Court: An Appraisal Is Not An Arbitration

ARBITRATION is the determination of a matter or matters of difference between contending parties, by one or more unofficial persons, chosen by the parties. Legally, an arbitration award can be confirmed as a judgment after due process and evidentiary procedures are completed and the award is filed with a court of appropriate jurisdiction.

MEDIATION is the act of a third person who interferes between two contending parties with a view to reconcile them or persuade them to adjust or settle their dispute. A mediation does not result in a judgment unless there is an agreement between the parties which can then made a judgment by motion of one of more of the parties.

Somewhere in between an arbitration and a mediation lies an APPRAISAL. Appraisal can mean many different things, but in the context of an insurance policy providing coverage for property insurance, it is a method of deciding the value of property damaged or destroyed. The typical appraisal involves each party selecting an appraiser, and a third appraiser is selected by a variety of methods if agreement as to the third cannot be reached.

An open question in Colorado is the binding effect of and legal enforceability of an appraisal award. Neither the Colorado appellate courts nor the Tenth Circuit have decided whether an appraisal process can constitute arbitration under the Colorado Uniform Arbitration Act.

In many jurisdictions, decisions of an appraiser or other financial expert acting in the role of an appraiser are entitled to the same degree of finality accorded decisions of arbitrators [that is, decisions are final and conclusive absent fraud, corruption, or similar wrongdoing]. The principle underlying these cases is that when parties agree to have value affixed by an appraisal, they must abide by their own agreement and are not entitled to a new determination by the courts. 

Other jurisdictions reach a different conclusion. There is a substantive difference between a classic arbitration and a classic appraisal. For example the principal feature of an arbitration is that it ends the entire controversy between the parties. On the other hand, an appraisal is expected to perform a discrete function involving only the ascertainment of certain particular facts. This function, which entails neither a hearing nor the exercise of judicial discretion. An arbitration ordinarily encompasses the disposition of the entire controversy between the parties in a quasi-judicial setting. An appraisal establishes only the amount of loss and not liability by a method determined by the appraisers.

The ‘three appraiser’ process does not resemble classic arbitration. Besides the above conceptual difference, there are procedural differences. For example, an arbitrator can issue a subpoena, but an appraiser cannot. Document production from third parties can be obtained in an arbitration, but not in an appraisal. An appraiser does not have the authority to have witnesses testify under oath, a fixture of judicial proceedings and arbitrations. 

In sum, an appraisal should not be considered an arbitration under the Colorado Uniform Arbitration Act. This was the decision of Judge Babcock in Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, 2015 U.S. Dist. LEXIS 120714, (D. Colo. 09/10/15). It will be worth following to see what courts follow his reasoning in rejecting the idea that an appraisal is an arbitration.