SALLY KELLOGG v. MIDDLESEX MUTUAL
ASSURANCE COMPANY
(SC 19803)
Palmer, Eveleigh, McDonald, Espinosa, Robinson,
D’Auria and Vertefeuille, Js.*
Syllabus
Pursuant to statute (§ 52-418 [a] [3] and [4]), a trial court shall make an
order vacating an arbitration award if it finds either that the arbitrators
have been guilty of misconduct in refusing to hear evidence pertinent
and material to the controversy or of any other action by which the
rights of any party have been prejudiced, or if the arbitrators have
exceeded their powers by manifestly disregarding the law.
The plaintiff sought to vacate an arbitration award setting the amount of
the insured loss to her property resulting from a tree falling on the roof
and chimney of her home during a storm. The plaintiff had filed a claim
pursuant to a restorationist insurance policy issued by the defendant
insurance company, under which payment of the full restoration cost
of the insured property would be made in a two step process, with the
defendant first making payment of the actual cash value of the loss,
and, once the restoration or replacement was complete, paying the
amount actually spent to repair, restore or replace the damaged building.
When the plaintiff’s appraiser and the defendant’s appraiser were unable
to agree on the amount of the loss, the plaintiff invoked the policy’s
appraisal provision, requiring the loss amount to be determined through
an unrestricted arbitration proceeding. Under the terms of the policy,
the plaintiff and the defendant each appointed one appraiser to serve
as an arbitrator, and the two appraisers chose a neutral third party
arbitrator to act as the umpire, all three of whom comprised the appraisal
panel. After each appraiser independently estimated the loss, the umpire
evaluated the differences between the two appraisers’ estimates and
set the loss, which was an amount between the two estimates. The
defendant’s appraiser accepted the umpire’s valuation, which became
the panel’s decision on the amount of the loss. After the plaintiff filed
its application to vacate, the defendant moved to dismiss as untimely
the plaintiff’s challenge to that portion of the arbitration award specific
to the building. Although the trial court initially stated that it first would
rule on the motion to dismiss, it held eight days of trial, covering all
aspects of the motion to dismiss as well as the merits of the application
to vacate. The trial court denied the motion to dismiss and granted the
application to vacate the arbitration award because it violated § 52-418
(a) (3) and (4). The court determined that the panel prejudiced the
plaintiff’s substantial monetary rights by disregarding specific terms of
the policy when it refused to award money for losses claimed by the
plaintiff, and by manifestly disregarding the law by calculating deprecia-
tion when the policy provided for no depreciation. On appeal from the
judgment granting the application to vacate, held:
1. The trial court improperly vacated the arbitration award and substituted
its judgment for that of the panel when it determined that the award
violated § 52-418 (3): that court’s disagreement with the panel’s ultimate
conclusions and the amount of the award, in the absence of any determi-
nation that the panel engaged in misconduct impacting the fairness of
the arbitration procedures, did not establish a violation of § 52-418 (3)
and was not a proper ground for vacating the award; moreover, there
was no claim that the arbitrators refused to postpone a hearing or to
hear any of the plaintiff’s evidence, or otherwise committed a procedural
error, and there was testimony by the plaintiff’s appraiser that the defen-
dant’s appraiser and the umpire considered all of the evidence that the
plaintiff’s appraiser wanted to present to them.
2. The trial court incorrectly concluded that the panel’s decision to calculate
depreciation when the restorationist insurance policy did not provide
for depreciation evidenced a manifest disregard of the law that justified
vacating the arbitration award pursuant to § 52-418 (a) (4): the court
improperly engaged in a de novo review when it determined that the
panel’s decision to withhold depreciation was an error obvious and
capable of being readily and instantly perceived by the average person
qualified to serve as an arbitrator, as the meaning of the policy language
was a matter for the panel to decide, and the plain language of the
policy permitted the withholding of depreciation until repairs were made
or the damaged property was restored or replaced; furthermore, that
court misinterpreted the holding in Northrop v. Allstate Ins. Co. (247
Conn. 242), which held only that an insurer could not withhold deprecia-
tion from a replacement cost award after a homeowner had incurred a
valid debt for repairs, and was not applicable to estimates, such as the
estimate obtained by the plaintiff, which generally impose no obligation
or debt on homeowners and do not address concerns that the insured
will forgo repairs and receive a windfall, and, thus, the panel did not
ignore a clearly governing legal principle when it permitted the defendant
to withhold depreciation costs until the plaintiff had incurred a valid
debt for the repair or replacement of the property.
