Auto-Owners Insurance Company v. Summit Park Townhome Association
Filing
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MEMORANDUM OPINION AND ORDER Granting 7 Defendant's Motion to Stay Litigation and Motion to Compel Appraisal as Mandated Under the Policy. Further proceedings in this matter are stayed pending completion of the appraisal process, by Judge Lewis T. Babcock on 4/14/2015. (ebuch)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 14-cv-03417-LTB
AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation,
Plaintiff,
v.
SUMMIT PARK TOWNHOME ASSOCIATION, a Colorado corporation,
Defendant.
______________________________________________________________________________
MEMORANDUM OPINION AND ORDER
______________________________________________________________________________
Babcock, J.
This insurance coverage dispute is before me on Defendant Summit Park Townhome
Association’s (“Summit Park”) Motion to Stay Litigation and Motion to Compel Appraisal as
Mandated Under the Policy [Doc. # 7]. Plaintiff Auto-Owners Insurance Company
(“Auto-Owners”) issued an insurance policy to Summit Park. Summit Park now requests that
the Court compel Auto-Owners’ participation in the appraisal process outlined in the policy in
order to determine the “amount of loss” it sustained as a result of a September 2013 hailstorm;
stay the litigation pending completion of that process; and reserve jurisdiction to select an
umpire.
I have reviewed the motion, Auto-Owners’ response [Doc. # 10], and the reply [Doc.
# 16]. Oral argument would not materially assist me in deciding the motion. As explained
below, I GRANT the motion because the policy unambiguously commits the parties’ dispute
regarding the amount of loss from the storm, if any, to the appraisal process. Staying further
court proceedings while this process takes place is the most efficient way to proceed for both the
parties and the Court.
I. Background
The following facts are undisputed unless otherwise noted. Auto-Owners issued policy
number 74416480-13 to Summit Park, a homeowner’s association for a community of 57
townhomes in Aurora, Colorado. 2d Am. Compl. ¶¶ 2-3 [Doc. # 6]. The policy has a term of
March 1, 2013, to March 1, 2014, and covers, among other things, “direct physical loss of or
damage to” the Summit Park premises. Id. ¶¶ 3-4. In September 2013, a hailstorm moved
through Aurora. Id. ¶ 5. Summit Park made a claim under the policy for damages resulting from
the storm. Id. Auto-Owners investigated the claim and paid Summit Park some $245,000.
Mot. ¶¶ 6, 11 [Doc. # 7].
Summit Park believes the covered damages are millions of dollars greater and hired
counsel to press its cause with Auto-Owners. Id. ¶ 9. Summit Park also sought to exercise its
rights under the policy’s appraisal provision. Id. ¶ 21. That provision allows either party to
“make written demand for an appraisal of the loss” if the parties “disagree on the value of the
property or the amount of loss.” Ex. A to 2d Am. Compl. at 78 [Doc. # 6-1]. Once a party does
so, each party “will select a competent and impartial appraiser” to decide the issue. Id. The
appraisers then choose an umpire to whom “they will submit their differences,” if any, and a
“decision agreed to by any two will be binding.” Id. A “judge of a court having jurisdiction”
will choose the umpire if the appraisers cannot agree on a selection. Id.
Auto-Owners eventually filed this declaratory judgment action in response to these
demands. As relevant here, Auto-Owners alleges that the policy does not cover Summit Park’s
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claimed damages, in whole or in part, because they were either caused by a storm predating the
policy’s effective dates—rather than by the September 2013 storm—or by some cause of loss not
covered under the policy, such as defective workmanship. See 2d Am. Compl. ¶¶ 61-71 [Doc.
# 6]. Auto-Owners further alleges that, to the extent the September 2013 storm did cause
damage, the policy does not provide coverage for replacement of undamaged property, including
vinyl siding, to achieve “matching” or “visual consistency” with damaged property that is
replaced. Id. ¶¶ 72-78.
The instant motion requires me to decide whether these are “disagree[ments] on the value
of the property or the amount of loss” such that Summit Park may invoke the appraisal provision.
Ex. A to 2d Am. Compl. at 78 [Doc. # 6-1]. If I conclude that they are, I must then decide
whether it is appropriate to stay the litigation while the appraisal process is completed.
II. Analysis
The Court’s jurisdiction in this matter is founded on diversity of citizenship.
28 U.S.C. §1332(a). Therefore, I apply the substantive law of Colorado. Essex Ins. Co. v.
Vincent, 52 F.3d 894, 896 (10th Cir. 1995). Under Colorado law, questions of coverage under an
insurance policy are generally matters of law reserved for the court. See Fire Ins. Exch. v.
