A surplus lines insurer waived its right to object to a condominium association’s choice of appraiser because the insurer waited too long to make the objection. The case is Biscayne Beach Club Condo. Ass'n, Inc. v. Westchester Surplus Lines Ins. Co., 111 F.4th 1182 (11th Cir. 2024).
Biscayne Beach Club Condo Association (Biscayne) had a property in southern Florida that suffered severe damage in a storm. Its commercial property carrier, Westchester, accepted the subsequent claim. Biscayne, however, was not pleased with the payments and filed suit against Westchester.
Biscayne subsequently invoked the policy’s appraisal clause. This clause stated that each party would appoint an impartial appraiser to determine the amount of the loss, and the appraisers would choose an umpire. In the event of a disagreement, the umpire would evaluate each appraisal and come to a conclusion; the policy stated that “a decision agreed to by any two [would] be binding” on both parties (emphasis added).
Westchester objected to Biscayne’s first choice of appraiser, but accepted the second. The company selected its own appraiser, and the appraisers chose an umpire. Biscayne agreed to compensate its appraiser, Blake Pyka, using an hourly rate. However, Pyka sent an unsigned contingency fee agreement to Biscayne. When Biscayne’s counsel contacted Pyka and “reminded him that the contingency-fee retainer was ‘not what [they] agreed to.’” Pyka agreed, later testifying he had forgotten the hourly rate arrangement and the error had been his. The contingency fee agreement remained unsigned.
When the parties met for final negotiations, however, Pyka disclosed he had a contingency fee agreement related to the case; during trial, he admitted this disclosure was made in error. Westchester made no objections, and the process continued. The appraisal concluded a month later, ending with an award for Biscayne of almost $14 million. Another month went by, then Westchester filed to re-open the case, arguing they wanted to take a closer look at Pyka’s disclosure of the alleged contingency. The court allowed limited discovery, and Westchester moved to vacate the appraisal based on Pyka’s alleged partiality.
According to the judges in the Southern District of Florida, Westchester had not offered testimony to contradict Pyka’s admissions that he had made a mistake and that the contingency agreement he had sent was never signed or otherwise made effective. Even then, the objection had been waived because it was not made until two months after the disclosure and one month after submission of the final award. The lower court ruled in favor of Biscayne and Pyka, and Westchester appealed.
The judges of the Eleventh Circuit focused their analysis on whether Westchester had indeed waived its right to object to Pyka’s alleged partiality. Westchester argued it had not based on another Eleventh Circuit decision, University Commons-Urbana, Ltd. v. Universal Constructors Inc., 304 F.3d 1331 (11th Cir. 2002). There, the judges had ruled that a party had not waived its right to object to an arbitrator because the party did not know the arbitrator had a conflict of interest.
The court disagreed. The issue in University Commons-Urbana, the judges said, was about the objecting party’s lack of knowledge, not their timeliness. However, the judges also pointed out that the object party in University Commons-Urbana had made its object as soon as it had sufficient knowledge. Had the party done nothing with the knowledge until a later date, their right to object, like Westchester’s, would have been waived.
In this case, Westchester knew of Pyka’s potential conflict when he disclosed it, albeit incorrectly, in February. Yet the insurer waited until April to make its objection. There was no question that Westchester knew how to make an objection, particularly considering it had objected to the first appraiser Biscayne chose. Westchester claimed Pyka’s disclosure had come too late for the company to do anything about the conflict. However, the court noted Westchester had not “explain[ed] why it could not have objected” (emphasis original) when Pyka had made his disclosure in February.
The judges agreed that it would certainly be inequitable for one party to intentionally avoid disclosure to create “an eleventh-hour holdup of the process” and force their opponent into an unfavorable situation. Westchester, unfortunately, had waited too late.
The verdict in favor of Biscayne was affirmed.
Editor’s Note: This case is an excellent example of how important it is to do things in a timely manner when it comes to insurance claims. In his disclosure, Pyka had specifically stated he had a small percentage stake in the outcome of the appraisal. Westchester had all of the tools and knowledge to make an objection, and had in fact done so earlier in the litigation. Westchester did not raise the issue when it should have, and therefore waived the right to object.
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