Evaluation is a contractual provision in a first-party insurance policy designed to allow insurers and insured persons to resolve the disputed quantity of loss through the work of three uninterested valuers. It works efficiently and easily when done fairly. It does not work at all when one or more of the evaluators are not uninterested and work for a fee based on a percentage of the amount granted.
In State Farm Florida Insurance Company v. Jon Parrish, Case No. 2D19-130, District Court of Appeal of Florida Second District (January 6, 2021) State Farm Florida Insurance Company (State Farm) and its Insured , Jon Parrish, was in a dispute over who could assess the value of Mr Parrish's covered loss.
In 2017, Mr. Parrish filed a claim on State Farm under his homeowners insurance and claimed that his house had damaged Hurricane Irma. He retained a public adjustment firm, Keys Claims Consultants, Inc. (KCC), to represent his interests in his claim. In accordance with its agreement with KCC, KCC agreed to "prepare a detailed account of the damages and present them" to State Farm. The KCC was to "negotiate the damages with the insurance company representatives" and was granted permission to invoke the "assessment provision" under Parrish's insurance. In return, Mr. Parrish to KCC ten percent "of all insurance funds, contractual and extra contractual, received" by Parrish. Mr Parrish also granted KCC "the right to be paid as a joint payee" for State Farm under his contract with KCC.
On January 8, 2018, Bobby Sims, a KCC public adjuster, forwarded Mr Parrish's sworn statement as evidence of loss to State Farm, which valued Mr. Parrish's loss to $ 495,079.25. Along with the sworn statement, Sims, which acknowledged that State Farm would contest the claim, requested that any dispute over the amount of the loss be subject to assessment under the policy. The policy required that the valuers be uninterested.
Parrish named George Keys, president and name of the KCC, as Parrish's "disinterested appraiser." State Farm issued its own assessment request and appointed Bob Davis of Davis Claim Management as its assessor. It also asked Mr Parrish to choose another appraiser.
On May 5, 2018, State Farm filed a "petition to compel assessment to a disinterested appraiser." This "presentation" presented in enumerated paragraphs a sequence of factual allegations (not unlike a civil case), a separate section of legal arguments explaining why, according to Keys, Keys may not be allowed to act as an uninterested assessor under the policy, and a request for that the court "shall issue a decision forcing [Mr. Parrish] to participate in the assessment with an uninterested appraiser not affiliated with Keys Claims Consulting, Inc."
On December 18, 2018, the district court initiated the order that is now before us, in which the court ruled that Mr. Keys could act as a disinterested appraiser despite his company's contractual relationship with Mr. The order denied both petitions and then stated that it was "hereby dismissed in its entirety." The court ordered the parties to evaluate and retained jurisdiction to award Parrish his attorney's fees and costs in connection with the petition.
Politics does not define "disinterested". If the language of an insurance contract is clear and unambiguous, a court must interpret the insurance in the simple sense to implement the insurance as it is in writing. Evaluations are the essence of contracts and the object or scope of the assessment depends on the contractual provisions. Absent ambiguity controls the simple meaning of an insurance policy.
The term "interested" is an adjective that describes an appraiser who holds an interest – that is, a share of some kind, whether financial, proprietary or personal – in the results of the evaluation process. The prefix "haze" denotes its negative – so "disinterested" means an appraiser who is NOT interested in the outcome of the policy evaluation process.
As stated in the policy provision, the termination of the evaluation process results in a recommended monetary allocation of some amount. That is, in fact, the point of the endeavor. And a contingency share in a potential monetary allotment – like this one – represents an economic "interest."
Mr. Keys, as president of Parrish's public adjustment company, has an interest in getting the highest possible recovery because his compensation will be a percentage of it. The KCC's 10% share of the amount allocated in the evaluation process necessarily makes its President interested in the outcome of the process. For that reason alone, he is not an "uninterested appraiser."
The common and ordinary meaning of uninterested includes free from self-interest or financial interest. When an appraiser has a direct financial interest in the outcome of the evaluation, the appraiser is not uninterested.
A contingency model for payment is uniquely problematic under this provision, as the amount of the evaluator's compensation is inextricably linked to the amount the appraiser ultimately awards to the appraiser. The bigger the award, the bigger the payment. It is the link between payment and allocation that makes the contingency fee assessor insurmountably interested in the outcome of the evaluation process, which is a condition that the policy explicitly prohibits.
Mr. Parrish's public adjuster, KCC's adjusters are professionally bound to handle Parrish's claims with expediency and due diligence and not approach investigations, adjustments and settlements in a way that harms the insured. "Expresses the clear intention of the parties to limit valuers to people who are in fact disinterested. Mr. Keys can not act as an uninterested appraiser (in any meaningful sense of the term) in an assessment process of his client's dispute.
Therefore, a public adjuster who has a contingency interest in an insured's assessment or represents an insured in an evaluation process is not an "uninterested valuer" under the evaluation provision of this insurance policy.
The decision in the Florida Court of Appeal should have been and was obvious. A person entitled to a percentage of an award may not be uninterested in the outcome and will, as he is obliged to do as a public adjuster, do anything to increase the amount of the award of appraiser regardless of the facts presented to the assessors and is at least forced to support the evidence of loss created by the KCC. Hopefully, this decision will stop the unreasonable use of the evaluation and the attempt to gain an advantage over an insurance company in an evaluation procedure. Disqualification of the insured's selected valuer was appropriate because he had a direct financial interest in the outcome of the evaluation and because a financial interest in the outcome is by definition a personal interest that favors one side over the other.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims handling, fraud and insurance fraud almost equally for insurers and policyholders. He also acts 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 lawyer and more than 52 years in the insurance industry. He can be found at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.
For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insurance claims staff.
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