Argued May 4—officially released August 22, 2017
Procedural History
Application to vacate an arbitration award, brought
to the Superior Court in the judicial district of Stamford-
Norwalk, where the court, Hon. Kevin Tierney, judge
trial referee, denied the defendant’s motion to dismiss;
thereafter, the case was tried to the court, Hon. Kevin
Tierney, judge trial referee, who, exercising the powers
of the Superior Court, rendered judgment granting the
application to vacate, from which the defendant
appealed. Reversed; judgment directed.
Stuart Glenn Blackburn, for the appellant
(defendant).
Frank W. Murphy, for the appellee (plaintiff).
Wystan M. Ackerman filed a brief for the Property
Casualty Insurers Association of America as amicus
curiae.
Opinion
D’AURIA, J. In this appeal, we consider whether the
trial court properly vacated an arbitration award setting
the amount of an insured loss caused by a tree falling
on the insured’s home. We conclude that the trial court
improperly substituted its judgment for that of the
appraisal panel, and we therefore reverse the trial
court’s judgment.
The plaintiff, Sally Kellogg, is the owner of a historic
property in the city of Norwalk (property). She insured
the property through a ‘‘[r]estorationist’’ policy issued
by the defendant, Middlesex Mutual Assurance Com-
pany. This restorationist policy was different from a
typical homeowners policy in that it had no monetary
policy limit, and it covered the replacement or restora-
tion cost of the property without deduction for depreci-
ation. Under the policy, payment of the full restoration
cost would not be immediate, but would be made in two
parts, with depreciation initially withheld. The policy
required the defendant to first pay the actual cash value
of the loss. Once the restoration or replacement was
complete, the policy required the defendant to pay the
amount ‘‘actually spent to repair, restore or replace the
damaged building.’’1 This two step process is typical in
replacement cost policies, intended to address con-
cerns that a homeowner might accept the full restora-
tion cost but not actually restore the property, thus
receiving a windfall.2
While the restorationist policy was in effect, the prop-
erty suffered a casualty loss when a four and one-half
ton tree fell onto the roof and chimney during a storm,
damaging the interior, exterior, and foundation of the
home. Shortly after the incident, the plaintiff filed a
claim on her restorationist policy. Because the plain-
tiff’s and the defendant’s adjusters were unable to agree
on the amount of the loss, the plaintiff invoked the
policy’s appraisal provision. That provision required the
loss amount to be determined through an unrestricted
arbitration proceeding, meaning that the arbitrators are
empowered to decide issues of law and fact, and the
award is not conditioned on judicial review. See Indus-
trial Risk Insurers v. Hartford Steam Boiler Inspec-
tion & Ins. Co., 273 Conn. 86, 89 n.3, 868 A.2d 47 (2005).
To establish the appraisal panel, the plaintiff and the
defendant, pursuant to the restorationist policy, each
appointed one appraiser to serve as an arbitrator, and
these two appraisers chose a neutral third arbitrator to
act as an umpire. The appraisers each independently
set the loss and submitted their valuations to the
umpire. The plaintiff’s appraiser claimed the damage
was in excess of $1.6 million, but the defendant’s
appraiser believed the property could be restored for
approximately $476,000. The appraisers fundamentally
disagreed on two issues: the extent of damage caused
by the tree, and the cost to repair the covered damage.
The defendant’s appraiser believed not all of the
claimed damage was related to the incident and that
much of the damage that was related could be fixed
for less than the plaintiff’s appraiser had claimed. The
umpire evaluated the differences between the two
appraisers’ submissions and set the loss, which was an
amount between the two submissions. Before setting
the loss, the umpire visited the property seven times
to evaluate the damage to the building and its contents.
The umpire also reviewed and considered more than
300 pages of the plaintiff’s submissions. He conducted
hearings with multiple witnesses, including two asbes-
tos abatement experts and a property damage expert.
