United States District Court, D. Colorado
COPPER OAKS MASTER HOME OWNERS ASSOCIATION, a Colorado corporation, Plaintiff,
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a corporation, Defendant.
OPINION AND ORDER VACATING APPRAISAL AWARD
S. Krieger, Chief United States District Judge
MATTER comes before the Court on Defendant American
Family Mutual Insurance Company's (“American
Family”) Renewed Motion to Vacate Appraisal Award. The
Court has considered the parties' briefing on that issue
#120) as well as the evidence and argument
presented at an evidentiary hearing. The Court finds and
concludes as set forth below.
Court generally exercises jurisdiction pursuant to 28 U.S.C.
§1332. Although the Court has unresolved concerns about
its subject matter jurisdiction for some claims in this case,
it addresses the pending motion exercising its inherent
powers to enforce orders of the court. See Auto-Owners
Ins. Co. v. Summit Park Townhome Ass'n, 886 F.3d
863, 867-68 (10th Cir. 2018)
Oaks Master Home Owners Association (“Copper
Oaks”) is the manager of sixteen residential buildings
and a pool house located in Lakewood, Colorado. It was the
insured on a casualty insurance policy issued by American
Family (the “Policy”). As discussed in more
detail herein, a salient feature of the Policy is the
requirement that, when the value of a claim is disputed, the
parties must engage in an “appraisal” process to
quantify the value of the loss.
Oaks alleges that in September 2013, a hail storm caused
significant damage to the property, and it made a claim upon
American Family for coverage under the Policy. Ultimately
unhappy with the amount that American Family initially paid
on the claim, Copper Oaks filed suit in state court. American
Family removed the case to this Court. The Amended Complaint
in this action states four claims: 1) a request for
declaratory judgment as to the appraisal process and award;
2) a request to compel an appraisal award in accordance with
process specified in the Policy; 3) breach of contract in
failing to pay the amounts owed under the Policy; and 4)
unreasonable delay in payment in violation of C.R.S.
10-3-1115 and 1116 (#96).
in the case Copper Oaks requested, and the Magistrate Judge
ordered, that the parties participate in the appraisal
process specified by the Policy. That process requires each
party to appoint a “competent and impartial”
appraiser. The two appraisers then jointly select a neutral
umpire. Each appraiser submits an opinion as to the amount of
the loss to the umpire. Upon the agreement of the umpire and
at least one of the appraisers, the amount of the loss is
appraisal process occurred in this case throughout most of
2016, but in January 2017, the parties announced that they
had a dispute over the validity of the appraisal award
(#43). Thereafter, Copper Oaks filed a
motion for Partial Summary Judgment (#52),
seeking to enforce the appraisal award. American Family
responded with a Motion to Vacate Appraisal Award
review of the record, the Court became concerned about the
sufficiency of Copper Oaks' standing to bring the first
three claims. The Court issued an Order to Show Cause as to
why those claims should not be dismissed
(#82). At a hearing on the issues, and after
consideration of the parties' arguments, both oral and
written, the Court: 1) bifurcated claims in the Complaint
into two groups - claims the concerned the appraisal process
(Claims 1 and 2), and claims that concerned breach of
contract and statutory bad faith breach of contract (Claims 3
and 4) (#94). After denying the parties'
respective dispositive motions, the Court set the matter for
a Pretrial Conference (#111, 118).
conference, the parties agreed that there was a dispute as to
whether the appraisal award was valid. American Family orally
renewed its Motion to Vacate the Appraisal Award, which
essentially sought judgment on Copper Oaks' first and
second claims for relief. American Family contended that the
appraisal award should be invalidated because the appraiser
selected by Copper Oaks, Mr. George Keys, and the umpire, Mr.
Robert Norton, were not impartial. Copper Oaks responded that
American Family i) waived any objection to Mr. Keys and Mr.
Norton, ii) is estopped from challenging them now, and iii)
its request is barred by the doctrine of laches.
consent of the parties, the sufficiency of the appraisal was
tried in a multi-day bench trial. At the close of the trial,
the Court announced its intent to grant American Family's
Motion to Vacate the Appraisal Award, stating that a written
opinion would be issued. This opinion follows.
FINDINGS OF FACT
considered the stipulations of fact, the evidence presented,
both documentary and by testimony, and having observed the
witnesses' manner in testifying, recollection,
consistency and all other matters in assessing the
credibility of such testimony, the Court finds as follows.
