In these
consolidated actions, appellants Certain Underwriters at Lloyd’s of London,
etc. (Underwriters) appeal from the trial court’s order denying their petitions
to compel arbitration pursuant to Code of Civil Procedure section 1281.2href="#_ftn1" name="_ftnref1" title="">[1]> and
the terms of a marine insurance policy issued to respondent Bart Enterprises
International, Ltd.  After the insured
property was allegedly stolen in transit, a dispute arose between the parties
over the actual value of the property and the proper method of valuation under
the policy.  Underwriters filed a
petition to compel an appraisal of the value of the property pursuant to an href="http://www.mcmillanlaw.com/">arbitration clause in the policy.  In response, Bart filed a declaratory relief
action seeking an order that the policy was a valued policy under the Insurance
Code and that the valuation stated in the policy was conclusive between the
parties in the adjustment of the loss.href="#_ftn2" name="_ftnref2" title="">[2]>  The trial court denied Underwriters’ petitions
to compel arbitration, finding that the dispute about whether the policy was a
valued or open policy was the proper subject of an action for declaratory
relief.  We conclude that the trial court
should have granted the petitions, and pursuant to section 1281.2, subdivision
(c), exercised its discretion to decide whether to stay either the judicial or
appraisal proceedings.  We therefore
reverse and remand for further proceedings consistent with this opinion. 

FACTUAL
BACKGROUND AND PROCEDURAL HISTORY

I.                  
Insurance Policy Issued by Underwriters to Bart

Bart is a Bahamian company solely
owned and controlled by Guillermo Bakula. 
Bart owned a master tape video library of footage featuring performances
by a Latin astrologer and psychic, Walter Mercado.  Bart was in the business of licensing the
video library for use in Latin America and parts of the United States.  Between 1995 and 2005, Bart averaged about
$1.8 million in annual gross revenue, primarily from this business venture. 

In 2008, Bart entered into license
agreements with a company called Bakus International, Inc. which was owned by
Salvador Aristides.href="#_ftn3" name="_ftnref3"
title="">[3]>  The licenses granted Bakus the exclusive right
to use the video library over a twenty-year period in exchange for Bakus’s
promise to pay Bart $50,134,275 in 72 monthly installments.  The $50,134,275 in licensing fees were based
on an hourly rate multiplied by the number of tape hours to be used, as agreed
upon by Bart and Bakus.  The license
agreements required Bakus to provide a standby letter of credit as security for
the payments owed to Bart. 

On May 11, 2010, Bart purchased a
marine insurance policy from Underwriters to insure the video library against
risk of loss or damage during its transit from Miami, Florida to Los Angeles,
California.  The policy included a
provision entitled “Basis of Valuation” which stated as follows:  “[$]8,500 per tape hour for U.S.A. and
[$]37,400 per tape hour for all other parts of the World.”  The policy also included a separate provision
entitled “Sum Insured” which listed the following amount:  “[$]50,134,275.”  The figures set forth in the “Basis of
Valuation” and “Sum Insured” provisions were based solely on representations
made by Bart via its chain of brokers and were not independently verified
by Underwriters prior to issuing the policy. 


The policy
contained an “Arbitration” clause which provided as follows:  “In the event that the Assured and the
Underwriters fail to agree as to the amount of loss or damage, the same shall
be ascertained by two competent and disinterested Appraisers, the Assured and
the Underwriters each selecting one, and the two so chosen shall first select a
competent and disinterested Umpire.  The
Appraisers together shall then estimate and appraise the loss stating
separately the sound values and damage, and failing to agree, shall submit
their differences to the Umpire.  The
award in writing of any two out of those three shall determine the amount of
the loss.  The Assured and the
Underwriters shall pay the Appraisers respectively selected by them and shall
bear equally the expense of the Appraisal and Umpire.”  The policy also included the following
“Misrepresentation and Fraud” clause: 
“This Insurance shall be void if the Assured has concealed or
misrepresented any material fact or circumstance concerning this Insurance or
the subject thereof or in the case of any fraud, attempted fraud or false
swearing by the Assured touching any matter relating to this Insurance or the
subject thereof, whether before or after loss.”  