He also reviewed written submissions from other
experts and consultants, all of which he considered
when determining the award. On certain items, the
umpire agreed with the valuations of the plaintiff’s
appraiser, and on other items he agreed with the defen-
dant’s appraiser. He then gave both appraisers his pre-
liminary assessment of the loss and gave them an
opportunity to challenge his assessment and to advo-
cate for their respective positions.
The defendant’s appraiser accepted the umpire’s val-
uation, which became the appraisal panel’s decision on
the amount of the loss, and the panel issued its arbitra-
tion award in two parts: first, it awarded $578,587.64
for ‘‘replacement or restoration cost’’ of the building
on the property, which the panel depreciated to its
actual cash value of $460,170.16, with the difference
withheld until the plaintiff completed repairs, and, sec-
ond, the panel later awarded an additional $79,731.68
for the actual cash value loss to the plaintiff’s per-
sonal property.
Subsequently, the plaintiff filed an application with
the Superior Court seeking to vacate the arbitration
award, alleging it was defective under General Statutes
§ 52-418.3 The defendant moved to dismiss as untimely
the plaintiff’s challenge to that portion of the arbitration
award specific to the building.
The trial court initially stated that it would first rule
on the motion to dismiss, but it then went on to hold
eight days of trial, covering all aspects of the motion
to dismiss as well as the merits of the application to
vacate the arbitration award, before ultimately deciding
both at the same time. Even though the parties had
submitted all factual and legal issues to unrestricted
arbitration, the trial court took evidence on the entire
appraisal process, including evidence on valuation of
the loss, despite the defendant’s repeated objections
that such a process was beyond the scope of an applica-
tion to vacate and would constitute a substitution of
the trial court’s judgment for that of the appraisal panel.
The trial court overruled the objections, stating in one
instance: ‘‘This is a case involving the testimony right
now of a homeowner who is seeking money damages
so I’m treating it that way.’’ Ultimately, the court
accepted into evidence forty-two exhibits, containing
hundreds of pages of documents, photographs, bills,
and memoranda. The court also heard testimony from
the umpire, the plaintiff’s appraiser, and the plaintiff.
The trial court allowed the plaintiff to present testimony
about the value of the damage, the current state of her
home, and whether the appraisal panel had reached the
proper valuation.
On cross-examination of the plaintiff’s appraiser, the
defendant elicited testimony establishing the propriety
of the arbitration proceedings. Although the plaintiff’s
appraiser disagreed with the amount of the panel’s
award, he did not question the umpire’s conduct. To
the contrary, he stated that the umpire had accepted
all of the evidence he wanted to present to him, and
the umpire never refused to hear any evidence regarding
the loss. Nor did the plaintiff’s appraiser accuse the
umpire of being partial or unfair.
After the proceedings concluded, the court denied
the defendant’s motion to dismiss4 and granted the
plaintiff’s application to vacate. The court determined
that the arbitration award violated § 52-418 (a) for
two reasons.
First, the trial court disagreed with the amount of
the arbitration award. Relying on a valuation based on
its own conclusions, the court decided that the award
to the plaintiff was insufficient. The court identified
thirty-four instances in which the plaintiff had claimed
damage to a specific portion of the property and the
panel awarded less than the plaintiff had requested,
sometimes awarding nothing at all. The court appar-
ently believed that by awarding less than the plaintiff
had requested, the panel had prejudiced the plaintiff’s
‘‘substantial monetary rights’’ and, therefore, the plain-
tiff had sustained her burden of proof under § 52-418
(a) (3).
Second, the court ruled that the decision of the
appraisal panel ‘‘evidenced a manifest disregard of the
nature and terms and conditions of the [r]estorationist
insurance policy,’’ and, therefore, the plaintiff had sus-
tained her burden under § 52-418 (a) (4). More specifi-
cally, the court concluded, based on its own
interpretation of the policy language, that the panel’s
decision ‘‘[was] in obvious error’’ when it calculated
depreciation in a policy that ‘‘provides for no deprecia-
tion . . . .’’ The trial court interpreted our decision in
Northrop v. Allstate Ins. Co., 247 Conn. 242, 249–52,
720 A.2d 879 (1998), to conclude that our law prohibited
the defendant from withholding depreciation. The court
then rendered judgment in favor of the plaintiff, vacat-
ing the arbitration award and remanding the matter for
a new arbitration hearing.
