In a decision released earlier this week, the Second District Court of Appeal held that a public adjuster who has an interest in a percentage of an insured’s appraisal award or represents an insured in the appraisal process cannot also serve as a “disinterested appraiser” under the policy’s appraisal provision.
In State Farm Florida Insurance Company v. Parrish, a homeowner’s home was damaged by Hurricane Irma. The homeowner hired a public adjusting company, KCC, to assist him with his claim. Under the contract with KCC, KCC was entitled to receive 10% of the insurance funds received by the homeowner due to KCC’s efforts. KCC ultimately submitted a sworn statement in proof of loss to State Farm, valuing the homeowner’s damages at $495,079.25. Along with this valuation, KCC requested that any dispute over the value be submitted to the appraisal process described in the homeowner’s insurance policy.
As part of the appraisal process, each party was to select a “disinterested appraiser,” and those appraisers would then select a disinterested umpire. The parties would then split the cost of the appraisal expenses and the umpire.
While the homeowner had been working with one individual, a KCC employee, as its public adjuster, it recommended that the president of KCC serve as his disinterested appraiser. State Farm objected to this, and proposed its own disinterested adjuster. Ultimately this dispute ended up in court, where the trial court ultimately concluded that KCC’s president could serve as the homeowner’s disinterested appraiser.
State Farm appealed that decision to the Second District Court of Appeal, arguing that KCC’s 10% stake in any insurance proceeds received by the homeowner made it impossible for KCC’s president to meet the requirement of being “disinterested” in the appraisal process. While the insurance policy did not define “disinterested,” the District Court concluded first the it meant “one who does not hold an interest in the outcome of the policy’s appraisal process.”
The court felt that both the fact that KCC was going to receive a percentage of any insurance award and the fact that KCC was representing the homeowner as his public adjuster, stating:
A contingency form of payment is uniquely problematic under this provision because the amount of the appraiser's remuneration is inextricably tied to the amount of the award the appraiser will ultimately recommend. The bigger the award, the bigger the payment. It is that link between payment and award that makes the contingency-paid appraiser prohibitively interested in the outcome of the appraisal process, which is a condition the policy expressly prohibits.
Besides the interest [KCC and its president] hold through KCC's ten percent stake in the appraisal award, there is also the separate, broader, and glaringly apparent interest they have in the appraisal process by virtue of the fact that KCC is representing[the homeowner] in the underlying dispute. Even if KCC is not, as [the homeowner] stresses, his “fiduciary” or his “agent” (which we need not decide), KCC is contractually bound to negotiate with State Farm on [the homeowner]'s behalf. And as [the homeowner]'s public adjuster, KCC's adjusters are professionally bound to handle [the homeowner]'s claim “with dispatch and due diligence” and not “approach investigations, adjustments, and settlements in a manner prejudicial to the insured.”
Other than nominating [the homeowner] himself (or a member of his family), it would be difficult to imagine a more self-evidently interested person in an appraisal process than the person or firm that represents [the homeowner in that very process, especially since the policy's “disinterested appraiser” is essentially acting as an independent adjudicator of a dispute. [KCC’s president] cannot serve as a disinterested appraiser (in any meaningful sense of that term) in an appraisal process of his client's dispute.
Based on this analysis, the District court concluded that any “public adjuster that has a contingency interest in an insured's appraisal award or represents an insured in an appraisal process [cannot be] a “disinterested appraiser” under [State Farm’s] policy's appraisal provision.
For contractors who do a lot of work that is ultimately paid for using insurance proceeds, this case is important because delays in the appraisal process, including those delayed by picking the wrong appraiser, only delay payment. So if you work with public adjusters, talk with them about using truly disinterested appraisers, especially if the insurance carrier is State Farm.