Auto-Owners Ins. Co. v. Summit Park Townhome Ass'n

• Decision Date: 10 September 2015
• Docket Number: Civil Case No. 14-cv-03417-LTB
• Citation: 129 F.Supp.3d 1150
• Parties: Auto-Owners Insurance Company, a Michigan corporation, Plaintiff, v. Summit Park Townhome Association, a Colorado corporation, Defendant.
• Court: U.S. District Court — District of Colorado

129 F.Supp.3d 1150

Auto-Owners Insurance Company, a Michigan corporation, Plaintiff,

v.Summit Park Townhome Association, a Colorado corporation, Defendant.

Civil Case No. 14-cv-03417-LTB

United States District Court, D. Colorado.

Signed September 10, 2015

John David Mereness, Gregory R. Giometti, Gregory R. Giometti & Associates, P.C., Denver, CO, for Plaintiff.

David John Pettinato, William Corretti Harris, Merlin Law Group, P.A., Tampa, FL, for Defendants.

MEMORANDUM OPINION AND ORDER

BABCOCK

, DISTRICT JUDGE

This declaratory judgment action is before me on Plaintiff Auto-Owners Insurance Company's ("Auto-Owners") Opposed Motion to Compel Appraisal Agreement [Doc. # 18], in which Auto-Owners seeks to compel Defendant Summit Park Townhome Association ("Summit Park") to enter into an agreement governing the appraisal process in this case. I have reviewed the motion, Summit Park's response [Doc. # 22], and Auto-Owners' reply [Doc. # 23]. Oral argument would not materially assist me in deciding the motion. As I explain below, I GRANT IN PART AND DENY IN PART the motion and order that the appraisal process be conducted pursuant to the terms set forth herein.

I. Background

The background to this dispute is more fully described in my order of April 14, 2015. See Mem. Op. & Order [Doc. # 17]; 100 F. Supp. 3d 1099, 2015 WL 1740818

. Briefly, Auto-Owners issued an insurance policy to Summit Park, a townhome community, covering, inter alia , "direct physical loss of or damage to" the Summit Park premises. 2d Am. Compl. ¶¶ 3-4 [Doc. # 6]. The policy has a term of March 1, 2013, to March 1, 2014. Id. ¶ 3. At issue is the amount of money, if any, Summit Park is entitled to recover under the policy for damage it alleges was caused by a September 2013 hailstorm. Auto-Owners contends that some or all of the claimed damage was caused by a storm predating the policy's inception or by a cause of loss excluded under the policy, such as defective workmanship. Id. ¶¶ 61-71. On Summit Park's motion, I ordered the parties to engage in the policy's appraisal process to determine the amount of loss, if any, caused by the September 2013 storm. See Doc. # 17. The appraisal process is set forth in the policy as follows:

Appraisal. If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will: a. Pay its chosen appraiser; and b. Bear the other expenses of the appraisal and umpire equally. If there is an appraisal, we will still retain our right to deny the claim.

Ex. A to 2d Am. Compl. at 78 [Doc. # 6-1]. I did not provide guidelines for how the appraisal process should proceed except to note that the appraisals should "provide sufficient detail" regarding disputed costs. Doc. # 17 at 9. As an example, I noted that the parties dispute whether the policy covers the cost of replacing undamaged property to achieve matching. Id. I explained that "counsel should work collaboratively" to ensure that the appraisals address the cost of undertaking such replacements, as well as any other disputed costs, so that discovery or additional appraisals could be avoided once the Court decides whether the costs are covered under the policy. Id. I stayed further court proceedings pending completion of the appraisal process but "reserve[d] jurisdiction...to resolve any intractable disputes regarding the appraisal process that may arise." Id.

The parties are now at an impasse regarding how the appraisal process should proceed. Auto-Owners has proposed a written agreement to govern the process. The proposed agreement sets forth, for example, procedures to govern the parties' communications with the appraisers and umpire. Ex. A to Mot. at 6-7 [Doc. # 18-1]. It also lists specific items to be addressed by the appraisals. Id. Auto-Owners argues that the appraisal procedure is a form of arbitration and, therefore, is governed by the Colorado Uniform Arbitration Act, Colo. Rev. Stat. § 13–22–201 et seq.

("CUAA"). It argues that the procedures in the proposed agreement are based on the CUAA and that, even if the CUAA does not apply, the procedures would help to ensure "due process and fair notice" and are further supported by the policy language requiring the appraisers to be "competent and impartial."