Copper Oaks is a 30 year-old condominium, townhome and
apartment complex located in Lakewood, Colorado. It is
comprised of 16 multi-family buildings and a pool house.
Copper Oaks has a homeowner's association administered by
a Board of Directors (“the Board”). For most of
the time pertinent to this case, the Board retained 4 Seasons
Management & Realty Group (“4 Seasons”) to
manage the property. 4 Seasons assigned this responsibility
to Mark Richardson.
September 9, 2013, Copper Oaks was subject to an afternoon
thunderstorm. The parties disagree as to whether the complex
was hit by hail during the storm, and if so, the size of the
the time of the storm, Copper Oaks was insured under the
Policy issued by American Family.
Immediately following the storm, Mr.Richardson saw leaves and
debris scattered about the complex. He contacted Derek O'
Driscoll of Impact Claim Services, LLC, requesting that Mr.
O'Driscoll conduct a free inspection of the building
roofs. At the Board meeting in November 2013, Mr.
O'Driscoll discussed his roofing evaluations and offered
to represent Copper Oaks as public adjuster on its
anticipated claim to American Family.
December 2013, a report commissioned by Mr. Richardson showed
that Copper Oaks was severely undercapitalized given the
size, age and condition of the complex. The homeowners
association had reserves of only $70, 112, which was 11% of
that recommended ($625, 597) in order to address extensive
needs for building maintenance and repair. The report advised
the association to impose a special assessment of $1, 500 per
unit in order to maintain necessary reserves. There is no
evidence that the association did so.
March 2014, the Board hired Mr. O'Driscoll and his
company, Impact Claims, LLC, as its public adjuster for the
purposes of investigating and processing a claim for hail
damage. The Board agreed to pay Mr. O'Driscoll/Impact
Claims, LLC a contingent fee of 15% of any insurance award.
late April 2014, Mr. Richardson notified American Family of
Copper Oaks' loss. American Family promptly inspected the
property and estimated the damage to be $620, 979 at
replacement cost value (“RCV”). In July 2014,
American Family issued a check to Copper Oaks in the amount
of $497, 765.43, which reflected Actual Cash Value
(“ACV”) of the loss - the RCV less depreciation
Later that year, Mr. O'Driscoll opined that the Copper
Oak's loss was substantially more than American Family
had paid - $3, 599, 707.13. Mr. O'Driscoll urged the
Board to supplement its claim. The Board agreed, and retained
4 Seasons to provide management support services during the
anticipated repairs for a contingent fee of 2.5% of any
insurance award. Mr. O'Driscoll advised the Board that
this fee could be built into the ultimate claim award.
advised of Mr. O'Driscoll's estimate of Copper
Oak's loss, American Family retained Madsen, Kneppers
& Associates (“MKA”) to appraise the loss.
The firm inspected the property and issued a report
estimating the total RCV loss at $608, 398.49.
parties were unable to resolve disagreements as to the amount
of the loss, and this action was filed on July 25, 2014.
for the Appraisal Process
Policy sets out the appraisal process to be used in the event
that the parties cannot agree on the amount of a loss.
and you 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.
(Emphasis added.) The Policy contains no definition of
“competent” or “impartial.” 12. In
January 2015, Magistrate Judge Watanabe granted
(#40) Copper Oaks' Motion for Order
Enforcing Appraisal Under the Insurance Policy. His order
states in pertinent part:
[T]he court finds that Judge Babcock's reasoning in
Auto-Owners Ins. Co. v. Summit Park Townhome Assn.,
2015 WL 1740818 (D. Colo. April 14, 2015), should be
followed in the case. The record presented in the moving
papers and the language used in the applicable policy
provisions as cited by the parties support this court's
analysis that this court should instruct the appraisers to
determine the “amount of the loss” caused by hail
or wind as required under the applicable policy provisions.
By doing so, the appraisers will necessarily exclude loss or
damage caused solely by a cause other than hail or wind.
Copper Oaks selected George Keys and his company, Keys Claims
Consultants, Inc. (“KCC”) to act as its
appraiser. American Family selected James R. Whipple. Mr.
Whipple and Mr. Keys then selected Mr. Norton as the umpire.