Bentley, 953 P.2d 1297, 1300 (Colo. App. 1998). The policy must be enforced as written unless
the policy contains an ambiguity. Cary v. United of Omaha Life Ins. Co., 108 P.3d 288, 290
(Colo. 2005). The policy should be construed to give effect to the intent of the parties. Id.
“Whenever possible this intent should be ascertained from the plain language of the policy
alone.” Farmers Ins. Exch. v. Anderson, 260 P.3d 68, 72 (Colo. App. 2010). “[W]ords should
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be given their plain meaning according to common usage, and strained constructions should be
avoided.” Compton v. State Farm Mut. Auto. Ins. Co., 870 P.2d 545, 547 (Colo. App. 1993).
Auto-Owners contends that the appraisal process has no role to play in this case, at least
at this juncture. In committing disputes about the “amount of loss” to the appraisal process,
Auto-Owners contends, the policy does not allow appraisers to determine the cause of any loss.
Rather, this is a question of coverage that only the Court can resolve. Therefore, it contends,
appraisers cannot decide how much, if any, of the damage to Summit Park’s property was caused
by the September 2013 storm, as opposed to events predating the policy or excluded causes like
defective workmanship. And they certainly cannot decide the parties’ other dispute, about
whether the policy will pay to replace undamaged property. I address these issues in turn.
A. Whether the Appraisal Process May Determine Issues of Causation
Courts across the country are divided as to whether, in determining the “amount of loss”
pursuant to appraisal provisions like the one here, appraisers may consider questions of
causation. For example, with respect to an appraisal provision in a homeowner’s insurance
policy, one court has held that “assessment of the amount of a loss . . . necessarily
includes determinations” such as whether damage “was caused by a covered peril or a cause not
covered, such as normal wear and tear, dry rot, or various other designated, excluded causes.”
State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285, 1288 (Fla. 1996); see also, e.g., North
Glenn Homeowners Ass’n v. State Farm Fire & Cas. Co., 854 N.W.2d 67, 71 (Ia. App. 2014)
(“Causation is an integral part of the definition of loss, without consideration of which the
appraisers cannot perform their assigned function.”). By contrast, other courts have held that
“determination of the causation of [damages] is within the exclusive purview of the courts, not
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the appraisers.” Rogers v. State Farm Fire & Cas. Co., 984 So. 2d 382, 392 (Ala. 2007); see
also, e.g., Munn v. Nat’l Fire Ins. Co. of Hartford, 115 So. 2d 54, 55 (Miss. 1959) (“We have
concluded that the appraisers have no power to determine the cause of the damage.”).
The parties have identified no Colorado appellate authority on this question, and the
Court has located none. Summit Park, however, has attached to its motion three orders from
Colorado trial courts holding that appraisals may address causation. See Order Re: Pl.’s Mot. to
Compel Appraisal/Arbitration, Rooftop Roofing, Inc. v. Fire Ins. Exch., No. 10CV243 (Elbert
Cnty., Colo. Dist. Ct. Apr. 8, 2011) [Doc. # 7-9]; Order Re: Pl.’s Mot. to Compel Appraisal and
for Attorney’s Fees, Ikeako v. Fire Ins. Exch., No. 12CV2127 (Arapahoe Cnty., Colo. Dist. Ct.
Apr. 19, 2013) [Doc. # 7-10]; Order on Scope of Appraisal, Cochran v. Auto-Owners Ins. Co.,
No. 11CV8434 (Denver Cnty., Colo. Dist. Ct. Oct. 22, 2012) [Doc. # 7-11]. Auto-Owners has
not objected to the Court’s consideration of these orders. I take judicial notice of them. Fed. R.
Evid. 201(b), (c)(1).
I agree with the decisions allowing appraisers to address issues of causation, and
conclude that the policy unambiguously permits Summit Park to demand an appraisal under the
circumstances here. I reach this conclusion for several reasons. First, while the policy does not
define the term, the plain meaning of “amount of loss” incorporates the concept of causation.
See CIGNA Ins. Co. v. Didimoi Prop. Holdings, N.V., 110 F. Supp. 2d 259, 264 (D. Del. 2000)
(quoting Black’s Law Dictionary definition of “amount of loss”: “the diminution, destruction, or
defeat of the value of, or of the charge upon, the insured subject to the assured, by the direct
consequence of the operation of the risk insured against, according to its value in the policy, or
in contribution for loss, so far as its value is covered by the insurance”) (emphasis in original).