The defendant appealed to the Appellate Court, and
we transferred the case to this court pursuant to Gen-
eral Statutes § 51-199 (c) and Practice Book § 65-1. On
appeal, the defendant argues that the trial court erred
in vacating the arbitration award because it engaged in
an improper review of the evidence submitted to the
appraisal panel. The defendant claims that the trial
court substituted its judgment for that of the panel,
instead of deferring to its findings and making every
reasonable presumption in favor of the correctness of
the award and the actions of the arbitrators. Applying
de novo review of the trial court’s decision; Bridgeport
v. Kasper Group, Inc., 278 Conn. 466, 475, 899 A.2d 523
(2006); we agree with the defendant that the trial court
failed to properly defer to the arbitrators.
When considering a motion to vacate an unrestricted
arbitration award, a trial court should not substitute its
judgment for that of the arbitrators. ‘‘Judicial review
of arbitral decisions is narrowly confined. . . . When
the parties agree to arbitration and establish the author-
ity of the arbitrator through the terms of their submis-
sion, the extent of our judicial review of the award is
delineated by the scope of the parties’ agreement. . . .
When the scope of the submission is unrestricted, the
resulting award is not subject to de novo review even
for errors of law so long as the award conforms to the
submission. . . . In other words, [u]nder an
unrestricted submission, the arbitrators’ decision is
considered final and binding; thus, the courts will not
review the evidence considered by the arbitrators nor
will they review the award for errors of law or fact.’’
(Emphasis added; internal quotation marks omitted.)
Comprehensive Orthopaedics & Musculoskeletal Care,
LLC v. Axtmayer, 293 Conn. 748, 753–54, 980 A.2d 297
(2009). Furthermore, ‘‘[e]very reasonable presumption
and intendment will be made in favor of the award and
of the arbitrator’s acts and proceedings.’’ Bic Pen Corp.
v. Local No. 134, 183 Conn. 579, 585, 440 A.2d 774 (1981).
In light of these constraints, a court may vacate an
unrestricted arbitration award only under certain lim-
ited conditions: ‘‘(1) the award rules on the constitution-
ality of a statute . . . (2) the award violates clear
public policy . . . [or] (3) the award contravenes one
or more of the statutory proscriptions of § 52-418.’’
(Internal quotation marks omitted.) Comprehensive
Orthopaedics & Musculoskeletal Care, LLC v. Axt-
mayer, supra, 293 Conn. 754. The trial court’s ruling in
the present case relied only on § 52-418, which sets out
four defects that will justify vacating an award, only
two of which are relevant here. The trial court found
two of these defects present in the arbitration award.
We conclude that neither of these grounds justified
vacating the award and address each of the trial court’s
determinations in turn.
I
The trial court’s first justification for vacating the
arbitration award was that, in its view, the appraisal
panel disregarded specific terms of the restorationist
policy by refusing to award money for losses claimed
by the plaintiff. The trial court therefore concluded that
the panel had committed an ‘‘action by which the rights
of [the plaintiff had] been prejudiced . . . .’’ See Gen-
eral Statutes § 52-418 (a) (3). More specifically, the trial
court ruled that the panel had prejudiced the plaintiff’s
‘‘substantial monetary rights . . . .’’ We disagree that
this is a valid basis for vacating the arbitration award.
Section 52-418 (a) (3) provides that an arbitration
award shall be vacated ‘‘if the arbitrators have been
guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown or in refusing to hear evi-
dence pertinent and material to the controversy or of
any other action by which the rights of any party have
been prejudiced . . . .’’ This provision sets out three
separate grounds for finding a defect in an arbitration:
a refusal to postpone the hearing for good cause; a
refusal to hear evidence; and an additional clause
encompassing ‘‘any other action by which the rights of
any party have been prejudiced . . . .’’ General Stat-
utes § 52-418 (a) (3). Our cases have treated the third
provision as applying to other varieties of procedural
irregularity. See, e.g., O & G/O’Connell Joint Venture
v. Chase Family Ltd. Partnership No. 3, 203 Conn. 133,
146–47, 523 A.2d 1271 (1987) (actions of arbitrators that
warrant vacating arbitration award include participa-
tion in ex parte communications, ex parte receipt of
evidence as to material fact without notice to party,
holding hearings in absence of member of arbitration
panel, and undertaking independent investigation into
material matter after close of hearings and without
notice to parties). We have not extended the reach of
this clause to empower a court simply to disagree with
the arbiter’s ultimate conclusions on the questions sub-
mitted to arbitration. See id.; see also AFSCME, Council
4, Local 1303-325 v. Westbrook, 309 Conn. 767, 777, 75
A.3d 1 (2013) (‘‘[i]t is clear that a party cannot object
to an award [that] accomplishes precisely what the
arbitrators were authorized to do merely because that
party dislikes the results’’). To do so would completely
destroy the deference our law affords to the arbitration
process by allowing the trial court to substitute its own
judgment on the merits of the question submitted to
arbitration. See Comprehensive Orthopaedics & Mus-
culoskeletal Care, LLC v. Axtmayer, supra, 293 Conn.