II.               
Total Loss of Insured Property

On May 18, 2011, a week after the
policy was issued, Bart reported that the entire video library had been stolen
as it was being transported by truck to Los Angeles.  According to Bart, the driver of the truck
had stopped at a truck stop in Coachella, California to purchase fuel, eat, and
shower.  When he left the store located
at the truck stop a few hours later, the truck had vanished.  Although Bart had hired a private
investigator to covertly follow the truck on its cross-country trip, the
investigator was not present at the scene of the theft because he had checked
into a local motel after the truck stopped in Coachella.  The following morning, the investigator
located the truck about a mile from the truck stop; all of its contents, including
the video library, were missing. 

In September
2011, Bart submitted a formal Proof of Loss in which Bakula stated, under
penalty of perjury, that the actual cash value of the video library at the time
of loss was $75 million.  In response to
Bart’s notification of the loss, Underwriters commenced an investigation of the
claim.  As part of the investigation,
Underwriters’ counsel took examinations under oath of various witnesses,
including Bakula, his bookkeeper, Aristides, the truck driver, and the private
investigator.  Underwriters’
investigation showed that, at the time Bart made representations about the
value of the video library, its licensee, Bakus, lacked any apparent financial
ability to pay the license fees totaling $50,134,275 and had made no
arrangements to obtain the requisite standby letter of credit securing the
payments owed to Bart.  Underwriters also
retained an economist and valuation expert, Andrew Safir, to confirm the amount
of loss claimed by Bart by determining the actual cash value of the missing
video library.  After reviewing the
testimony and other evidence obtained by Underwriters, Safir concluded that the
actual cash value of the video library was not more than $1 million. 

III.            
Underwriters’ Demand for an Appraisal

In May 2012, Underwriters made a written
demand for an appraisal to determine the actual value of the claimed loss
pursuant to the arbitration clause in the policy.  Underwriters indicated they were invoking the
arbitration clause because there appeared to be a material difference between
the commercial value of the video library, as determined by their valuation
expert, and the value represented to Underwriters by Bart.  In its written response, Bart asserted that
the policy was a valued policy under Insurance Code section 412 and that
Underwriters were bound by the “Sum Insured” value stated in the policy because
there was a total loss of the video library. 
Bart refused to arbitrate the parties’ dispute unless the appraisal was
limited to the number of tape hours stolen rather than the value of the stolen
tapes.  

IV.             
Civil Actions Filed by Underwriters and Bart

In June 2012, Underwriters filed a
verified petition to compel arbitration pursuant to sections 1281.2 and 1281.6
(Los Angeles County Superior Court Case No. BS138092).  In their petition, Underwriters alleged that
a dispute had arisen between the parties about the value of the claimed loss
and that Bart had refused to arbitrate the dispute through an appraisal.  Underwriters sought an order compelling Bart
to participate in an appraisal of the actual value of the insured property in
accordance with the arbitration clause in the policy. 

In July 2012, Bart filed a verified
response to the petition and a separate action against Underwriters for
declaratory relief (Los Angeles County Superior Court Case
No. BC4898098).  Bart requested a
declaratory judgment that (1) the policy was a valued policy within the meaning
of Insurance Code section 412, and (2) each tape hour lost be valued at a rate
of $8,500 for the United States and $37,400 for the rest of the world as the
conclusive valuation between the parties pursuant to Insurance Code section
1987.  Bart also sought an order
prohibiting any arbitration until the issues raised in its declaratory relief
action had been resolved by the court. 

In August
2012, Underwriters filed a second verified petition to compel arbitration, and
moved to stay the declaratory relief action pending completion of an appraisal
pursuant to section 1281.4.  Underwriters
also filed a motion to consolidate the two actions for all purposes based on
their common issues of law and fact. 