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The facts here further illustrate this point. In its reservation of rights letter, Auto-Owners noted
that, in determining the “actual cash value” of the damage, it determined that certain furnace flue
stacks had sustained “heavy damage” that was “not consistent with the 2013 storm” but was
instead “due to the 2000 hailstorm.” Ex. 1 to Resp. at 9 [Doc. # 10-1]. This demonstrates that,
as a matter of common usage, one determines the amount of loss with reference to a particular
cause. See also State Farm Lloyds v. Johnson, 290 S.W.3d 886, 893 (Tex. 2009) (“Indeed,
appraisers must always consider causation, at least as an initial matter. An appraisal is for
damages caused by a specific occurrence, not every repair a home might need. . . . Any appraisal
necessarily includes some causation element, because setting the “amount of loss” requires
appraisers to decide between damages for which coverage is claimed from damages caused by
everything else.”).
Second, interpretation of a policy provision “requires consideration of the purpose of the
provision.” Pompa v. Am. Family Mut. Ins. Co., 520 F.3d 1139, 1143 (10th Cir. 2008) (citing
Branscum v. Am. Cmty. Mut. Ins. Co., 984 P.2d 675, 678 (Colo. App. 1999)). A purpose of
appraisal provisions is to avoid litigation and encourage settlement. Didimoi, 110 F. Supp. 2d at
269 (noting that if the court did not allow appraisers to consider causation, it “would be
reserving a plethora of detailed damage assessments for judicial review, thereby debunking the
purpose of appraisal which is to minimize the need for judicial intervention”); 46A C.J.S.
Insurance § 1889 (2015) (“The purpose of a provision for arbitration in an insurance policy is to
provide a plain, speedy, inexpensive and just determination of the extent of the loss.”).
Declining to allow appraisers to consider causation would significantly undermine this purpose.
Johnson, 290 S.W.3d at 892-93 (“If State Farm is correct that appraisers can never allocate
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damages between covered and excluded perils, then appraisals can never assess hail damage
unless a roof is brand new. That would render appraisal clauses largely inoperative, a
construction we must avoid.”).
Third, Colorado public policy cautions against an overly restrictive reading of the
appraisal provision. An appraisal process like the one provided by the policy here has been
“classified as an arbitration” pursuant to the Colorado Uniform Arbitration Act, Colo. Rev. Stat.
§ 13-22-201, et seq. (“CUAA”), by at least one judge. See Lim v. American Econ. Ins. Co., No.
13-CV-02063-CMA-KLM, 2014 WL 1464400, at *4 (D. Colo. Apr. 14, 2014). Colorado has a
“strong public policy in favor of arbitration.” Braata, Inc. v. Oneida Cold Storage Co., LLP, 251
P.3d 584, 590 (Colo. App. 2010). For example, the CUAA allows courts to stay arbitration
proceedings only in limited circumstances, such as where “it is apparent from the language of the
contract that the claim sought to be arbitrated is clearly beyond the scope of the arbitration
clause.” Sopko v. Clear Channel Satellite Servs., Inc., 151 P.3d 663, 666 (Colo. App. 2006); see
also 15 Couch on Ins. § 209:8 (3d ed. 2014) (“Like the arbitration remedy, appraisal is designed
to be consistent with the public policy of discouraging litigation. Accordingly, every reasonable
presumption will support the validity of a loss appraisal.”). Although I do not address at this
juncture the applicability of the CUAA to this case, at a minimum the CUAA demonstrates a
strong public policy in favor of alternative dispute resolution processes like appraisal.
Fourth, and most importantly, in determining what damage, if any, was caused by the
September 2013 storm, the appraisers will not be making, and will not preclude the Court from
making, coverage determinations. Didimoi, 110 F. Supp. 2d at 263-65 (“[T]he question of
‘coverage’ deals with whether an event, such as a fire, is covered in the first instance, while the
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question of amount of loss relates to what damage was done by the covered event and the cost to
repair that damage.”). The parties may still dispute coverage issues after the appraisal process
has bene completed. Id. at 265. Auto-Owners is concerned that the Court will be precluded
from “review[ing] the merits of the appraiser’s award” because the CUAA provides that
arbitration awards are binding on courts in most circumstances. Resp. at 23 [Doc. # 10]; Colo.
Rev. Stat. § 12-22-223. Auto-Owners is, of course, correct with regard to the appraisers’ factual
determinations regarding the issues over which the policy gives them purview—the “value of the
property or the amount of loss”—including the amount of damage, if any, caused by the
September 2013 storm. Didimoi, 110 F. Supp. 2d at 259 (parties “may not contest the decision
on amount of loss reached by the umpire and at least one of the appraisers as a result of the
appraisal process”). Whether because of the CUAA, the policy language, or both, the Court’s
review of these issues will be limited. But legal determinations, including regarding coverage,
are clearly outside the scope of the appraisal process. See, e.g., Colo. Rev. Stat. § 13-22-223(1)
(requiring court to vacate arbitration award upon finding that “arbitrator exceeded the
arbitrator’s powers”); 15 Couch on Ins. § 209:8 (3d ed. 2014) (“In an appraisal, the parties refer
some ministerial duty or some matter involving only the ascertainment of facts to selected
persons for disposition.”) (emphasis added). For the same reasons, Auto-Owners’ concern that
appraisal could somehow shift the parties’ burden of proof, a legal issue, is also misplaced.
