Evident Partiality in Insurance Appraisals: Equating Appraisal with Arbitration and Mandating Vacatur

Evident Partiality in Insurance Appraisals: Equating Appraisal with Arbitration and Mandating Vacatur

Introduction

Vermont Mutual Insurance Company v. New England Property Services Group, LLC, 2025 RI 20 (March 20, 2025), is a Supreme Court of Rhode Island decision that addresses two central questions: whether a policy appraisal clause constitutes “arbitration” under Rhode Island’s Arbitration Act, and whether an appraisal award must be vacated for “evident partiality” when one party’s appraiser has a direct financial interest in the outcome. The appeal arises from a homeowners‐insurance dispute over windstorm damage to Joanne St. Vil’s Rumford property. After contested inspections, the insured assigned her claim to her contractor, NEPSG’s owner, Steven Ceceri, who then served as that party’s appraiser. Vermont Mutual paid one appraisal award but challenged a later appraisal award at $144,855.37 (plus interest), alleging Ceceri’s financial stake in the award tainted the process.

Summary of the Judgment

The Supreme Court held (1) that the policy’s appraisal clause qualifies as “arbitration” under G.L. 1956 chapter 3 of title 10 (the Arbitration Act), and (2) that the appraisal award must be vacated under § 10-3-12(2) because Steven Ceceri’s direct financial interest in the award demonstrated “evident partiality.” The Court therefore vacated the Superior Court’s confirmation order and remanded for a new appraisal under an impartial process.

Analysis

Precedents Cited

  • Waradzin v. Aetna Casualty & Surety Co. (570 A.2d 649, R.I. 1990): Insurance appraisal clauses are “equated” with arbitration when the clause mirrors arbitration processes—each party selects an appraiser, appraisers choose an umpire, and any two of three set an award.
  • Grady v. Home Fire & Marine Ins. Co. (27 R.I. 435, 63 A. 173, 1906): Early Rhode Island decision treating appraisal‐by‐umpire clauses as arbitration despite policy labels.
  • Aetna Casualty & Surety Co. v. Grabbert (590 A.2d 88, R.I. 1991): Introduced the two-step “evident partiality” test under § 10-3-12(2): (1) improper interest by an arbitrator and (2) a causal nexus between that interest and the award.
  • McGinity v. Pawtucket Mutual Ins. Co. (899 A.2d 504, R.I. 2006): Applied Grabbert’s test; found evident partiality where an arbitrator concealed an attorney‐client relationship with the insurer and the award was not unanimous.

Legal Reasoning

1. Appraisal as Arbitration. The Court closely compared the policy’s appraisal provision—each party selects a “competent” appraiser within 20 days, appraisers choose an umpire, differences are submitted, and any two agree as final—with the classic appraisal clauses in Waradzin and Grady. Substance controls over labels; by mirroring the three‐member decision structure and vesting power in any two members, the process is arbitration under § 10-3-11 (confirmation) and § 10-3-12 (vacatur).

2. Evident Partiality. Under § 10-3-12(2), awards must be vacated for “evident partiality.” The Grabbert framework requires (a) proof of an improper interest by a party‐appointed appraiser, and (b) a causal nexus between that interest and the award. Here:

  • Improper interest: Ceceri, as owner of NEPSG and assignee of the insured’s claim, stood to receive the entire award. His role was not disinterested.
  • Causal nexus: The final award ($144,855.37) lay between the two appraisals ($207,053.11 by Ceceri; $67,645.99 by Vermont Mutual). The split decision and the significant gap between appraisals mirror McGinity’s facts, establishing that Ceceri’s financial stake plausibly influenced the outcome.

The Court rejected NEPSG’s argument that the policy’s omission of “disinterested” waived the Arbitration Act’s protective standard. Nor could NEPSG invoke policy language to sidestep statutory safeguards after invoking the statute below.

Impact

This decision clarifies that:

  • Insurance‐policy appraisal provisions—regardless of labels or absence of “disinterested” language—are subject to the Arbitration Act when they reflect a bilateral appraiser‐and‐umpire structure.
  • Evident partiality, especially where a party’s appraiser has a direct financial stake, cannot be cured by contract language and mandates vacatur under § 10-3-12(2).
  • Parties cannot invoke policy terms to exclude statutory protections once they have relied on the Arbitration Act to confirm or vacate an award.

Going forward, insurers and contractors must ensure that appraisal clauses preserve impartiality or risk having awards vacated.

Complex Concepts Simplified

Arbitration vs. Appraisal: Arbitration is a private judicial‐like process where an impartial third party (or trio) resolves disputes. When an insurance policy calls for two appraisers and an umpire whose joint decision binds the parties, the procedure is legally an arbitration, even if styled “appraisal.”

Evident Partiality: Under Rhode Island law, an arbitrator with a financial or other interest in the case is “evidently partial.” If that interest plausibly influenced the award (causal nexus), a court must vacate the award and order a new, fair proceeding.

Conclusion

Vermont Mutual Insurance Co. v. New England Property Services Group, LLC stands as a cornerstone ruling reaffirming that policy appraisal procedures are subject to Rhode Island’s Arbitration Act and its neutrality requirements. The decision enforces the vital public policy of preserving confidence in private dispute resolution by mandating vacatur where an appraiser’s direct financial interest threatens impartiality. Insurers and insureds alike must heed this precedent and draft appraisal clauses—and select appraisers—with rigorous attention to neutrality.

Case Details

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