For the first time, the Colorado Court of Appeals has interpreted what it means for an appraiser to be “impartial” in the context of a property policy appraisal, deciding they need only do the job with fairness, good faith, and a lack of bias.
Most property insurance policies contain an appraisal provision which is a dispute resolution mechanism the insured and the insurer may utilize if they disagree on the value of a claim. These provisions usually allow the policyholder and the carrier to each select an appraiser, and the two appraisers then choose an umpire. The appraisers and umpire then examine all the evidence about the loss (say, hail damage to a roof) and determine the value (essentially, how much it would cost to repair) by a majority vote.
There has long been a question of whether the appraisers must be strictly impartial, like a judge, or whether they may act as advocates for the policyholder or insurer. Policies usually state that the appraisers selected by the parties must be “competent and impartial.” This is the phrase the Court of Appeals interpreted in the recent decision in Owners Insurance Company v. Dakota Station Condominium Association. The Court decided that the phrase does not mean that an appraiser must be impartial in the same way a judge or arbitrator must be. Rather, the appraiser must be unbiased and have no personal stake in the matter, but may advocate for one side or another.
This case should provide direction to both policyholders and insurers in the future. In those instances when the parties wish the appraisers to be more like judges, the decision suggests they are free to agree to adopt the standards of Colorado’s Uniform Arbitration Act.