V.                
Trial Court’s Ruling

On September
24, 2012, the trial court heard Underwriters’ petitions to compel arbitration,
and its motions to stay and to consolidate. 
On October 1, 2012, after taking the matter under submission, the trial
court issued a minute order granting the motion to consolidate, but denying
both petitions to compel arbitration. 
With respect to the petitions to compel arbitration, the minute order stated
as follows:  “The question is: Is the
coverage ‘valued or an open policy’?  [¶]
The court finds it is the proper subject of a declaratory relief action.”  On that basis, the trial court also found
that the motion to stay was moot. 
Underwriters filed a timely appeal from the trial court’s order. 

>DISCUSSION

Underwriters
contend that the trial court erred in denying their petitions to compel
arbitration because they proved the existence of a valid agreement to arbitrate
the parties’ dispute about actual value and none of the statutory exceptions to
arbitration set forth in section 1281.2 apply. 
Bart asserts that the trial court’s ruling was correct because the
parties’ dispute about the proper method of valuation under the policy is
not subject to the arbitration provision and the resolution of  the
coverage dispute may render an appraisal of the actual value of the property
unnecessary under section 1281.2, subdivision (c). 

I.                  
General Law Governing Arbitration

“When the parties to an arbitrable
controversy have agreed in writing to arbitrate it and one has refused, the
court, under section 1281.2, must ordinarily grant a petition to compel
arbitration.”  (Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41
Cal.4th 19, 26, fn. omitted.)  Section
1281.2 provides, in pertinent part, that “[o]n petition of a party to an
arbitration agreement alleging the existence of a written agreement to
arbitrate a controversy and that a party thereto refuses to arbitrate such
controversy, the court shall order the petitioner and the respondent to
arbitrate the controversy if it determines that an agreement to arbitrate the
controversy exists,” unless one of three enumerated exceptions applies.  Once the existence of a valid arbitration
clause has been established, “[t]he burden is on ‘the party opposing
arbitration to demonstrate that [the] arbitration clause cannot be interpreted to require arbitration of the dispute.’”  (Buckhorn
v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406.) 

“California courts have uniformly
acknowledged that there is a strong public policy in favor of arbitration.  [Citations.]” 
(Suh v. Superior Court (2010)
181 Cal.App.4th 1504, 1512; see also Wagner
Construction Co. v. Pacific Mechanical Corp., supra, 41 Cal.4th at p. 25 [arbitration statutes “reflect a
‘“strong public policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution”’”].) 
Consistent with this policy, any “‘doubts concerning the scope of
arbitrable issues are to be resolved in favor of arbitration.’”  (Suh v.
Superior Court, supra, at p.
1512; see also Coast Plaza Doctors
Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 687
[“California has a strong public policy in favor of arbitration and any doubts
regarding the arbitrability of a dispute are resolved in favor of
arbitration”].)  On the other hand,
“‘[t]here is no public policy favoring arbitration of disputes which the
parties have not agreed to arbitrate.’” 
(Titolo v. Cano (2007) 157
Cal.App.4th 310, 317.)

“In general,
‘[t]here is no uniform standard of review for evaluating an order denying a
[petition] to compel arbitration. 
[Citation.]  If the court’s order
is based on a decision of fact, then we adopt a substantial evidence
standard.  [Citations.]  Alternatively, if the court’s denial rests
solely on a decision of law, then a de novo standard of review
is employed.  [Citations.]’  [Citation.]” 
(Laswell v. AG Seal Beach, LLC
(2010) 189 Cal.App.4th 1399, 1406 (Laswell).)  Whether a statutory exception to arbitration
applies under section 1281.2 is ordinarily a matter of law subject to de novo
review.  (Ibid.; RN Solutions, Inc. v.
Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1519 (>RN Solutions); Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1283 (>Rowe).)

