers no evidence that it would have cost more than
the Insurers paid to have replaced the property with a grocery
warehouse.
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