Source: https://www.zelle.com/news-publications-407.html
Timestamp: 2019-04-19 13:21:20+00:00

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Somewhere in Texas at this very moment a public adjuster is knocking on the door of a home or business owner offering to inspect the roof for wind or hail damage and assist with the submission of an insurance claim. It is inevitable the public adjuster will find some “evidence” of wind or hail damage. At that point, the public adjuster will encourage the homeowner or business owner to sign a 10 percent contingency fee contract that in essence states the public adjuster will not get paid unless he can convince the building owner’s insurance carrier the structure incurred covered storm damage. Once the homeowner or business owner signs the public adjuster’s 10 percent contingency fee contract, the public adjuster has a vested interest in making sure the claim is paid. The larger the claim, the more interested the public adjuster becomes.
Insurance carriers and public adjusters obviously do not always agree on the existence or extent of coverage for a claim. Disagreements can include, among other things, scope of damage issues, unit pricing issues or even whether there was a weather event during the policy period significant enough to have caused the damage claimed. In such instances insurance carriers often deny claims either in whole or in part and litigation ensues. Each week, hundreds of hail damage lawsuits are filed all across Texas.
During litigation, the attorney representing the building owner must decide which fact witnesses to call and which expert witnesses to retain. Given their knowledge about the alleged damage and claim history, the public adjuster who initially handled the claim is often designated by counsel for the building owner as a fact or expert witness.
This designation is not without considerable risk.
In a nutshell, Rule 3.04 states that a Texas lawyer (and his client) cannot pay a fact witness or an expert witness on a contingent fee basis. It is simply unethical to do so. There are no Texas cases addressing whether a public adjuster who signed a contingency fee contract presuit can serve as an expert witness or even as a fact witness, in litigation and expect to retain his contingency fee. However, the Texas Center for Legal Ethics issued an opinion in August 2004 that is instructive on the issue.
It is a violation of the Texas Disciplinary Rules of Professional Conduct [Rule 3.04] for a lawyer to use in a case as an expert witness an employee of a business entity that has a contingent fee interest in the outcome of the case.
In the instant matter, the court finds the defendants’ attempt to segregate [the public adjuster’s] work as an expert witness from his work as a public adjuster “merely one of form.” It is also of no consequence that the public adjuster contract was entered into prior to the commencement of litigation. What does matter is that [the public adjuster’s] preparation of the expert report followed the commencement of litigation and, as the defendants admit, [the public adjuster] will be entitled under the contingent fee arrangement to a percentage of any damages awarded for their loss. The court cannot help but conclude, therefore, that the opinion rendered in the report is “so undermined as to be deprived of any substantial value”.
The lawyer in this Pennsylvania case likely faced a difficult discussion with his client once the expert opinion on a key issue in the case was struck. Policyholder lawyers must be mindful of such consequences in considering whether to use a public adjuster as an expert witness or even a fact witness. It is unethical, and possibly malpractice, to ignore the ramifications of the public adjuster’s contingent fee.
Given these authorities, a policyholder lawyer has no choice but to tell the public adjuster that he must make a decision — either keep the contingent fee and be prohibited from testifying in the litigation or convert the contingency fee to an hourly fee and be permitted to testify. To proceed in a different fashion exposes the lawyer to ethics and malpractice claims.
Were both policyholder attorneys and public adjusters to abide by this ethical rule, perhaps the actual parties to the insurance claim would also benefit not merely from unbiased witness testimony but from the incentive the rule creates for public adjusters to truly make a good-faith attempt to amicably resolve a claim before ever referring it to counsel.
 Over the last few years, the number of hail damage lawsuits filed across Texas has been staggering. This is especially true for recent storms that occurred in McAllen, Amarillo and Dallas. See Steven J. Badger, "What The Hail™ Is Going On In Texas?" Law360, Dec. 19, 2013.
 Opinion 553, Texas Center for Legal Ethics, Professional Ethics Committee for the State Bar of Texas (August 2004).
 Taylor v. Cottrel Inc., 795 F.3d 813, 816 (8th Cir. 2015); Stranger v. Raymond, No. 08-2170, (C.D. Cal. May 9, 2011); J&J Snack Foods Corp. v. Earthgrains Co., 220 F.Supp.2d 358 , 367 n.8 (D.N.J. 2002); Accrued Financial Services Inc. v. Prime Retail Inc., 298 F.3d 291, 300 (4th Cir. 2002); Buckley Powder Co. v. State, 20 P.3d 547, 559 (Colo. App. 2002); Farmer v. Ramsey, 159 F.Supp.2d 873, 883 (D.Md. 2001); Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 73 (2d Cir. 1990).
 Everett Cash Mutual Insurance Co. v. Gibble, No. 01-01,640, (Pa. Com. Pl. May 14, 2004).

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