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Owners Association of Bella Vista Villas Inc. v. Owners Insurance Co.

United States District Court, D. Colorado

November 29, 2016

OWNERS ASSOCIATION OF THE BELLA VISTA VILLAS, INC., Plaintiff,
v.
OWNERS INSURANCE COMPANY, Defendant.

          ORDER

          Nina Y. Wang United States Magistrate Judge.

         This civil action comes before the court on Defendant Owners Insurance Company's (“Defendant” or “Owners”) Expedited Motion to Disqualify Clay Morrison From Serving as an Appraiser (“Motion to Disqualify”). [#21, filed August 26, 2016].[1] The Motion to Disqualify was referred to this Magistrate Judge pursuant to the Order Referring Case dated June 22, 2016 [#15] and the memorandum dated October 11, 2016 [#32]. Having reviewed the Motion to Disqualify, the case file, and the applicable law, and considered the comments offered during the November 16, 2016 Motion Hearing and Status Conference, IT IS ORDERED that the Motion to Disqualify is DENIED, with leave to raise issues related to the impartiality of an appraiser, should any such issues persist, through a motion to vacate the appraisal award.[2]

         BACKGROUND

         Procedural History

         Plaintiff Owners Association of the Bella Vista Villas, Inc. (“Plaintiff' or “Bella Vista”) initiated this civil action on May 4, 2016, asserting claims for breach of contract and common law and statutory bad faith arising out of Insurance Policy 104632-74638640 (the “Policy”) for property located at 4002-4286 E. Hinsdale Cir., Centennial, CO 80122 (the “Property”). Bella Vista alleges that Owners failed to properly investigate its claim for damage resulting from a September 2014 wind and hail storm and failed to pay in full the covered benefits necessary for Plaintiff to repair that damage. See [#1].

         On June 30, 2016, the Parties filed a Joint Motion to Administratively Close Case pursuant to this District's Local Rule 41.2, to allow them “to complete the appraisal process in an expedited manner before the commencement of any litigation.” [#18 at 2]. The Parties represented they were finalizing an agreement to govern the appraisal process (“Agreement”) and that the Agreement would:

(i) ensure that the appraisers provide adequate detail regarding disputed costs to facilitate review of their work; (ii) permit counsel to work collaboratively; (iii) complete the appraisal in an orderly and efficient fashion; (iv) avoid discovery or additional appraisals; (v) increase the likelihood of a valid appraisal outcome; and (vi) effectuate the subject insurance policy's requirement that party-appointed appraisers be competent and impartial.

[Id.] The Parties asked that the case be subject to reopening for good cause, including but not limited to “a disagreement between the appraisers on the appointment of an umpire.” [Id.] The Parties also stipulated to tolling during the administrative closure any statutes of limitations that might apply to Plaintiff's claims, and that Defendant need not file a responsive pleading at that time. [Id.] The presiding judge, the Honorable William J. Martinez, granted the Joint Motion to Administratively Close Case on July 1, 2016. See [#19].

         On August 26, 2016, Defendant filed an opposed Expedited Motion to Re-Open Case asserting that it had objected to Plaintiff's disclosure of Mr. Clay Morrison as Plaintiff's appraiser, and that Plaintiff had “refused to accept the validity of Owners' objections to Mr. Morrison and stated its intent to proceed unilaterally with the appraisal process.” [#20 at 3]. Defendant simultaneously filed the Motion to Disqualify. See [#21]. Plaintiff filed responses to the Motion to Re-Open Case and the Motion to Disqualify on September 16, 2016. See [#22; #23]. Defendant filed replies on September 28, 2016. See [#24; #25]. Plaintiff thereafter moved for leave to file a surreply to the Motion to Disqualify, which this court denied. See [#29; #37].

         On October 11, 2016, the court granted the Motion to Re-Open Case for good cause shown. See [#31]. On November 16, 2016, this court held a Status Conference and Oral Argument on the Motion to Disqualify, and took the matter under advisement. The court requested that Plaintiff provide a copy of the fee agreement between Plaintiff and Mr. Morrison, which was filed on November 18, 2016. See [#39]. On November 28, 2016, Defendant filed a Response to the fee agreement. See [#40].

         The Policy and Agreement

         The Policy instructs in relevant part that if the Parties disagree on the value of the property or the amount of the loss, either may make a written demand for an appraisal:

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…

[#21-1 at 2]. The Policy, however, does not include any definition of “impartial, ” or what procedure is applicable to challenge the selection of an appraiser. [Id.]. Nor does the Policy address what authority a court has to disqualify an appraiser whom the other party challenges. [Id.].

         The Agreement that the Parties entered into in July 2016 similarly does not define “impartial”; however, it provides further guidance as to which individuals may not serve as an appraiser:

An individual who has a known, direct, and material interest in the outcome of the appraisal proceeding or a known, existing, and substantial relationship with a party or its representatives or agents may not serve as an appraiser. An appraiser does not have a known, direct, and material interest in the outcome of the appraisal proceeding or a known, existing, and substantial relationship with a party or its representatives or agents merely because an appraiser or his employer is currently performing or has previously performed appraisals for that party.

[#21-2 at 2, ¶ 3]. Additionally, the Agreement sets forth disclosure requirements for the Parties, so that each party may assess an appraiser's impartiality:

Each appraiser and counsel for whose client the appraiser has been retained must, after making a reasonable inquiry, disclose to all parties and any other appraiser any known facts that a reasonable person would consider likely to affect the appraiser's impartiality, including (a) a financial or personal interest in the outcome of the appraisal; and (b) a current or previous relationship with any of the parties (including their counsel or representatives) or with any of the participants in the appraisal proceeding, including licensed public adjustors, witnesses, another appraiser, or the umpire. Each appraiser shall have a continuing obligation to disclose to the parties and to any other appraiser any facts that he or she learns after accepting appointment that a reasonable person would consider likely to affect his or her impartiality. If an appraiser ...

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