{"id":896498,"date":"2019-09-26T13:43:59","date_gmt":"2019-09-26T19:43:59","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896498"},"modified":"2019-09-26T13:44:06","modified_gmt":"2019-09-26T19:44:06","slug":"court-decision-could-tarnish-appraisal-process","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/court-decision-could-tarnish-appraisal-process\/","title":{"rendered":"Colorado Supreme Court Decision Could Tarnish Appraisal Process for Policyholders"},"content":{"rendered":"\n

Michael V. Pepe | SDV Insights<\/a> | July 23, 2019<\/p>\n\n\n\n

On June 24, 2019, the Colorado Supreme Court ruled that the plain language of appraisal provisions in insurance policies, requiring \u201cimpartial appraisers,\u201d direct appraisers to be \u201cunbiased, disinterested, and unswayed by personal interest,\u201d regardless of who hires them, and prohibits the party-appointed appraisers from acting as advocates.<\/p>\n\n\n\n

A common and attractive alternative dispute resolution option, the appraisal process usually entails the policyholder and insurer each hiring their own appraiser, who estimates how much the claim is worth. These appraisers also select a third-party umpire, and if they cannot agree upon one, a court appoints one. The umpire analyzes the conflicting estimates and presents a number to resolve the dispute. If two of the three parties agree with the outcome, the number becomes binding.<\/p>\n\n\n\n

Owners Ins. Co. v. Dakota Station II Condo. Ass’n, Inc.<\/em>1 <\/sup>began when Dakota Station II Condominium Association Inc. (\u201cDakota\u201d) and its insurer, Owners Insurance Company (\u201cOwners\u201d) could not agree on how to value two claims arising out of weather damage. To settle the differences and come to a resolution, Dakota invoked the appraisal provision in the insurance policy instructing each party to select its own \u201ccompetent and impartial appraiser.\u201d Ultimately, a court-appointed umpire considered six cost categories in dispute and adopted four of Owners\u2019 estimates and two of Dakota\u2019s.<\/p>\n\n\n\n

Owners filed a petition to vacate the award, alleging that Dakota’s appraiser \u201cacted improperly by entering into a contract \u2026 that capped her fees at five percent of the insurance award (allegedly giving her a financial interest in the outcome).\u201d Under this fee arrangement it was possible that the appraiser would collect more fees for a higher award. Owners argued that the appraiser\u2019s potential financial interest meant that the appraiser was not \u201cimpartial\u201d as required by the policy.<\/p>\n\n\n\n

After two lower courts held in favor of the insured, the Colorado Supreme Court granted certiorari and considered two issues: (A) the meaning of the language \u201cimpartial\u201d in the appraisal provision, and (B) whether the fee arrangement meant that Dakota\u2019s appraiser was not impartial as a matter of law.<\/p>\n\n\n\n

The Court affirmed the lower court\u2019s holdings in part, holding that appraisers were not necessarily held to the same strict standards of impartiality as arbitrators. On the other issues, the Court overturned the lower court. The Court held that the appraisal provision is not ambiguous, and that the plain meaning of \u201cimpartial\u201d is \u201c[n]ot favoring one side more than another; unbiased and disinterested; unswayed by personal interest.\u201d In comparing this with the plain meaning of \u201cadvocate\u201d \u2013 \u201c[s]omeone who assists, defends, pleads, or prosecutes for another\u201d \u2013 the court concluded that an appraiser cannot simultaneously advocate for a party and be impartial.<\/p>\n\n\n\n

The Court relied on the fact that there is nothing in the provision suggesting that an appraiser would put forth values on behalf of a party that hired it. \u201c[W]e can’t endorse a reading of the impartiality requirement that suggests one can simultaneously be an \u2018advocate\u2019 for one of the parties and be \u2018impartial.\u2019\u201d<\/p>\n\n\n\n

The Court also concluded that in this case, the contingent-cap fee arrangement did not render the appraiser biased as a matter of law. The fees did not reach a level that would have been capped, even under Owner\u2019s appraiser\u2019s valuation, and thus the contingent-cap did not affect what the appraiser was paid. The appraiser did not \u201cbelieve the cap was in effect and there is seemingly no relationship between the fees billed by the appraiser and the estimates she put forth, we can’t say that hypothetical incentives rendered her partial.\u201d<\/p>\n\n\n\n

Several judges dissented from the majority opinion, warning that the holding further \u201ctips the scale in favor of the insurance industry,\u201d widening the imbalance of power in this area.<\/p>\n\n\n\n

The holding may be impractical, requiring humans to ignore their natural instincts, because \u201cwhen an appraiser advocates for her own work and final valuation, she essentially advocates for one party, and it’s human nature to expect (and want) an appraiser to advocate for her own work and final valuation.\u201d It seems unlikely that each party would select and compensate its own appraiser and expect that appraiser to not advocate for or favor its side. After all, the umpire is supposed to fulfill the unbiased third-party role in the appraisal process.<\/p>\n\n\n\n

Colorado\u2019s holding should put both insurers and policyholders on notice to review the language of appraisal provisions commonly found in first party policies, including homeowners, commercial property, and builders risk insurance. Parties should consider whether this is the arrangement they want and whether to negotiate for a process that expressly allows for appraisers to advocate on their behalf to the umpire. Otherwise, they run the risk that a favorable award can be vacated based on an after-the-fact showing of partiality or bias.<\/p>\n\n\n\n

In addition to reviewing appraisal provisions, parties should carefully consider the appraiser selection process and vet potential appraisers before the appraisal process begins.<\/p>\n","protected":false},"excerpt":{"rendered":"

Michael V. Pepe | SDV Insights | July 23, 2019 On June 24, 2019, the Colorado Supreme Court ruled that the plain language of appraisal provisions in insurance policies, requiring \u201cimpartial appraisers,\u201d direct appraisers to be \u201cunbiased, disinterested, and unswayed by personal interest,\u201d regardless of who hires them, and prohibits the party-appointed appraisers from acting… Continue reading Colorado Supreme Court Decision Could Tarnish Appraisal Process for Policyholders<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10235],"tags":[9895,120,131],"class_list":["post-896498","post","type-post","status-publish","format-standard","hentry","category-insurance-appraisal","tag-advise-consult","tag-colorado","tag-insurance-appraisal","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nColorado Supreme Court Decision Could Tarnish Appraisal Process for Policyholders - 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