B. Whether the Appraisal Process May Determine Coverage as to Undamaged Property
Summit Park contends the appraisal process may determine whether the policy requires
Auto-Owners to pay to replace undamaged property in order to achieve visual consistency. I
disagree. This is a clear example of a coverage issue beyond the scope of appraisal. Didimoi,
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110 F. Supp. 2d at 268 (“Coverage questions . . . are legal questions for the Court as this case
progresses.”). The main case on which Summit Park relies actually illustrates this point. See
Reply at 20 [Doc. # 16] (citing Cedar Bluff Townhome Condo Ass’n, Inc. v. Am. Family Mut.
Ins. Co., 857 N.W.2d 290, 293 (Minn. 2014)). While Cedar Bluff affirmed an appraisal panel’s
conclusion that an insurance policy covered replacement of undamaged property to achieve
matching, it reviewed that conclusion de novo, giving it no deference. Id. The court wrote that
“[a]n appraiser can make no legal determinations” and that “an appraisal panel may not construe
the insurance policy.” Id. (internal citations and quotations omitted). I would review any legal
conclusions the appraisers should happen to make in the same fashion.
C. Scope of Appraisal
While the appraisers should not themselves resolve the parties’ legal issues, they should
make appropriate factual conclusions to enable the Court to do so. For example, the appraisals
should address the cost of replacing undamaged property to achieve matching. See Cochran,
supra, at 9 (noting that “the Appraisal shall include all items of damage claimed by the
[insureds]”). The appraisals should separately calculate and identify disputed costs so that the
Court can either include or exclude them once it has determined whether the policy provides
coverage for them. Counsel should work collaboratively to ensure that the appraisals provide
sufficient detail to enable the Court to do this. Following this course will enable the parties to
avoid unnecessary discovery or additional appraisals.
D. Stay of Litigation
As a final matter, I must decide whether to grant a stay of proceedings while the appraisal
process takes place. A court may enter a stay of proceedings incidental to its inherent power to
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“control the disposition of the causes on its docket with economy of time and effort for itself, for
counsel, and for litigants.” Springmeadows Condo. Ass’n v. Am. Family Mut. Ins. Co., No.
14–cv–02199–CMA–KMT, 2014 WL 7005106, at *1 (D. Colo. Dec. 9, 2014) (quoting Landis v.
N. Am. Co., 299 U.S. 248, 254-55 (1936)). In this District, we have frequently considered the
following factors in determining whether a stay is appropriate: (1) the plaintiff’s interests in
proceeding expeditiously with the civil action and the potential prejudice to plaintiff of a delay;
(2) the burden on the defendants; (3) the convenience to the court; (4) the interests of persons not
parties to the civil litigation; and (5) the public interest. Id. (citing String Cheese Incident, LLC
v. Stylus Shows, Inc., 02-CV-01934-LTB-PA, 2006 WL 894955, at *2 (D. Colo. Mar. 30, 2006)).
With respect to the first three factors, it is most efficient for the parties and the Court to
wait until the appraisal process is complete before proceeding with discovery and other matters.
The appraisal process should resolve key factual issues that are in dispute. In particular, if, as
Auto-Owners alleges, the September 2013 storm caused no damage to Summit Park’s property,
2d Am. Compl. ¶¶ 61-65 [Doc. # 6], then it appears there is no coverage and no reason for this
case to proceed. If that storm did cause damage, appraisal will resolve the extent of that damage.
Accordingly, appraisal could limit the need for discovery in this case, resulting in significant
cost savings to both parties. I give little weight to the fourth and fifth factors, as I am not aware
of any significant interests of non-parties or the public that a stay would impact, either positively
or negatively. On balance, therefore, I conclude that a stay is appropriate.
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III. Conclusion
Accordingly, it is ORDERED that:
1. Defendant’s Motion to Stay Litigation and Motion to Compel Appraisal as Mandated Under
the Policy [Doc. # 7] is GRANTED;
2. The parties shall promptly and fully participate in the appraisal process, including by
identifying their preferred appraisers in accordance with the appraisal provision on or before
April 28, 2015;
3. Further proceedings in this matter are STAYED pending completion of the appraisal
process; and
4. The Court RESERVES jurisdiction during the stay period to resolve any intractable disputes
regarding the appraisal process that may arise and to select an umpire if the appraisers
selected by the parties cannot agree on one.
DATED: April
14 , 2015, at Denver, Colorado.
BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE
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