Appraiser Disqualified for Contingent Fee

Appraiser & Umpire Must be Impartial and Fair

 Appraisal awards, like arbitration awards, are difficult if not impossible to set aside. It is only when the parties fail to disclose conflicts or the appraisers or umpire are found to be biased, the award will invariably be upheld by a reviewing court.

In Copper Oaks Master Home Owners Association, a Colorado corporation v. American Family Mutual Insurance Company,  In The United States District Court For The District Of Colorado, the difficult was established when the court ordered the appraisal award vacated.


Copper 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”). 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.

The 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.

Thereafter, Copper Oaks filed a motion for Partial Summary Judgment  seeking to enforce the appraisal award. American Family responded with a Motion to Vacate Appraisal Award.

Upon consent of the parties, the sufficiency of the appraisal was tried in a multi-day bench trial.


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.

On September 9, 2013, Copper Oaks was subject to an afternoon thunderstorm. At 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.

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 and deductible.

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.

When 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.

Requirements for the Appraisal Process

The Policy sets out the appraisal process to be used in the event that the parties cannot agree on the amount of a loss. The Policy contains no definition of “competent” or “impartial.”

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.

The parties agreed to proceed in accordance with a Department of Insurance DORA Bulletin that 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.

Keys’ presentation to the Board before his appointment 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.

At the June 2015 Board meeting, Mr. O’Driscoll explained Keys’ Appraisal and Consultant Agreement 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.”

In 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.  It does not appear that Mr. O’Driscoll disclosed to the Board that he had a referral arrangement with Mr. Keys, nor that Mr. Mammel and Mr. Keys had a long-standing business and personal relationship.

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 found 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. The Court also found that Copper Oaks never intended to pay Keys on an hourly basis.

In its literal sense, the phrase has a conditional meaning – that payment of the fee is “contingent” upon some specific event (such as a verdict favorable to the person receiving the services) occurring. If that event does not occur, no fee is charged.

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.

At no time did Mr. Keys disclose:

  • the existence or terms (including the 10% fee cap) of the initial Appraisal and Consulting Agreement, or that his agreement with Copper Oaks was an amendment agreement that eliminated the fee cap.
  • The existence or contents of court decisions issued during the appraisal process in which courts disqualified Mr. Keys and vacated the appraisal award upon findings of his lack of impartiality and failure to disclose pertinent facts. -AXIS Surplus Insurance Co. v. City Center West LP, 2015CV30453 (Weld County Dist. Ct. Mar. 14, 2016) (# 80-70); – Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 14-cv-03417-LTB, 2016 WL 1321507, at *3-4 (D. Colo. Apr. 5, 2016); – Church Mutual Ins. Co. v. Broadmoor Cmty. Church, 2015CV32454 (Colo. Dist. Ct. El Paso County July 6, 2016) (# 80-71);
  • That Mr. Keys had a long-standing personal and professional relationship with Mr. Mammel, who was a principal in the lawfirm retained by the Board at the recommendation of Mr. Keys and Mr. O’Driscoll.
  • That Mr. Keys had a long-standing referral relationship with Mr. O’Driscoll.

Whether Mr. Keys and Mr. Norton were “impartial”

The Court found that Mr. Keys was not “fair and competent” because he had a “direct material interest in the amounts determined by the appraisal process” and because he did not disclose “facts that a reasonable person would consider likely to affect the appraisers interest in the amounts determined by the appraisal process.”

Financial interest

The Court also found that Keys’ agreement with Copper Oaks tied Keys’ fee directly to the appraisal award. The parties understood and agreed that Keys’ fee would be fixed at 10% of the final appraisal award, with “hourly” billing being irrelevant.

The percentage cap gave Keys a material interest in the appraisal award preventing him from being “fair and competent” in accordance with the DORA Bulletin, and therefore “impartial” under the Policy.

In addition “the Court finds that Mr. Keys’ partiality resulted in him submitting an inflated appraisal based on assumptions about hail damage for which he had no support. Mr. Keys’ appraised Copper Oaks’ loss at $5,066,238.99, almost 50% greater than the estimate by Copper Oaks’ own public adjuster, Mr. O’Driscoll ($3,599,707.13).” Notably, the conclusion that all building walls were damaged was based on the remarkable proposition that the hail storm in question was able to cause impact damage from at least two opposing directions during the same weather event, rather than along a single storm path.

In addition Mr. Keys’ testimony at the bench trial was often evasive, ambiguous, and largely incredible. In response to many questions by the Court and counsel, Mr. Keys never described any methodology that he used to determine the scope of the hail damage.

The outcome, which the Court found to have been a fundamentally unfair appraisal, can most likely be explained by Mr. Keys’ partiality and material interest in inflating the outcome of the appraisal process.

In conclusion Mr. Keys engaged in actions that rendered him not “fair and competent” and Mr. Norton engaged in actions that rendered him not “fair, competent and impartial.” The Court further found that both engaged in conduct that prejudiced the appraisal process and distorted the final award.


Insurance appraisers are – in many states – arbitrators who have the same ethical requirements as a judicial officer. For a judicial officer – or an appraiser – to have a financial  interest in the outcome of a case is contumacious, wrong, and unethical.  Mr. Keys – because of his contingent fee situation – has been disqualified in this and many other cases. Parties to insurance claims where appraisal is demanded should be concerned about allowing Mr. Keys or Mr. Norton to serve on an appraisal panel.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at can be reached at

Mr. Zalma’s reports can be found on Tumbler at  on Facebook at and you can follow him on Twitter at

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.


About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.