II.               
Insurance Appraisals are a Form of Arbitration

“An appraisal provision in an
insurance policy constitutes an agreement for contractual arbitration.  [Citations.]” 
(Doan v. State Farm General Ins.
Co. (2011) 195 Cal.App.4th 1082, 1093 (Doan);
see also Louise Gardens of Encino
Homeowners’ Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th
648, 658 [“[a]n agreement to conduct an appraisal contained in a policy of
insurance . . . is considered to be an arbitration agreement subject to the
statutory contractual arbitration law”].) 
Accordingly, “[a]ppraisal hearings are a form of arbitration and are
generally subject to rules governing arbitration.”  (Kacha
v. Allstate Ins. Co. (2006) 140 Cal.App.4th 1023, 1031 (>Kacha); see also >Devonwood Condominium Owners Assn. v.
Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498, 1505 (>Devonwood) [“appraisal award proceedings
are subject to the arbitration provisions outlined in the California
Arbitration Act”].)  However, while “>arbitrators are frequently, by the terms
of the agreement providing for arbitration, . . . given broad powers
[citation], appraisers generally have
more limited powers.”  (>Jefferson Ins. Co. v. Superior Court (1970)
3 Cal.3d 398, 403 (Jefferson).) 

Specifically,
“‘[t]he function of appraisers is to determine the amount of damage resulting
to various items submitted for their consideration.’”  (Jefferson,
supra, at p. 403; see also >Safeco Ins. Co. v. Sharma (1984) 160
Cal.App.3d 1060, 1063 (Safeco)
[“appraisers have the power only to determine a specific question of fact,
‘namely, the actual cash value of the insured [item]’”].)  It is “‘not their function to resolve
questions of coverage and interpret provisions of the policy.’”  (Jefferson,
supra, at p. 403; see also >Kirkwood v. California State Automobile
Assn. Inter-Ins. Bureau (2011) 193 Cal.App.4th 49, 58-59 (>Kirkwood) [“[a]ppraisers have no power
to interpret the insurance contract or the governing statutes”]; >Doan, supra, 195 Cal.App.4th at p. 1094 [“‘[m]atters of statutory
construction, contract interpretation and policy coverage are not encompassed
within the ambit of [an insurance] appraisal’”].)  Likewise, an appraisal panel generally lacks
the authority “to determine whether an insured lost what he [or she] claimed to
have lost or something different.”  (>Safeco, supra, at p. 1065.)  While
“an insurer is free to litigate whether the insured has misrepresented what he
[or she] lost,” issues of fraud or misrepresentation by the insured are “beyond
the scope of an appraisal.”  (>Id. at p. 1066; see also >Kacha, supra, 140 Cal.App.4th at p. 1033.)

III.            
Appraisal Proceedings May be Stayed under
Section 1281.2, Subdivision (c)

Although section 1281.2 generally
requires a trial court to order the parties to arbitrate a dispute once the
existence of a valid arbitration agreement covering that dispute is
established, subdivision (c) of the statute grants the court discretion to stay
an arbitration proceeding.  Specifically,
section 1281.2, subdivision (c) provides: 
“If the court determines that there are other issues between the
petitioner and the respondent which are not subject to arbitration and which
are the subject of a pending action or special proceeding between the
petitioner and the respondent and that a determination of such issues may make
the arbitration unnecessary, the court may delay its order to arbitrate until
the determination of such other issues or until such earlier time as the court
specifies.” 

Under this statutory provision and
the case law construing it, trial courts have discretion to sever arbitrable
claims from nonarbitrable claims and to stay either proceeding pending the
outcome of the other.  (>Acquire II, Ltd. v. Colton Real Estate Group
(2013) 213 Cal.App.4th 959, 977-978 (Acquire
II); RN Solutions, >supra, 165 Cal.App.4th at pp.
1521-1522.)  An insurance appraisal
proceeding also may be stayed pursuant to this discretionary authority to
permit the resolution of policy interpretation or coverage issues.  (Doan,
supra, 195 Cal.App.4th at p.
1100-1101; Kirkwood, >supra, 193 Cal.App.4th at p.
62-63.)  When section 1281.2, subdivision
(c) applies, the trial court’s decision as to whether to stay the arbitration
or judicial proceedings is reviewed for an abuse of discretion.  (Acquire
II, supra, at p. 971; see also >Laswell, supra, 189 Cal.App.4th at p. 1406 [“trial court’s discretionary
decision as to whether to stay or deny arbitration is subject to review for
abuse”]; Rowe, supra, 153 Cal.App.4th at p. 1283 [trial court’s “decision as to
how to proceed in a situation governed by section 1281.2, subdivision (c), is
reviewed for an abuse of discretion”].)