Summit Park refuses to enter into the agreement. It argues that the CUAA does not apply to the appraisal process and that there is no other basis—in the policy or elsewhere—to order that the appraisals be conducted in a certain manner. Summit Park also takes issue with specific provisions of the proposed agreement: It argues, for example, that the agreement's provisions relating to disclosure of potential conflicts of interest by the appraisers and umpire are unduly burdensome and that the provisions regarding discovery, subpoenas, and other formalities would result in a quasi-judicial proceeding and undermine the appraisal provision's purpose of determining the amount of loss informally and expeditiously.

II. Analysis

A. The Policy's Appraisal Process Is Not an Arbitration Under the CUAA

The Court's jurisdiction in this matter is founded on diversity of citizenship. 28 U.S.C. § 1332(a)

. Therefore, while I apply federal procedural law, I apply the substantive law of Colorado. Essex Ins. Co. v. Vincent , 52 F.3d 894, 896 (10th Cir.1995) ; Trierweiler v. Croxton & Trench Holding Corp. , 90 F.3d 1523, 1539 (10th Cir.1996). Under Colorado law, interpretation of the terms of an insurance policy is a question of law reserved for the court. SeeAm. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 340 (Colo.2004).

The CUAA sets forth numerous procedures that govern "an agreement to arbitrate." Colo. Rev. Stat. § 13–22–203

. By way of example, it specifies certain disclosures that arbitrators must make in regard to potential conflicts of interest. Id. § 13-22-212. The statute, however, does not define "agreement to arbitrate." It appears that neither the Colorado appellate courts nor the Tenth Circuit have decided whether an appraisal process can constitute arbitration under the CUAA. While I previously noted that "the CUAA demonstrates a strong public policy in favor of alternative dispute resolution processes," I specifically "[did] not address...the applicability of the CUAA to this case." Doc. # 17 at 7. It is now necessary to do so to resolve Auto-Owners' contention that the CUAA should govern the appraisal process here.

The Tenth Circuit has held that an appraisal process did not constitute an arbitration under the Federal Arbitration Act, 9 U.S.C. § 1 et seq.,

which, like the CUAA, does not define the term. Salt Lake Tribune Publ'g Co., LLC v. Management Planning, Inc., 390 F.3d 684 (10th Cir.2004). Neither party contends that the Federal Arbitration Act applies here, but the opinion is instructive. The case involved an option contract for the purchase of a newspaper. The contract fixed the option's exercise price at the fair market value of the newspaper's assets. Id. at 686–87. In the event the parties could not agree on the fair market value, the contract provided that each side was to appoint an appraiser to assess it. Id. at 687. If the assessments of the parties' appraisers differed from each other by more than 10 percent, the parties "would jointly select a third appraiser and the exercise price would equal the average of the two closest appraisal values reported by the three appraisers." Id.

In concluding that there was no arbitration agreement, the court noted that "[c]entral to any conception of classic arbitration is that the disputants empowered a third party to render a decision settling their dispute...‘through to completion.’ " Id. at 689–90

(quoting Harrison v. Nissan Motor Corp. , 111 F.3d 343, 350 (3d Cir.1997) ). The court noted that, even if "the contract states that the third party's decision is final and binding, courts must nonetheless scrutinize the process created by the parties to ascertain whether the third party's decision does in fact resolve the dispute." Salt Lake Tribune , 390 F.3d at 690. Because the third appraisal would not be used at all if the first two appraisals were closest in value, the third appraisal "would hardly settle the parties' dispute" and, therefore, "standing alone, does not constitute an arbitration." Id. The court also rejected the argument that the "entire process" was an arbitration, explaining that "the three-appraisal process does not resemble classic arbitration" and that "to the extent there existed a dispute requiring arbitration, the [first two appraisers] produced the dispute by affixing values more than ten percent apart." Id.

While not controlling, I find Salt Lake Tribune

highly persuasive and conclude that the appraisal process set forth in the policy is not an arbitration under the CUAA. For one, the process here, under which a decision must be "agreed to by any two [of the appraisers and the umpire]" will not settle the parties' disagreement over the amount of the loss if no two can agree. SeeEnzor v. N. Carolina Farm Bureau Mut. Ins. Co. , 123 N.C.App. 544, 473 S.E.2d 638, 640 (1996) (holding that appraisal award signed only by umpire was invalid because "umpire's signature alone fails to demonstrate that at least one other appraiser concurred in the award" and that, on remand, the case would need to "be submitted to the court for resolution by trial or otherwise" if an appraiser's signature could not be obtained). Even assuming the more likely scenario that two do agree, the parties' dispute will not be settled...