Two recent posts, The Current State of Appraisal and How Mutual Terms Can Prevent Appraisal and Ethics of Appraisers—Just Wishful Thinking? raise the question whether the appraisal process and appraisers should be regulated. In my speech at the Windstorm Insurance Conference last week, I predicted regulation was certainly coming because neither insurers nor policyholders should risk significant sums without some semblance of due process and fairness. Sometimes, appraisers take advantage of consumers.
Many policyholders are not very sophisticated when it comes to costs of retaining professional experts to help them recover from their insurers. Most public adjusters charge a maximum fee of 10% of monies recovered. Attorneys typically charge between 5% to 40%, depending upon the stage of their retention and the status of the claim. Appraisers are not regulated at all.
So, when I was provided a case of Fulgham v. Fischer,1 I was not surprised the Court noted the arrangement of the policyholder’s appraiser and of the experts retained by the policyholder’s appraiser:
Eagle hired Fulgham as its appraiser. Fulgham assembled a team of approximately fifty people, including Fischer, to assist in the appraisal process. . . Eagle negotiated an agreement whereby Eagle would assign its insurance claim to CRW, LLC, one of Fulgham’s companies. In the event CRW was successful in obtaining insurance proceeds from Travelers, CRW would pay Eagle 49% of any monetary recovery, less all costs of recovery. Fulgham testified he did not sign the agreement; however, on cross examination, he stated that the agreement was the template for how the appraisal was to be conducted. The record also contains evidence that Eagle and Insurance Appraisal Service (IAS), another of Fulgham’s companies, had a second agreement. According to this agreement, also unsigned, IAS would fund the expenses of the appraisal and after the appraisal was complete, Eagle would pay IAS’s fee which would consist of the expenses of the appraisal and the hourly rates charged for members of the appraisal team. Under either scenario, it appeared that compensation for members of the appraisal team would come through Fulgham or one of his companies. Fulgham testified that everyone on the appraisal team knew that the insurance proceeds from Travelers would be the ultimate source of their compensation. . . .
Generally, appraisers cannot be paid on a contingent basis in Texas. In this case, it appeared both the appraiser and the experts worked on a contingent basis. While Florida allows appraisers to act on a contingent fee, the 49% fee is the highest I have ever heard of. Maybe there was a good reason for such a high rate.
Appraiser Disinterest and Impartiality California Style noted that many states have more formal processes for appraisal and for the impartiality of appraisers. With the types of agreements noted in Fulgham, I predict the insurance industry is going to lobby for regulations limiting the contingent nature of retention for appraisers as well as the process of appraisal.
Nicole Vinson noted in Looking Back at a Citizens Case Which Addressed the Competency Required of Appraisers that a distinguished appraiser, Jeff Pellet, was found unquestionably competent by a Florida court . Pellet has previously written an article in Claims Magazine, Soap Box, where he noted what informal appraisals could be:
Throughout the process, it is necessary to remember that data should be shared. Regardless of whether they represent insureds or insurers, appraisers should not act like Perry Mason, waiting fort he right moment to pull rabbits out of hats. The material gathered in support of clients needs to be shared with the other side if there is to be any chance of reaching an early conclusion. Appraisals, unlike fine wine, do not get better with age.
Courtesy is a critical element in any appraisal. Too often, appraisers get so caught up in the process that they fail to return telephone messages, fail to respond to faxes or other correspondence, and ignore e-mail. This can set the tone for unnecessary delay in reaching settlement. Negotiation should remain at the heart of all appraisals.
Most importantly, the process must be kept simple. Impatient appraisers may muddy the waters by introducing attorneys or other outside parties, which could detract from the spirit of artful negotiation. Attorneys should be consulted when cases set for appraisal go awry; however, lawyers introduced in appraisals at the wrong times and for the wrong reasons will only hurt the interests of all parties. Although lawyers are great at interpreting legal matters, they should never communicate directly with appraisal panels.
By adopting the proper attitude, an appraiser can contribute to the prompt resolution of a claim. When the facts of a particular claim call for an appraisal, the parties should embrace it. Both sides should reflect upon the toll that a loss even may have upon insureds, and conduct thee appraisal with sensitivity toward the personal concerns of policyholders. A desire to become familiar with the umpire’s goals and objects, and a commitment to compromise and the art of negotiation, will only server to further the interests of the appraisers’ clients. Basic courtesies, such as maintaining open lines of communication and constant sharing of information, will keep the appraisal on the right track. Adherence to these principles will ensure that the appraisal process works best for all parties involved.
Those days of informal appraisals may be coming to an end because of gamesmanship and bias often found among those conducting appraisals today.