In Doan, supra, 195
Cal.App.4th 1082, the plaintiff obtained a property insurance policy from State
Farm which contained a valuation appraisal clause.  After the insured’s home and its contents
were destroyed by a fire, the parties were unable to agree on the value of the
lost personal property.  Acting on behalf
of himself and other State Farm policyholders in California, the insured filed
a putative class action for declaratory and other relief, alleging that
State Farm’s method of calculating depreciation based solely on the age of the
insured property violated the terms of the policy and the Insurance Code.  (Id.
at pp. 1087-1089.)  The trial court
sustained State Farm’s demurrer to the complaint without leave to amend on the
ground that the insured had failed to first submit his valuation dispute to an
appraisal.  (Id. at p. 1090.)  The
Court of Appeal reversed, holding that the insured could pursue his cause
of action for declaratory relief because the statutory and contractual
interpretation issues raised in his action were beyond the limited authority of
an appraisal panel to decide.  (>Id. at p. 1098.)  

Turning to the question of whether
the interpretation issues or the valuation issue should be resolved first, the
appellate court in Doan concluded
that, under section 1281.2, subdivision (c), “insurance appraisals – like
arbitration proceedings – may be stayed pending the resolution of legal issues
that lie outside the appraiser’s jurisdiction.” 
(Doan, supra, 195 Cal.App.4th at p. 1101.) 
The court further observed that “it is particularly appropriate to do so
where a determination of the legal issues may obviate the need for
an appraisal or inform the appraisal process.”  (Ibid.)  Given the insured’s allegations, a judicial
declaration that State Farm’s depreciation practice did not violate the
Insurance Code or the policy could make an appraisal unnecessary.  (Id.
at p. 1104.)  Because it appeared the
trial court was unaware of its discretionary authority under section 1281.2,
the matter was remanded to the trial court with directions to “exercise its
discretion to consider whether and when declaratory relief should be
granted.”  (Id. at p. 1105.) 

Similarly, in Kirkwood, supra, 193
Cal.App.4th 49, the plaintiff brought a putative class action for declaratory
and other relief against his insurer, alleging that the insurer’s use of a
standardized depreciation schedule that did not consider the physical condition
of the insured property at the time of loss violated the Insurance Code as
well as the parties’ contract.  The trial
court denied without prejudice the insurer’s motion to compel arbitration.  (Id.
at pp. 55-56.)  The Court of Appeal
affirmed, agreeing with the trial court’s conclusion “an appraisal was not
mandated ‘right now’ because the declaratory relief cause of action asked the
court to make a declaration that [the insurer] was misconstruing [the Insurance
Code].”  (Id. at p. 57.)  As the
appellate court explained, “notwithstanding that the parties do dispute
the actual cash value of the subject property, an actual controversy
exists . . . about the proper interpretation of [the statute] within the
context of adjusting a property loss claim, thus entitling [the insured]
to declaratory relief. . . . [¶] The contractual and statutory interpretation
issues presented in the complaint are not encompassed within the appraisal
process . . ., and therefore appraisal was properly deferred in this case.”  (Id.
p. 62.) 

