1:15-cv-01828
D. Colo.Jul 23, 2018Background
- Copper Oaks (condominium HOA) claimed hail damage to buildings in Sept. 2013 under an American Family insurance policy that required appraisal if parties disputed loss value.
- Parties agreed to follow Colorado DORA Bulletin B-5.26 standards for appraisers/umpires; Copper Oaks appointed George Keys (Keys Claims Consultants) and American Family appointed James Whipple; Robert Norton served as umpire.
- Keys had an original engagement with Copper Oaks that included an hourly rate subject to a 10% cap of insurance funds received; later an “amended” agreement purported to remove the cap but contained a false preamble denying any prior financial relationship.
- Keys submitted a very large appraisal (~$5.07M); Whipple’s appraisal was far lower (~$406k); Norton proposed and then increased a final award that Keys signed; award paid under reservation of rights but its validity was disputed.
- Court found Keys had a material financial interest and failed to disclose relationships and prior court decisions; Norton engaged in ex parte communications with Keys and threatened Whipple—both violations of DORA standards—so the appraisal award was vacated.
- As a result the court disqualified Keys and Norton, vacated the August 2016 appraisal award, dismissed Copper Oaks’ breach-of-contract claim for lack of standing, and left only the statutory delay claim for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether appraiser (Keys) was impartial under the policy/DORA | Keys/Copper Oaks: fee was hourly; any amendments cured issues; American Family waived or is estopped from challenging | American Family: Keys had contingent-style financial interest, failed to disclose material facts and prior adverse rulings | Keys was not fair/competent; had a material financial interest and nondisclosures; disqualified; appraisal vacated |
| Whether umpire (Norton) was impartial | Copper Oaks: Norton was neutral and disclosures were sufficient | American Family: Norton had ex parte talks with Keys, failed to disclose, and threatened to raise award to compel agreement | Norton violated DORA (ex parte, nondisclosure, coercion); disqualified; supports vacatur |
| Effect of appraisers’ conduct on award (state vs federal standards) | Copper Oaks: even if disclosure issues existed, outcome should stand absent proof of effect on award | American Family: conduct distorted process and produced inflated award; vacatur required under either approach | Court found Keys’ and Norton’s conduct distorted process and affected decisions; vacatur justified under both approaches |
| Affirmative defenses (waiver/estoppel/laches) | Copper Oaks: American Family knew of issues earlier and proceeded, so waived objections or is estopped; laches applies | American Family: lacked full knowledge because Keys and Norton failed to disclose; no intentional relinquishment or prejudicial delay | Defenses rejected: insufficient evidence that American Family had full knowledge; concealment defeats waiver/estoppel/laches claims |
Key Cases Cited
- Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, 886 F.3d 852 (10th Cir. 2018) (affirming disqualification where appraiser failed to disclose material facts and vacatur of appraisal award)
- Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257 (Iowa 1991) (appraiser as expert-witness-style actor: impartiality means fairness, good faith, lack of bias)
- Providence Washington Ins. Co. v. Gulinson, 215 P. 154 (Colo. 1923) (historic Colorado statement that appraisers’ duty of impartiality is akin to arbitrators)