Owners Ins. Co. v. Dakota Station II Condo. Ass'n, Inc.

• Decision Date: 24 June 2019
• Docket Number: Supreme Court Case No. 17SC583
• Parties: OWNERS INSURANCE COMPANY, a Michigan corporation, Petitioner, v. DAKOTA STATION II CONDOMINIUM ASSOCIATION, INC., a Colorado corporation, Respondent.
• Court: Colorado Supreme Court

443 P.3d 47

OWNERS INSURANCE COMPANY, a Michigan corporation, Petitioner,

v.DAKOTA STATION II CONDOMINIUM ASSOCIATION, INC., a Colorado corporation, Respondent.

Supreme Court Case No. 17SC583

Supreme Court of Colorado.

June 24, 2019

Attorneys for Petitioner: Wheeler Trigg O'Donnell LLP, Terence M. Ridley, Evan Bennett Stephenson, Kayla L. Scroggins-Uptigrove, Denver, Colorado, Wheeler Waters, P.C., Karen H. Wheeler, Jami A. Maul, Greenwood Village, Colorado

Attorneys for Respondent: Orten Cavanagh & Holmes, LLC, Jonah G. Hunt, Denver, Colorado

Attorneys for Amicus Curiae American Insurance Association: Foran Glennon Palandech Ponzi & Rudloff PC, Amy M. Samberg, Matthew S. Ponzi, Thomas Orlando, Denver, Colorado

Attorneys for Amicus Curiae Colorado Defense Lawyers Association: American Family Insurance Legal Group, Dylan Lewis, Englewood, Colorado, Ruebel & Quillen, LLC, Jeffrey Clay Ruebel, Westminster, Colorado

Attorneys for Amicus Curiae Colorado Trial Lawyers Association: The Frankl Law Firm, P.C., Keith E. Frankl, Greenwood Village, Colorado, Speights & Worrich Colorado LLC, David Roth, Denver, Colorado

Attorneys for Amici Curiae National Association of Public Insurance Adjusters and Rocky Mountain Association of Public Insurance Adjusters: Sherman & Howard, LLC, Christopher R. Mosley, Denver, Colorado

Attorneys for Amici Curiae Property Casualty Insurers Association of America and Colorado Civil Justice League: Sweetbaum Sands Anderson PC, Jon F. Sands, Marilyn S. Chappell, Denver, Colorado

Attorneys for Amicus Curiae United Policyholders: Reed Smith, LLP, Jim Davis, Chicago, Illinois

En Banc

JUSTICE HOOD delivered the Opinion of the Court.

¶1 A condominium association, Dakota, filed two claims with its insurer, Owners, for weather damage. The parties couldn't agree on the money owed, so Dakota invoked the appraisal provision of its insurance policy.

¶2 The appraisal provision requires each party to "select a competent and impartial appraiser." An umpire would be selected by the parties or appointed by the court. The appraisers would assess the value of the property and amount of loss. Any disagreement would be submitted to the umpire. Any agreement as to the values reached by at least two of the three would bind them all.

¶3 The parties each selected an appraiser, putting the rest of the provision's terms into motion. Ultimately, the appraisers submitted conflicting value estimates to the umpire, and the umpire issued a final award, accepting some estimates from each appraiser. Dakota's appraiser signed onto the award, and Owners paid Dakota.

¶4 Later, Owners called foul. It moved to vacate the award, arguing that Dakota's appraiser was not "impartial" as required by the insurance policy's appraisal provision and that she failed to disclose material facts. The trial court disagreed and "dismissed" the motion to vacate. A division of the court of appeals affirmed.

¶5 Having agreed to review the case, we must interpret the policy's impartiality requirement and determine whether a contingent-cap fee agreement between Dakota and its appraiser rendered the appraiser partial as a matter of law. We conclude that the plain language of the policy requires appraisers to be unbiased, disinterested, and unswayed by personal interest. They must not favor one side more than another, so they may not advocate for either party. We also hold that the contingent-cap fee agreement didn't render Dakota's appraiser partial as a matter of law.

¶6 Accordingly, we affirm the judgment of the court of appeals with respect to the contingent-cap fee agreement, reverse with respect to the impartiality requirement, and remand for further proceedings consistent with this opinion.

I. Facts and Procedural History

¶7 Dakota Station II Condominium Association Inc., the owner of a condominium development in Littleton, filed two claims with its insurer, Owners Insurance Company, for weather damage to the development.

¶8 Dakota disagreed with Owners about the value of the claims, so it invoked the following appraisal provision of its insurance policy:

If [Owners] and [Dakota] disagree on the value of the property or the amount of loss, either may make a written demand for an appraisal of 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.