Mr. Keys proposed that the parties abide by the terms of DORA
Bulletin B-5.26, published by the Colorado Department of
Regulatory Affairs, Division of Insurance (“the DORA
Bulletin”). All parties agreed that the standards set
forth in the DORA Bulletin would govern their conduct during
Pertinent to this case, the DORA Bulletin requires that the
appraisers to be “fair and competent.” The DORA
Bulletin prohibits an appraiser from having a financial
interest in the outcome of the appraisal, and imposes on the
appraiser a continuing duty to disclose any facts, known or
learned after accepting appointment, that a reasonable person
would consider likely to affect the appraiser's interest
in the amounts determined by the appraisal process. The DORA
Bulletin also requires that an umpire be “fair,
competent and impartial.” To this end, the Bulletin
requires the umpire to “remain neutral” and
prohibits the umpire from having “any communication
with an appraiser” without participation by both
parties and/or their representatives.
Fee Arrangement with Copper Oaks
the April 2015 Board meeting, Mr. O'Driscoll introduced
and endorsed Mr. Keys and KCC (collectively,
“Keys”). Keys' presentation and literature
espoused views favorable to insurance policyholders and
touted success based upon Mr. Keys' prior experience as
an insurance adjuster, which gave him “the edge”
in getting the highest claim awards for his clients. He
advertised that he treated his clients “like he was
dealing with his momma.” Mr. Keys and Mr.
O'Driscoll also recommended that the Board retain the law
firm of Becker & Poliakoff, P.A, in which Christopher
Mammel, Copper Oaks' current counsel, was a
principal. Ultimately, the Board adopted both
the June 2015 Board meeting, Mr. O'Driscoll explained
Keys' Appraisal and Consultant Agreement (Ex. 13). The
agreement required Copper Oaks to pay a fee calculated at
“$350.00 per hour plus expenses, not to exceed 10% of
the total of the insurance funds received.” It
contained no terms specifying what services would be
provided, who would perform the services, or any hourly rate
other than $350. There was no provision for periodic billing
or review of charges incurred. Indeed, only paragraph 5
addressed payment, specifying that KCC would be “paid
as a joint payee by the insurance company.”
There is no signed copy of the Appraisal and Consultant
Agreement in the trial record, but Board minutes from June 8,
2015 reflect its approval and the retention of both Keys and
Becker & Poliakoff (Ex. 8).
the ensuing months, several judicial opinions in unrelated
cases involving the same Policy language i) found that Mr.
Keys was not sufficiently “impartial, ” ii)
disqualified him as an appraiser, and iii) vacated appraisal
awards where he had been an appraiser. One specifically cited
to the percentage fee cap in Keys' fee agreements as
evidence of bias. In light of this particular decision, Keys
sought to renegotiate his Appraisal and Consultant Agreement
with Copper Oaks. The Board's September 2015 meeting
minutes describe a seventy minute executive session in which
the Board discussed “amendment” of the Appraisal
and Consultant Agreement with an attorney from Becker &
Poliakoff. The minutes reflect that ‘upon
returning” from the executive session, the Board
approved an “amended engagement contract.” The
“amended agreement” (Ex. 15) made two important
substantive changes to the original Appraisal and Consultant
• The preamble contains an acknowledgement by Copper
Oaks that it had “no preexisting financial relationship
with KCC, and to its knowledge, KCC is not affiliated with
any party to the appraisal.” The representation that
the parties had had no preexisting relationship was patently
false in light of the Appraisal and Consultant Agreement that
was ostensibly being amended. As to the representation that
Copper Oaks knew nothing about any of KCC's affiliations,
it is clear that Copper Oaks knew that Mr. Keys and KCC were
affiliated, but the Court understands that this disclaimed
any knowledge by Copper Oaks about the personal and business
connections between Keys, Mr. O'Driscoll, Mr. Mammel and
Becker & Poliakoff.
