On June 24, 2019, the Colorado Supreme Court held that when a contract or insurance policy requires an “impartial” appraisal, the appraiser for a party cannot be an advocate for that party.[1] In this situation, the appraiser must be unbiased, disinterested, without prejudice, and unswayed by personal interest. Id.
Owners Insurance Company (“Owners”) issued a policy to the Dakota Station II Condominium Association, Inc. (“Association”) that represents a 49-building multifamily residential property in Jefferson County, Colorado. Concerning loss conditions, the policy includes an appraisal provision requiring that, in the event of property appraisal, “each party will select a competent and impartial appraiser.” The parties would then select an umpire or have one appointed by the court. Any agreement as to the values reached by two of the three would bind them all.
On May 24, 2012, the Association made a storm-damage roofing claim to Owners for $1.33 million. The parties could not agree on the amount of the loss and the Association invoked the policy’s appraisal process. The Association retained Scott Benglen as its contingent-fee cap appraiser. Mr. Benglen retained Laura Haber as a policy and damage expert, who appraised the roof loss at $2.55 million and the total replacement at $4.3 million.[2] Owners’ appraiser, Mark Burns, submitted the loss at $1.86 million with the replacement cost award of $2.3 million. The umpire, Honorable James Miller, adopted Owners’ estimates in four of the six categories, awarding just over $3 million to the Association. Id.
On June 15, 2019, Owners filed a Petition to Vacate Appraisal Award, arguing the Association’s appraiser acted improperly by entering into a contract with the public adjuster that capped her fees at five percent of the insurance award, giving her a financial interest in the outcome. Id. at p.3. The District Court rejected Owners’ argument that appraisers must act as impartially as an umpire or arbitrator in every instance. The Court of Appeals affirmed the decision, noting any ambiguity in the definition of “impartial” is construed against Owners, but agreed with the District Court that the impartial appraiser requirement meant “that an impartial appraiser in rendering his or her valuation opinion applies appraisal principles with fairness, good faith, and lack of bias.”[3] The Court of Appeals reasoned that the policy contemplated that the appraisers would put forth a value to the umpire on behalf of the party that selects them and so long as the appraiser acts fairly, without bias, and in good faith, he or she meets the policy requirement of an impartial appraiser. Id.
The Colorado Supreme Court reviewed and held that word “impartial,” when required in a contract, requires appraisers to be “unbiased, disinterested, and unswayed by personal interest.”[4] Thus, appraisers must not favor one side more than another, meaning no advocacy on behalf of either party. Id. The Colorado Supreme Court found that an individual acting as an advocate for one side cannot simultaneously be considered impartial and remanded the case to the District Court to determine if the Association’s appraiser’s conduct conformed to the impartiality requirement set forth by the Supreme Court. Id.
District Court Judge Laura A. Tighe held a hearing upon remand and issued her Findings of Fact. Judged Tighe found that Mr. Benglen had retained Ms. Haber for her expertise on insurance policies and how best to maximize damage estimates.[5] Mr. Benglen retained Ms. Haber once he understood her assessment would be favorable to the Association. Id. Ms. Haber worked as Mr. Benglen’s partner for three months before being appointed as appraiser. Id. at p. 7. Mr. Benglen “prodded” Ms. Haber to “go in at $4.5 million” to get the judge to award $2-2.5 million, which would be a “huge win” for the Association. Id. Judge Tighe noted Ms. Haber’s eventual loss estimate of nearly $2.5 million and total replacement loss of nearly $4.4 million was in Mr. Benglen’s targeted range. Id.
Judge Tighe noted Ms. Haber’s lack of credibility and found her testimony, “obstinate, off-putting, and defensive in nature.” Id. at. p. 8. Judge Tighe wrote that Ms. Haber demonstrated that she lacked impartiality required by the policy and her conduct constituted bias, bad faith, or dishonesty in formulating her appraisal. Id. She found multiple examples of Ms. Haber’s advocacy and overall failure to act in an unbiased, disinterested, and unswayed by personal interests. Id. at p. 9. Judge Tighe found Ms. Haber’s conduct in estimating this loss “smacks of unabashed advocacy, lacking any sense of a moral barometer to meet the standard” of impartiality as defined by the Colorado Supreme Court.[6]
Judge Tighe found that Owners proved by a preponderance of the evidence that the appraiser, Ms. Haber, did not perform the duties required of her in the Owner’s policy because she failed to meet the impartiality standard set forth by the Colorado Supreme Court, and therefore misconduct resulted.” Id. at p. 15. The Association argued Owners, nonetheless, failed to meet its burden under Andres Trucking Co. v. United Fire & Cas. Co., 2018 COA 144, P49, 2018. In Andres Trucking, “as a general matter, an appraisal award entered by an umpire may be disregarded only if the award was made without authority or was made as a result of fraud, accident, or mistake.” Id. Judge Tighe found Ms. Haber’s “troubling misconduct” necessitated setting aside the award.[7]
Conclusion
Consistent with general principles of contractual interpretation, the Colorado Supreme Court gave effect to the intent and reasonable expectations of the parties by enforcing the plain language of the Owners’ policy.[8] When a contract or policy requires an “impartial” appraisal, the appraiser can no longer be an advocate for the party that retained the appraiser. That means the appraiser must be unbiased, disinterested, without prejudice, and unswayed by personal interest. Id.
Attorneys, on the other hand, must advocate for their clients. In this situation, attorneys cannot influence their retained appraiser as their opinions cannot be put forth “on behalf of a party…” Id. Therefore, where an impartial appraisal is required by contract, attorneys must do their research on a potential appraiser to know how that appraiser evaluates the claim and the probable final valuation.
While the Colorado Supreme Court’s decision has been cited only five times nationally since its recent decision, it remains unknown whether this standard will apply to all expert opinions where an impartial expert is required by contract. The Colorado Supreme Court relied on the Black’s Law Dictionary (10th ed. 2014) definition of “Impartial” as “not favoring one side more than another; unbiased and disinterested; unswayed by personal interest.” Id. Where expert opinions are contractually required to be impartial, the courts will look to Dakota Station to determine the standard of care for these experts.
[1] Owners Ins. Co. v. Dakota Station II Condominium Assoc., Inc., 443 P.3d 47, 52 (Colo. 2019).
[2] Jefferson County District Court Order, 2015CV21037, p. 2, January 10, 2020.
[3] Id. at p. 3 (citing Owners Ins. Co. v. Dakota Station II Condo. Ass’n Inc., 444 P.3d 784 (Colo. App. 2017)).
[4] Dakota Station II, 443 P.3d 47, 52.
[5] Jefferson County District Court Order, supra, at p. 6.
[6] Id. at p. 14 (citing Dakota Station II, 443 P.3d 47, 52).
[7] Jefferson County District Court Order, supra, at p. 15.
[8] Dakota Station, 443 P.3d 47, 53.
For more information about Owners Ins. Co. v. Dakota Station II Condominium Assoc., Inc., you can reach Frank Ingham at (303) 653-0046 or by e-mail at
ingham@hhmrlaw.com.