(Emphasis added.)

¶9 In accordance with this provision, each party selected an appraiser. The two appraisers couldn't agree on an umpire, so the court appointed one. The appraisers evaluated the property and submitted their conflicting estimates to the umpire. Each estimate included six cost categories.

¶10 After reviewing the appraisers' estimates and supporting documentation, the umpire adopted Owners' appraiser's estimates in four of the six cost categories and Dakota's appraiser's estimates in the other two. In total, the umpire found that the replacement cost reached almost $3 million.¹

¶11 Even though the umpire adopted four of Owners' appraiser's six cost estimates, Owners' appraiser didn't agree with the roof-cost estimate, the big-ticket category ($2,553,434.50), and wouldn't sign the final determination of costs.² However, Dakota's appraiser and the umpire both signed the award. Owners then paid Dakota.

¶12 Months later, Owners filed a petition to vacate the award pursuant to section 13-22-223, C.R.S. (2018), of the Colorado Uniform Arbitration Act, arguing that Dakota's appraiser was impermissibly partial and failed to disclose material facts. Owners asserted that appraisers must be competent and impartial "like arbitrators." Owners later filed a clarification of the relief requested, explaining that the appraiser's "duties of impartiality stem from the Policy."

¶13 As relevant here, Owners alleged that Dakota's appraiser acted improperly by entering into a contract with the public adjuster that capped her fees at five percent of the insurance award (allegedly giving her a financial interest in the outcome).

¶14 Later, at an evidentiary hearing, Owners' counsel asked Dakota's appraiser whether she felt that "it's appropriate to be an advocate for an insured when you're acting as an appraiser." The appraiser replied: "I think it's natural. I think you're an advocate for ... Owners." In closing arguments, Owners' counsel argued that this testimony further demonstrated the appraiser's partiality.

¶15 The trial court "dismissed" the petition. Ultimately, the court concluded that Dakota's appraiser didn't act improperly or unlawfully. The trial court rejected Owners' contention that appraisers must act as impartially as an umpire or arbitrator in every instance. It reasoned that the law requires appraisers to be impartial in the sense that they must render their decisions based upon experience and not allow their findings to be influenced by the side that hired them or the side for whom they work.

¶16 The trial court also rejected Owners' contention that a contingent-cap fee provision of Dakota's appraiser's contract gave her an impermissible financial interest in the outcome of the appraisal. The appraiser's contract included a provision capping the appraiser's fees at five percent of the overall award but indicated that the provision would not apply unless it was initialed by the parties. The parties didn't initial it. However, the trial court concluded that the provision likely would have been enforceable against the appraiser if her fees had indeed exceeded five percent of the final award. The court reasoned that including the provision created an ambiguity that would be resolved against the appraiser, as the drafter.

¶17 Still, the trial court determined that the provision didn't render the appraiser impermissibly biased. It found the evidence "clear" that neither party thought that the cap applied. It also found the cap didn't come into play because, regardless of whose estimates the umpire adopted, the fee would have been well under the cap. It rejected the contention that the provision rendered the appraiser biased as a matter of law. (The trial court didn't explicitly address Owners' concern about the appraiser testifying that it is "natural" for an appraiser to be an advocate.)

¶18 Owners appealed, and in a split, published decision, a division of the court of appeals affirmed the trial court's judgment. Owners Ins. Co. v. Dakota Station II Condo. Ass'n, Inc. , 2017 COA 103, ¶ 1, 444 P.3d 784.

¶19 The division majority agreed with the trial court's reading of the impartial appraiser requirement, understanding it "to mean that an impartial appraiser in rendering his or her valuation opinion applies appraisal principles with fairness, good faith, and lack of bias." Id. at ¶ 20.

¶20 In reaching this conclusion, the majority first noted that any ambiguity in the definition of "impartial" is construed against Owners. Id. at ¶ 21 (citing Union Ins. Co. v. Houtz , 883 P.2d 1057, 1061 (Colo. 1994) ). Next, it acknowledged that Black's Law Dictionary defines impartial as "not favoring one side more than another; unbiased and disinterested; unswayed by personal interest." Id. at ¶ 22. However, based on the context of the appraisal provision, the majority "[didn't] agree that the impartial appraiser called for in this policy may not favor one side more than the other." Id . Because the provision requires the two appraisers to submit any differences to an umpire, the majority reasoned that "[t]he policy plainly contemplates that the appraisers will put forth a value on behalf of the party that selects them." Id. at ¶ 23. The majority agreed with the Iowa Supreme Court that, while the appraisers "must act fairly, without bias, and in good faith," they ...