In response to
the insurer’s argument that an appraisal was necessary to determine whether the
insured was paid less than the actual cash value of his property and thus had
standing to seek declaratory relief, the court in Kirkwood reasoned as follows: 
“A judicial declaration that [the insurer’s] interpretation of [the
Insurance Code] and the policy does not
violate the statute would be the end of the line: no appraisal would be
necessary, and insureds such as Kirkwood would not be forced to pay for an
appraisal.  On the other hand, a contrary
judicial declaration would inform the appraisal in this case and would have the
meritorious effect of staving off future appraisals and litigation based on the
same unlawful behavior.”  (>Id. at p. 63.)  Although the appellate court did not
specifically refer to section 1281.2, subdivision (c) in its decision, it noted
that the denial of the “motion to compel an appraisal without prejudice, as a matter of sequencing . . . does not run
afoul of [the Insurance Code] or the arbitration statutes.”  (Id.
at 60.)

IV.             
Applicability of Section 1281.2, Subdivision (c)
to This Case

As in Doan and Kirkwood, the
parties in this case disagree about the underlying nature of their dispute,
with Underwriters characterizing it as a valuation dispute about the actual
value of the insured property and Bart describing it as a coverage dispute
about the proper method of valuation under the policy terms.  The record reflects that the parties’ dispute
encompasses several distinct but related issues, including the proper
interpretation of the policy’s valuation provisions, the possible existence of
fraud on the part the insured, and the actual value of the lost items. 

The record also reflects that
the parties essentially concur as to which type of proceeding (judicial or
appraisal) must ultimately resolve each of these issues.  First, the parties agree that any dispute
about the proper method of valuation under the terms of the policy and the
Insurance Code must be determined by the trial court.  Second, the parties agree that any dispute
about whether Bart materially misrepresented the value of the video library in
applying for insurance must also be determined by the trial court.  Finally, the parties agree that, to the
extent Underwriters are not bound by the valuation method set forth in the
policy, any dispute about the actual cash value of the video library must be
determined by an appraisal panel pursuant to the policy’s arbitration
clause.  Where the parties diverge,
however, is in their respective arguments as to which of these issues must be
decided first.  The resolution of this
appeal accordingly turns on the applicability of section 1281.2, subdivision
(c).

Bart argues that section 1281.2
subdivision (c) applies primarily because the parties’ dispute about the proper
method of valuation under the Insurance Code and the policy terms does not fall
within the scope of the arbitration clause and the trial court’s resolution of
this statutory and contractual interpretation issue may render an
appraisal  unnecessary.  According to Bart, if the trial court
determines that the policy is a valued policy within the meaning of Insurance
Code section 412, as Bart contends, then Underwriters will be bound by the “Sum
Insured” value of $50,134,275 set forth in the policy and will not be entitled
to an appraisal to determine the actual value of the video library in adjusting
the loss.href="#_ftn4" name="_ftnref4" title="">[4]

In contrast, Underwriters assert
that section 1281.2, subdivision (c) does not apply because the parties’
dispute about the actual value of the insured property falls squarely within
the arbitration clause, and none of the non-arbitrable issues to be decided by
the trial court will make an appraisal unnecessary.  According to Underwriters, if the trial court
determines that the policy is an open policy within the meaning of Insurance
Code section 411, as Underwriters contend, then the value of the video library
will have to be determined by an appraisal panel pursuant to the arbitration
clause in the policy.  On the other
hand, if the trial court determines that the policy is a valued policy within
the meaning of Insurance Code section 412, then Underwriters will be entitled
to rescind the policy if Bart’s valuation in obtaining insurance was
either fraudulent or materially misrepresented. 
While Underwriters acknowledge that the trial court must ultimately
decide whether there was fraud or misrepresentation by Bart, they nevertheless
argue that the resolution of such issue will first require a determination of
the actual value of the video library, which must be made in an appraisal
proceeding.  Underwriters therefore
reason that, because the trial court could not have found that resolution of
the issues raised in Bart’s declaratory relief action might render an appraisal
unnecessary, the court lacked any discretion to deny or delay an appraisal
under section 1281.2, subdivision (c).

