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

• Citation: 499 P.3d 1069,2021 COA 114
• Decision Date: 26 August 2021
• Docket Number: Court of Appeals No. 20CA0254
• Parties: OWNERS INSURANCE COMPANY, a Michigan corporation, Petitioner-Appellee, v. DAKOTA STATION II CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation, Respondent-Appellant.
• Court: Colorado Court of Appeals

499 P.3d 1069

2021 COA 114

OWNERS INSURANCE COMPANY, a Michigan corporation, Petitioner-Appellee,

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

Court of Appeals No. 20CA0254

Colorado Court of Appeals, Division III.

Announced August 26, 2021

Spencer Fane LLP, Terence M. Ridley, Evan B. Stephenson, Kayla L. Scroggins-Uptigrove, Denver, Colorado; Wheeler Law P.C., Karen H. Wheeler, Greenwood Village, Colorado, for Petitioner-Appellee

Orten Cavanaugh Holmes & Hunt, LLC, Jonah G. Hunt, Joseph A. Bucceri, Denver, Colorado, for Respondent-Appellant

Opinion by JUDGE GOMEZ

¶ 1 This is the second appeal to this court in an insurance dispute between Owners Insurance Company (Owners) and Dakota Station II Condominium Association, Inc. (Dakota). This appeal requires us to address a novel issue of state law: Where an insurance policy's appraisal provision requires the agreement of at least one impartial appraiser for an award to be binding, does the lack of impartiality by the only appraiser to agree to the award invalidate the award? Because we conclude that it does and because the trial court properly determined that the only appraiser who agreed to the appraisal award was not impartial, we affirm the trial court's judgment vacating the award.

I. Background

¶ 2 Dakota, which represents the owners of a forty-nine-building residential property, filed two claims with its insurer, Owners, after the property sustained storm damage. When the parties couldn't agree on the amount of the damage, Dakota invoked the appraisal provision in the insurance policy.

¶ 3 That provision reads, in relevant part, as follows:

If [Owners] and [Dakota] 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.

¶ 4 Dakota hired Scott Benglen to serve as its public adjuster to handle the claims. Benglen, who was working on a contingency basis and thus had a financial interest in the claims' outcome, retained Laura Haber initially as a policy and damage expert and later as Dakota's appraiser. Haber's contract included a fee cap provision that would limit her fees, incurred on an hourly basis, to "5% of the total replacement cost value." The contract included lines for the parties to initial that term but no one did so.

¶ 5 In accordance with the appraisal procedure, the parties' respective appraisers submitted their estimates and the umpire issued an award adopting some estimates from each appraiser. The umpire adopted Owners' appraiser's estimates in four contested categories and adopted Haber's estimates in the other two, including the largest contested category of roof repair, for a total award of about $3 million. The umpire and Haber both signed agreeing to the award, and Owners paid it.

¶ 6 Owners later filed a motion to vacate the appraisal award under section 13-22-223, C.R.S. 2020, of the Colorado Uniform Arbitration Act (CUAA), alleging, among other things, that Haber wasn't impartial, as required by the policy.

¶ 7 The trial judge conducted an evidentiary hearing and then issued oral findings and conclusions denying the motion. He retired shortly thereafter, and another judge reduced the oral rulings to writing. In those rulings, the court determined that appraisers aren't subject to the same impartiality requirements as umpires or arbiters but, instead, are expected to base their decisions on their experience and investigation (much like expert witnesses) and not let their findings be influenced by the side for whom they work. The court found that, under this standard, Haber hadn't acted improperly on any of the grounds asserted by Owners, including that she allegedly (1) visited the property and met with Benglen and Dakota's board of directors before being appointed as the appraiser; (2) had a partnership relationship with Benglen; (3) failed to disclose roof damage that had occurred before the policy period; (4) included in her estimate damage that had occurred after the policy period, when Dakota was no longer insured by Owners; and (5) operated under a contract capping her fee at 5% of the appraisal award.

¶ 8 As to the last issue regarding the fee cap, the court found that neither party thought the cap applied to this case; the fee would've been under 2% of the award no matter which figures the umpire adopted, so the cap "didn't come into play"; if it had come into play, the court likely would've enforced it notwithstanding the parties' failure to initial that provision; and a fee cap contract doesn't itself establish bias as a matter of law.

