The Colorado Supreme Court delivered an opinion June 24 in a case questioning whether appraisers selected for an insurance appraisal can advocate on behalf of the party that hired them. The court’s opinion is likely to bring some changes for similar insurance contracts in Colorado, and according to a dissenting opinion, might also bring about more litigation and shift the balance of power in similar disputes.
After a storm that damaged its properties, Dakota Station II Condominium Association filed an insurance claim with its insurer, Owners Insurance Company. The parties couldn’t agree on the total damages and so invoked the insurance policy’s appraisal provision to resolve the dispute. According to the provision, each party was required to “select a competent and impartial appraiser.” That phrase led to the dispute that made it up to the state’s highest court.
After the appraisers submitted competing estimates to an umpire, who is also specified in the provision in order to settle conflicting appraisals, both appraisers signed on to the award, and Owners paid Dakota.
Owners later sued, though, moving to vacate the award under the argument that Dakota’s appraiser wasn’t “impartial.” A trial judge dismissed the motion to vacate, and the Court of Appeals agreed. The Colorado Supreme Court, however, concluded that the plain language of the policy states that appraisers must be “unbiased, disinterested, and unswayed by personal interest.” The court affirmed the Court of Appeals judgment on a separate aspect of the case, reversed regarding the impartiality requirement and remanded for further proceedings.
Since the case is remanded and litigation is still ongoing, neither parties’ attorneys commented on the case. Owners was represented by attorneys from Wheeler Trigg O’Donnell, and Dakota Station was represented by attorneys from Orten Cavanagh & Holmes. They were each backed by a list of amici from both local and national groups watching the litigation.
In reviewing the lower courts’ discussion of the definition of “impartial,” the Supreme Court majority followed the Court of Appeals Judge Diana Terry, who dissented from the lower court’s majority opinion by saying allowing an appraiser to “advocate” for one party would “read the term ‘impartial’ completely out of the contract.”
“To ‘advocate’ for a party, by definition, involves acting for or in support of that party. Thus, to advocate for only one side in a dispute necessarily involves favoring one side over another.
These definitions are fundamentally incompatible,” Colorado Supreme Court Justice Will Hood wrote in the majority opinion. “We can’t endorse a reading of the impartiality requirement that suggests one can simultaneously be an ‘advocate’ for one of the parties and be ‘impartial.’”
The definitional questions continued, though, as Justice Carlos Samour and Chief Justice Nathan Coats dissented from the majority opinion’s interpretation. Samour wrote that the majority focused too much on the word “impartial” and not enough on the word “select.” That argument boiled down to the question of how one “selects” — and furthermore, pays — an appraiser without that appraiser being expected to take that party’s side. Expecting such behavior would only work in a “utopia,” he said. He questioned the majority’s perspective that appraisers should be as independent as arbitrators or judges, and instead positions the umpire as the independent party and appraisers taking on the role of advocates.
The majority’s opinion, in Samour’s view, could instead lead to increased litigation as parties fight over the biases of selected appraisers.
“I worry that today’s decision, apart from its impracticality (or perhaps because of it), will lead to increased litigation between insurance companies and policyholders by either opening appraisers to attack as soon as there is disagreement on their valuations, or, as happened here, allowing parties to intentionally sit on an impartiality issue so that they may later upend an unsatisfactory decision by an umpire,” Samour wrote in the dissent. “Even more troubling is the fact that the majority’s interpretation further tips the scale in favor of the insurance industry.”
The lack of an advocate on the home owner’s side could end up pushing disputes in favor of the repeat participants — insurers.
Aside from the definitional question regarding the impartiality of appraisers, the Supreme Court reviewed whether a contingent cap-fee agreement rendered Dakota’s appraiser partial as a matter of law.
Owners alleged that Dakota’s appraiser acted improperly by entering into a contract with the public adjuster that capped her fees at 5% of the insurance award, which it alleged gave her a financial interest in the outcome. The trial court, Court of Appeals and Supreme Court all agreed that the cap-fee agreement did not render her partial because It also found the cap didn’t come into play — the parties didn’t invoke the cap provision because the actual fees were well below the 5% cap.
— Tony Flesor