Steve Badger sent me a legal brief in response to my Wednesday post, Are insured appointed appraisers without a public agent license breaking the law? Badger’s brief is worth reading because it raises the question of whether insurance appraisers can be biased and show favoritism against the party that appoints them. I know thousands of readers will point the finger at Badger and claim that his insurance company clients always appoint biased appraisers. I agree with. But my bet is that Steve Badger will say, “prove it!”
The card has a quote for a case, Travelers Casualty Insurance Company v. Mudd̵7;s Furniture Showrooms, Inc.,1 involving a public adjuster, Chuck Howarth, who I have great respect for and have known for over 30 years. Chuck served on the founding board of the Florida Association of Public Insurance Adjusters (FAPIA). He is a former president of FAPIA. Additionally, he served on the Board of Directors of the National Association of Public Insurance Adjusters (NAPIA). Chuck Howarth moved to Tennessee a long time ago and often serves as an appraiser.
The federal judge’s comments in that case are ideas and cautions that I suggest all appraisers consider:
“It is not the court’s intention to suggest that the Howarth Group is incapable of doing appraisal work in a fair and impartial manner. The agency has obvious expertise. The court merely concludes that the Howarth Group has overstepped the mark on these facts. The word ‘impartial’ means impartial and disinterested—not favoring one side over the other. … Rather than being disinterested and agreeing to take on the task of making a fair and impartial judgment, regardless of the outcome, Howarth concluded from the outset that it could give the project “scope ” and went so far as to promise the insured that if it could not add value, it would not charge anything for the effort. While added value is the understandable desire of the insured, an impartial appraiser should not begin his work with this as the goal. Howarth might be asking here, “why should we get involved if we don’t believe we can help the policyholder add value to the claim?” The answer is: get involved as an adjuster, not an appraiser, if that’s your desire to help the policyholder. Again, an appraiser must not show partiality or favoritism to any party or show partiality.”
The point of my blog last Wednesday was that the business of acting as a public adjuster is different from the business of acting as an appraiser. This federal judge recently found the same. The judge provides a lesson on what type of evidence can show evidence of bias. This case strongly suggests that appraisers in the vast majority of states avoid a “contingent fee cap” if they want to avoid accusations of bias:
The fee arrangement in the original employment agreement between Howarth and Mudd’s was for an hourly rate of $375, with the total fee not to exceed 30% of any additional amounts recovered by Mudd’s through the appraisal process (a “contingent fee” cap’ arrangement). Further, the agreement stated: “If the process does not lead to any further settlement, no fee will be paid.” Later in discovery, it was learned that Jaggers and Howarth had discussed a general “bird chasing” relationship in which Jaggers would receive a referral for any business he would bring to the Howarth group. Specifically, in this case, Howarth agreed to pay Jaggers a 15% referral fee for the appraisal work, to be paid out of Howarth’s appraiser fee. In addition, Howarth promised “not to charge for any lines agreed upon between them and the traveller’s adjuster (or valuer).
In Veranda Gardens, the Court strongly suggested that a contingency fee arrangement would render an appraiser not impartial because it would generate a “personal stake in the appraisal results. Veranda Gardens, LLC v. Secura Ins., No. 3:18-cv-611-DJH-RSE, 2019 WL 2438788 (WD Ky. June 11, 2019). When appraisers have a contingency fee arrangement in place but later withdraw it, as Howarth did in this case, courts have still found that the agreement improperly affects the appraiser’s ability to be impartial….
Howarth’s initial fee arrangement clearly encourages him to expand the scope of the loss in this case. Whether the fee arrangement was changed to remove such provisions is disputed, but the fact that it was there to begin with is indicative of Howarth’s mindset with respect to the assessment. Howarth initially proposed the contingent cap because he wanted Mudds to “benefit” from his judgment. An appraiser must not show partiality or favoritism towards any party or do one side’s partisan political bidding.
When I give lectures on how property insurance appraisers should conduct their business ethically, I try to point out that all appraisers should honestly determine the full amount of the policyholder’s claim. This is often no easy task. It requires time, diligence and expertise. Courage is also required because the honest finding may not be what the person appointing the valuer hoped for.
During the same appraisal seminars and lectures, I sometimes question whether appraisers brag about their results on social media or the Internet. Badger’s letter has such evidence. Whether that will hold up as sufficient evidence of bias must be determined. But if you want your credibility to be an honest appraiser called into question, all you have to do is advertise or brag about results on social media and publicize otherwise private dispute resolutions.
There is a difference between conceit and confidence. Conceit is bragging about yourself. Confidence means you believe you can get the job done.
— Johnny Unitas
1 Traveler Casualty Ins. Co. v. Mudd’s Furniture Showrooms, Inc.No. 4:19-cv-186 (WD Ky. Mar. 28, 2022).