Colorado Insurance Appraisal Clause: The Amount of The Loss

This articles discuss specific concerns regarding misinterpretation of the Appraisal Clause in Colorado.  The questions is whether appraisers and umpires should be restricted from discussing depreciation within the appraisal clause function.

Our opinion is that any amount beyond the amount of loss should be excluded from appraisal when the clause itself does not make a specific reference to actual cash value and/or depreciation.  Appraisal clauses within Colorado generally do not include such references due to lack of regulatory oversight, and general lack of legislative understanding.  Alternatively, it appears the only discussion being made is relative to the cost to repair or replace a damaged item with something of the same (like kind and quality) exists.  This theory further applies well established common law that a person cannot recover more than something is worth at the time of loss.

Appraisal Clause Background.

Many readers will recognize the Appraisal Clause is a process within the majority of property insurance policies that allows for parties to set the amount of the loss when a dispute exists.  The issue here is that many appraisers, umpires, and courts mistakenly determine amounts of depreciation and the actual cash value of the loss.  This can plainly be seen by reviewing a typical appraisal clause.Appraisal.  If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. Should this occur, each party will choose a competent and disinterested appraiser within 20 days after receiving a written request from the other. The appraisers will choose a competent and disinterested umpire within 15 days.  If they cannot agree upon an umpire within that time frame, you or we may request an umpire be appointed by a judge of a court of record in the state where the insured premises is located.  The appraisers will separately set the amount of the loss.  If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss.  If the appraisers fail to agree within a reasonable time, they will submit their differences to the umpire.  Written agreement signed by any two of these three will set the amount of the loss.  Each appraiser will be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire will be paid equally by you and us.A brief review signifies the sole duty of the appraisers, which is (as we explained) to set the amount of the loss.  Readers will note this clause does not indicate the appraisers are to determine or consider actual cash value or depreciation.  State Statute & Common Law.

While appraisers are generally forbidden from interpreting laws applicable to a policy, they undoubtedly have an obligation to provide reasonable and reliable services within the confines of the laws which regulate their activity.  In Colorado, for example, the regulation is practically non-existent.

Interestingly, there appears to be only one common law case in Colorado which is applicable to the appraisal clause.  In Wagner v. Phoenix Insurance Company, 348 P. 2d 150 Colo: Supreme Court 1960 the court affirmed the appraisal clause was not a required precedent to a Plaintiffs right for cause of action.

Otherwise, Colorado has does not appear to have made a single ruling relative to the appraisal clause since 1960.  This is somewhat shocking in comparison many other states which have extensive laws applicable to the appraisal clause.  For example, New Jersey has a statute which mandates the standard appraisal clause, and requires that appraisers find the actual cash value amount of the loss.  See N.J.S.A. 17:36-5.20.

As such, New Jersey courts have consistently stated: The purpose of the appraisal clause is to remove the valuation of damages issues from the court and provide a speedy, cost effective and efficient method of determining damage issues by allowing either the insurer or the insured to select this alternate means of valuing the loss. See Elberon Bathing Co. v. Ambassador Ins. Co., 77 N.J. 1 (1978).

The first affirmation in Elberon is the key to our opinion on whether its appropriate to comment on figures not directly related to the amount of the loss.  In the first argument, the Elberon court affirmed that appraisers who disregard information related to depreciation and actual cash value are in violation of their duty under the statute to analyze that information.

Oregon and many other states have also adopted similar common and statute law.

Cause to vacate consideration of Depreciation and Actual Cash Value within the Appraisal Clause.  

The foregoing facts amount to the fact that appraisers should not consider depreciation and/or actual cash value in Colorado.  Colorado courts and lawmakers surprisingly have not examined the details of the appraisal clause, which in turn allows the majority of appraisers and umpires to run wild throughout the process, often applying figures where they are not appropriate.  Since the appraisal clauses do not require examination of depreciation and/or actual cash value, and these issues are appropriately addressed within the policy, they are relegated to consideration by the court and not the parties directly handling the appraisal dispute.

The Colorado Department of Regulatory Agencies Division of Insurance (DORA) has not given any direction because they are limited to commentary on the statutory laws.  Although DORA has adopted arbitration statutes implying very strict (although rarely applied) rules on disinterest and ex parte communication during the appraisal clause process.

It seems quite obvious that when there is no legislative requirement to resolve the issue of actual cash value, and the appraisal clause fails to require examination of those elements, then appraisers and umpires cannot consider those issues.

There should be little doubt that the well educated minds of policy creation will exempt characteristics of one policy in comparison to another in states that require certain aspects to appear in the policy.  The question of whether to apply actual cash value and/or depreciation to the appraisal clause is certainly considered in drafting policy language.  Insurance companies do have an interest in steering the outcome for valuation of depreciation (at appraisal) because (1) the costs of doing so in appraisal will be less than determining the figure at litigation; (2) the frequency of adverse reactions is higher when contemplated outside of the appraisal clause; (3) the figures normally become binding and cannot be changed at appraisal; (4) the methods of calculating depreciation are also bound and likely exempt from further review during litigation.


There should be little doubt that a lack of review and contemplation of the appraisal clause exists in Colorado.  Colorado has continually avoided much discussion on this matter, noting the only DORA regulation was adopted as the result of one attorney personally appearing at DORA and raising many valid points on the process, including that many insurers have a record of appointing appraisers who fail to meet the disinterested requirement within appraisal. delivers relevant articles and opinions regarding insurance claim services.  Please write if you would like to publish an article on our site.  

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