753–54 (arbitration awards are not subject to de novo
review). Rather, a challenge to an arbitration award
under § 52-418 (a) (3) is limited to whether a party was
‘‘deprived of a full and fair hearing before the arbitration
panel.’’ (Internal quotation marks omitted.) Bridgeport
v. Kasper Group, Inc., supra, 278 Conn. 475.
In the present case, there was no claim that the arbi-
trators refused to postpone a hearing, refused to hear
any of the plaintiff’s evidence, or otherwise committed
a procedural error. To the contrary, the plaintiff’s own
appraiser testified that both the defendant’s appraiser
and the umpire considered all of the evidence he wanted
to present to them.
The trial court nevertheless vacated the arbitration
award on the basis of its own disagreement with the
appraisal panel’s ultimate conclusions on the issue of
valuation. The trial court disagreed with thirty-four
aspects of the arbitration award and would have issued
a greater award for these items. For example, the trial
court indicated that the panel should have awarded the
plaintiff more than $150,000 to repair the property’s
chimney, rather than the $19,000 it did award. In other
instances, the trial court took issue with the panel’s
decision not to award any money for certain claimed
damage, which the panel determined was not entitled
to coverage because it was not related to the tree falling
on the house. The trial court used these points of dis-
agreement as the basis for its conclusion that the deci-
sion of the appraisal panel had prejudiced the
‘‘substantial monetary rights’’ of the plaintiff. In the
absence of any determination that the appraisal panel
engaged in misconduct impacting the fairness of the
arbitration procedures, the trial court’s disagreement
with the appraisal panel’s ultimate conclusions cannot
justify vacating its award. The appraisal panel was spe-
cifically empaneled to value the loss. Although it is clear
that the trial court disagreed with the amount of the
award, this disagreement does not establish that the
arbitrators violated § 52-418 (a) (3) and was not a proper
ground for vacating the arbitration award.
II
The trial court’s second justification for vacating the
arbitration award pursuant to § 52-418 (a) (4) was that
the decision of the appraisal panel ‘‘manifestly disre-
gard[ed]’’ the law when it ‘‘calculated depreciation in
a [r]estorationist insurance policy that provide[d] for no
depreciation . . . .’’ We disagree with this conclusion.
Section 52-418 (a) (4) provides that an arbitration
award shall be vacated ‘‘if the arbitrators have exceeded
their powers or so imperfectly executed them that a
mutual, final and definite award upon the subject matter
submitted was not made.’’ This last section is commonly
referred to as ‘‘manifest disregard of the law.’’ Garrity
v. McCaskey, 223 Conn. 1, 10, 612 A.2d 742 (1992).
‘‘We have [repeatedly] emphasized, however, that the
manifest disregard of the law ground for vacating an
arbitration award is narrow and should be reserved for
circumstances of an arbitrator’s extraordinary lack of
fidelity to established legal principles.’’ (Internal quota-
tion marks omitted.) Norwalk Police Union, Local
1727, Council 15, AFSCME, AFL-CIO v. Norwalk, 324
Conn. 618, 629, 153 A.3d 1280 (2017). ‘‘[T]hree elements
. . . must be satisfied in order for a court to vacate an
arbitration award on the ground that the arbitration
panel manifestly disregarded the law: (1) the error was
obvious and capable of being readily and instantly per-
ceived by the average person qualified to serve as an
arbitrator; (2) the arbitration panel appreciated the exis-
tence of a clearly governing legal principle but decided
to ignore it; and (3) the governing law alleged to have
been ignored by the arbitration panel is [well-defined],
explicit, and clearly applicable.’’ (Internal quotation
marks omitted.) Id.
