The California Court of Appeal recently held in a putative class action that trial courts have discretion to defer an appraisal (which is similar to arbitration but limited to resolution of the amount of a property insurance loss) until after resolution of a declaratory judgment claim. The court did not address what impact that may have on class certification proceedings, if the trial court chooses to defer an appraisal.
In Doan v. State Farm General Insurance Company, the plaintiff brought a putative class action alleging that State Farm improperly calculated depreciation on property insurance claims. The allegations regarding depreciation were similar to the allegations in a class action against Farmers Insurance that I recently posted about. The trial court granted State Farm’s demurrers (equivalent to motions to dismiss) on the grounds that the plaintiff failed to plead that he had submitted his claim to appraisal under the policy. On appeal, the only issue raised was whether the plaintiff had a right to obtain a declaratory judgment with respect to the legal requirements for applying depreciation before submitting his claim to appraisal.
The court of appeal assumed (in footnote 6 of the opinion) that under California’s statute requiring use of the standard fire insurance policy, an appraisal is mandatory if there is a dispute over the amount of loss. The court concluded that: (1) appraisal was not an exclusive remedy where California also allows a party to seek declaratory relief; and (2) a trial court has discretion on whether the appraisal or the declaratory judgment claim should go first. The court relied in part on Kirkwood v. California State Automobile Association, 193 Cal. App. 4th 49 (2011), which reached a similar result. The court, however, did not give trial courts much guidance in exercising their discretion, explaining that “there is a strong policy favoring arbitration . . . [b]ut there is also a strong policy favoring declaratory relief,” and “[a]nother consideration is judicial economy.” The case was remanded for the trial court to “exercise its discretion to consider whether and when declaratory relief should be granted.”
What is missing from this opinion is any discussion of the fact that this case is a putative class action, or how trial courts should exercise their discretion in a putative class action. A trial court might conclude that, rather than undergoing time consuming and costly proceedings on class certification, the inexpensive and swift appraisal process, which might completely resolve the dispute between the named plaintiff and the insurer, should take place first. Alternatively, would there be a mechanism for both parties to obtain a ruling on the merits of the declaratory judgment claim before the parties conduct class discovery and class certification motion practice? Such a ruling could not bind members of a putative class but might be the more efficient course of action.