• The fee cap of 10% of the insurance funds received is
eliminated. In all other respects, the “amended
agreement” is functionally the same as the earlier
Appraisal and Consultant Agreement. For example, the amended
agreement is devoid of terms common to hourly fee
arrangements: specification of who would perform what
services at what hourly rate, a provision for submission of
periodic statements, provisions for interim payment by Copper
Keys submitted no bill to Copper Oaks until August 15, 2016,
one week after the Appraisal Award of $2, 873, 085.35 was
announced (Ex. 57). The single bill reflects 666.40 hours of
work, all charged at a rate of $350 per hour, for a total fee
of $233, 240. There is no differentiation in hourly rates
based on tasks or by the person performing the task - for
example, clerical time spent making travel arrangements and
Mr. Keys' presentation of his appraisal to the umpire are
both billed at $350 per hour. According to Mr. Keys'
testimony, his staff was supposed to record all time spent on
the project, but he acknowledged that neither he nor his
staff focused on hourly charges in formulating the single
invoice submitted to Copper Oaks. For example, Mr. Keys
testified at the hearing that he personally was on site
“many, many occasions” in early 2016, yet the
invoice Keys submitted to Cooper Oaks bills only three hours
of Mr. Keys' time all in a single site visit. The invoice
further reflects that Mr. Keys spent only 7.25 hours in total
in preparation of the appraisal, four of which were devoted
to emails, communications with the appraisal panel, and a
“pro-rated” conversation with counsel. Mr. Keys
testified that he did not keep track of his time at all. When
asked about billing discrepancies that indicated that Keys
may have significantly under-billed Copper Oaks
based on hours spent, Mr. Keys was blasé.
Neither he nor his staff attempted to reconcile time records
with their recollections or testimony.
Curiously, even though the “amended agreement”
eliminated any reference to the original fee cap of 10% of
the insurance award, Keys' fee of $233, 240 fee
ultimately charged was almost precisely that amount -
9.8% of the final valuation of the claim by
the appraisal panel (that is, the appraisal award less the
sum previously already paid by American Family).
Court pauses at this stage to make certain findings about
Copper Oaks' financial relationship with Keys. Although
the initial fee agreement called for Keys to bill its
services by the hour, subject to a “cap” that
ensured that Copper Oaks would never be obligated to keys for
more than 10% of the appraisal award, the Court finds that,
in reality, the parties understood and acted as though the
“cap” was simply a promise that Keys would be
paid 10% of the appraisal award, similar to O'Driscoll
and 4 Seasons' contingent fees. In other words, the Court
finds that Copper Oaks never intended to pay Keys on an
facts support this conclusion. Copper Oaks' severely
underfinanced reserve account made it impossible for it to
pay more than $200, 000 to Keys for services rendered unless
and until a large appraisal award occurred. The absence of
traditional indicia of an hourly rate agreement, Keys'
billing of clerical time at inflated rates, and Keys' own
lackadaisical reaction to questions at trial about his lax
timekeeping also suggest to the Court that Keys'
“hourly” billings were simply a facade intended
to conceal what was, in reality, a standard
the parties' purported agreement to modify the fee
arrangement to remove the “10% cap” was a
transparent attempt to create the illusion that the parties
were attempting to reform their fee agreement in light of a
recent judicial opinion that declared contingent fees paid to
appraisers to, per se, require vacatur of appraisal
awards. The Court finds that, in reality, the parties
intended to adhere to the existing agreement: i.e.,
that Keys would receive 10% of the appraisal award as
payment. The fact that Keys eventually submitted an
error-riddled, sometimes inflated invoice that just happened
to amount to 9.8% of the value of the appraisal award was no
coincidence. Thus, the Court finds that both Copper Oaks and
Keys always understood and intended that Keys' payment
for serving as appraiser would be a flat 10% of the final
therefore essential that the appraisal award be high enough
to allow Copper Oaks to pay the bills of Keys,
O'Driscoll, and 4 Seasons, plus be sufficient to
allow Copper Oaks to repair the buildings. Indeed, under
Keys, O'Driscoll, and 4 Seasons' contingent fee
arrangements, Copper Oaks was required to obtain an appraisal
award of nearly 128% of actual repair costs, simply to break
Compliance by Mr. Keys
noted earlier, Mr. Whipple, Mr. Keys and Mr.
Norton agreed to comply with the impartiality and
neutrality requirements and required disclosures set forth in
the DORA Bulletin.
conformance with the DORA Bulletin, Mr. Keys made his initial
disclosures to via email on March 18, 2016. He stated in
conclusory fashion that: (1) he was not a party to the
Policy; (2) he did not have a financial interest in the
outcome of the appraisal; (3) he was billing for his time on
an hourly basis; (4) he was not a family member of the
insured and had no relationship with any member of Copper
Oaks; and (5) he had a continuing obligation to supplement