¶ 9 A split division of this court affirmed. Owners Ins. Co. v. Dakota Station II Condo. Ass'n , 2017 COA 103, 444 P.3d 784 ( Owners Ins. I ). The majority largely agreed with the impartiality standard employed by the trial court but concluded that an appraiser can favor one side more than the other. Id. at ¶¶ 20-26. Applying this standard, it affirmed all of the trial court's findings. Id. at ¶¶ 27-69. In a partial dissent, Judge Terry wrote that she would employ an impartiality standard precluding appraisers from advocating for the party who selects them, would reverse and remand for further findings on whether Haber was impartial under that standard, and would direct that "[i]f [Haber] lacked the requisite impartiality, the damages award should be vacated." Id. at ¶¶ 77, 82 (Terry, J., concurring in part and dissenting in part).

¶ 10 The supreme court reversed, concluding that the division majority had employed the wrong standard of impartiality. Owners Ins. Co. v. Dakota Station II Condo. Ass'n , 2019 CO 65, ¶¶ 38-44, 443 P.3d 47 ( Owners Ins. II ). In doing so, the court established the applicable standard for appraiser impartiality: the policy language "requires the appraiser to be unbiased, disinterested, without prejudice, and unswayed by personal interest" and to "not favor one side more than the other." Id. at ¶ 44. It also offered guidance on the distinction between advocating for a party (which is not allowed) and advocating for the appraiser's position (which is):

An appraiser can certainly explain her position without running afoul of the provision's impartiality requirement. An appraiser may, for example, defend her choice of methodology or use of certain data. Conversely, an appraiser may explain why she feels another appraiser's methodology or use of data is wrong. In neither instance would the appraiser necessarily be acting as an advocate on behalf of a party to the dispute. An appraiser advocates for or on behalf of a party when her actions are motivated by a desire to benefit a party. For example, if an appraiser simply seeks top dollar for a client, that is improper. In contrast, explaining a position or defending a choice in methodology can be motivated by a desire to reach an accurate outcome.

Id. at ¶ 44 n.5. The supreme court remanded the case for the trial court to "determine whether Dakota's appraiser's conduct conformed to [this] standard." Id. at ¶ 44.

¶ 11 The supreme court also considered the significance of the fee cap. The court agreed with the division majority's statement that "we see no basis for concluding that [the appraiser]'s impartiality was compromised by this [5%] fee cap when [5%] of the final appraisal was far in excess of the actual billed fees and the contract provision was not invoked." Id. at ¶ 48 (quoting Owners Ins. I , ¶ 55 ). The court added that, "[i]n such a case, where the appraiser didn't believe 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." Id. Thus, the court concluded, "while we are wary of the possible incentives these agreements create, we decline to hold that they render appraisers partial as a matter of law." Id.

¶ 12 The case then returned to the trial judge who had reduced the initial oral ruling to writing, and the judge set the matter for a new evidentiary hearing. But the parties couldn't agree on the scope of the remand — in particular, whether another evidentiary hearing was warranted, what evidence was relevant in such a hearing, and the extent to which the court could reconsider the earlier findings. Dakota argued that no hearing was warranted, filed motions to exclude some of Owners' anticipated evidence, and urged the court not to reconsider the earlier findings.

¶ 13 The court didn't rule on the motions before the start of the hearing but instructed Dakota's counsel to raise the issues as they came up. At the start of the hearing, the court said that its role was "to determine whether [Haber]'s conduct conformed to that of impartial appraiser"; that it would revisit the earlier findings in considering this issue under the appropriate standard; and that, while the supreme court had ruled that the fee cap didn't by itself render Haber biased, the cap still could be relevant if it motivated Haber to advocate for Dakota. Dakota's counsel disagreed with the court's directives and asked for a stay to allow it to file a C.A.R. 21 petition asking the supreme court to weigh in on the issues. The court denied the stay and proceeded with the hearing.

¶ 14 After the hearing, the remand court issued new findings and conclusions finding that Haber wasn't impartial, reasoning that Haber was not a credible witness and that there were "multiple examples of her advocacy and overall failure to act in an unbiased, disinterested, and unswayed by personal...