We agree with Underwriters that the
trial court did not have discretion under section 1281.2, subdivision (c) to >deny their petitions to compel an
appraisal outright because they established the existence of a valid agreement
to submit any dispute about the amount of loss or damage claimed by Bart to a
panel of appraisers.  The mere presence
of non-arbitrable statutory or contractual interpretation issues in Bart’s
declaratory relief action does not, in and of itself, vitiate
Underwriters’ right to an appraisal to determine the actual value of the
claimed loss.  (Acquire II, supra, 213
Cal.App.4th at p. 977 [“when parties who agree to arbitration assert both
arbitrable and non arbitrable claims, section 1281.2(c) does not allow the
court to deny arbitration”]; RN Solutions,
supra, 165 Cal.App.4th at p. 1521
[where complaint alleges arbitrable and non-arbitrable claims, trial court only
has “discretion to delay its order to arbitrate the arbitrable claims under
section 1281.2(c)”].)  Underwriters also
demonstrated that there is a present controversy over the actual cash value of
the video library; if Underwriters are not bound by the “Sum Insured” amount
stated in the policy, then the dispute about the actual value of the property
must be resolved in an appraisal.href="#_ftn5" name="_ftnref5" title="">[5]  Accordingly, the trial court should have
granted Underwriters’ petitions to compel an appraisal of the value of the
insured property pursuant to the policy’s arbitration clause. 

However, Underwriters’ assertion
that the trial court did not have any discretion under section 1281.2,
subdivision (c) to stay the appraisal
proceeding pending resolution of the non-arbitrable issues raised in the
declaratory relief action, including any issues of fraud or misrepresentation
by Bart in applying for insurance, is incorrect.  It is true that a misrepresentation or
concealment of a material fact in an insurance application entitles the insurer
to rescind the policy and establishes a complete defense to an action on the
policy.  (Ins. Code, §§ 331, 359; >O’Riordan v. Federal Kemper Life Assurance
Co. (2005) 36 Cal.4th 281, 286-287; Superior
Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175,
191-192.)  An appraisal of actual value
of the video library is not a “necessary prerequisite” to a judicial
determination of whether there was a fraudulent overvaluation by Bart.  The trial court would not necessarily have to
determine the actual cash value of the property at the time of loss to decide
whether Bart made a material misrepresentation as to the value in applying for
insurance.  The court simply would have
to determine whether the value of the property was less than the $50,134,275
sum claimed by Bart in his application, and if so, whether Bart’s valuation was
based on a misrepresentation or concealment of a material fact.  If the court decided, based on the evidence
presented by the parties, that Bart materially misrepresented the value of the
video library in applying for insurance, then Underwriters would be entitled to
rescind the policy and would have a complete defense to the declaratory relief
action.  Under such circumstances, an
appraisal of the actual value of the loss claimed by Bart would not be
necessary. 

Because the resolution of the
non-arbitrable issues raised in Bart’s declaratory relief action could make an
appraisal unnecessary, the trial court retained discretion under section
1281.2, subdivision (c) to decide whether to stay an order to participate in an
appraisal proceeding pending a judicial determination of those issues.  Any determination about the proper sequence
of the proceedings rests in the sound discretion of the trial court.href="#_ftn6" name="_ftnref6" title="">[6]>  

In this case,
the trial court never exercised its discretion to decide whether to stay either
the judicial or appraisal proceedings because it denied Underwriters’ request
for an appraisal outright.  For the
reasons stated above, that ruling was erroneous.  We therefore reverse the order denying
Underwriters’ petitions to compel arbitration and remand the matter to the
trial court for entry of a new order granting the petitions pursuant to section
1281.2 and the arbitration clause in the policy.  On remand, the trial court must decide,
pursuant to section 1281.2, subdivision (c), whether to stay the arbitration
order pending the resolution of any non-arbitrable issues raised in the
declaratory relief action.

>DISPOSITION

The order denying Underwriters’
petitions to compel arbitration is reversed and the matter is remanded to the
trial court for further proceedings consistent with this opinion.  Underwriters shall recover their href="http://www.fearnotlaw.com/">costs on appeal.

 

 

 

                                                                        ZELON,
J.

 

 

We concur:

 

 

            PERLUSS, P.
J.

 

 

            WOODS, J.