In the present case, the trial court concluded that
the award of the appraisal panel met all three prongs
of the manifest disregard of the law test. See id. The
trial court determined that the award satisfied the first
prong—the error was obvious and capable of being
readily and instantly perceived by the average person
qualified to serve as an arbitrator—because the panel
withheld depreciation in a policy that provides for no
depreciation. The meaning of the policy language was
a matter for the panel to decide, however, and the trial
court should not have engaged in a de novo review of
this issue. See Harty v. Cantor Fitzgerald & Co., 275
Conn. 72, 80, 881 A.2d 139 (2005) (when submission to
arbitrator is unrestricted, ‘‘the courts will not review
the evidence considered by the arbitrators nor will they
review the award for errors of law or fact’’ [internal
quotation marks omitted]). More importantly, the trial
court’s conclusion is contradicted by the plain language
of the policy, which clearly permits the withholding of
depreciation until repairs are made or the damaged
property is replaced. See footnote 1 of this opinion.
Furthermore, the trial court’s conclusion that the pan-
el’s award satisfied the second and third prongs of the
manifest disregard of the law test was also incorrect.
The trial court interpreted our decision in Northrop to
hold that an insurer may not withhold payment for
depreciation whenever a homeowner had obtained an
estimate for repairs in excess of the actual cash value
award, as the plaintiff did in the present case. But Nor-
throp held only that an insurer could not withhold
depreciation from a replacement cost award after a
homeowner had incurred a valid debt for repairs. Nor-
throp v. Allstate Ins. Co., supra, 247 Conn. 251–52. Nor-
throp does not apply to estimates, which generally
impose no obligation or debt on the homeowners and,
unlike the incurrance of a valid debt, do nothing to
address concerns that the insured will forgo repairs
and receive a windfall. Consequently, we conclude that
the trial court misinterpreted our holding in Northrop,
and, thus, the panel did not ignore governing law or
principles when it permitted the defendant to withhold
depreciation costs until the plaintiff had incurred a debt
for the repair or replacement of the property.
We conclude, therefore, that the trial court improp-
erly vacated the arbitration award.
The judgment is reversed and the case is remanded
with direction to render judgment denying the plaintiff’s
application to vacate the arbitration award.
In this opinion the other justices concurred.
* The listing of justices reflects their seniority status on this court as of
the date of oral argument.
1
The policy language specifically provided: ‘‘Covered property losses are
settled as follows:
‘‘(a) . . . (1) We will pay the cost to repair, restore or replace, without
deduction for depreciation . . . .
‘‘(2) We will pay no more than the actual cash value of the damage until
actual repair, restoration or replacement is complete. Once actual repair,
restoration or replacement is complete, we will settle the loss according to
the provisions of (a)(1) above.’’
2
The ‘‘actual restoration’’ requirement is found in virtually every replace-
ment and restoration cost policy. See 2 B. Ostrager & T. Newman, Handbook
on Insurance Coverage Disputes (17th Ed. 2016) § 21.06 [b], pp. 1731–32
(‘‘Many insurance policies expressly provide that an insured may recover
the [actual cash value] of destroyed property, and subsequently make an
additional claim on a replacement cost basis. . . . [S]uch policies invariably
include as a condition precedent to a supplemental replacement cost recov-
ery a requirement that the insured first complete restoration of its property.’’
[Citations omitted.])
3
General Statutes § 52-418 (a) provides in relevant part: ‘‘[The trial court]
. . . shall make an order vacating the award if it finds any of the following
defects: (1) If the award has been procured by corruption, fraud or undue
means; (2) if there has been evident partiality or corruption on the part of
any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing
to postpone the hearing upon sufficient cause shown or in refusing to hear
evidence pertinent and material to the controversy or of any other action
by which the rights of any party have been prejudiced; or (4) if the arbitrators
have exceeded their powers or so imperfectly executed them that a mutual,
final and definite award upon the subject matter submitted was not made.’’
4
On appeal, the defendant has challenged the trial court’s ruling on its
motion to dismiss. Because we reverse the trial court’s judgment with direc-
tion to deny the application to vacate, we need not address this issue.