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Appraisal Award Vacated Due to Appraiser’s “Flat Fee” Schedule that Functions as a Prohibited Contingency Fee


A recent federal court decision from the Eastern District of Louisiana provides an important warning about appraiser fee arrangements that could invalidate an entire appraisal award.1 In Kennedy v. GeoVera Specialty Insurance Company, the court granted the insurer’s motion to strike a $146,436.65 appraisal award after finding the policyholder’s appraiser’s fee arrangement violated policy requirements for impartial appraisers.

Insurance defense attorney Jeanne Arceneaux from the Kelley Kroneberg law firm wrote an excellent and easy-to-read brief clearly indicating facts leading to the court’s decision:

On October 19, 2021, fifty-one (51) days after Hurricane Ida made landfall in Louisiana, Plaintiff reported alleged property damage to GeoVera. Two (2) days later, on October 21, 2021, Michael Pleasant of AllCat Claims inspected the property. Within thirty (30) days of receipt of the estimate, photographs, and report, GeoVera timely issued payment of the undisputed amount, $7,259.23, pursuant to the estimate and in accordance with the terms, conditions, provisions, and exclusions of the Policy.

On December 29, 2021, GeoVera received a letter of representation from Plaintiff’s attorney, along with a demand and estimate from Plaintiff’s public adjuster, Galmon International. This estimate alleged damages totaling $55,692.21. In response to receipt of this estimate, seventeen (17) days later, on January 15, 2022, Mark Simmons of AllCat Claims reinspected the Property. Again, within thirty (30) days of receipt of the estimate, photographs, and report, GeoVera timely issued payment of the undisputed amount, $2,465.71, pursuant to the reinspection estimate and in accordance with the terms, conditions, provisions, and exclusions of the Policy.

On or around March 4, 2022, Plaintiff invoked the appraisal provision of the Policy and named Irwin & Associates as their appraiser. On March 9, 2022, GeoVera acknowledged the invocation of appraisal and named its appraiser as Christopher Craig. The letter GeoVera provided fully outlined the policy provisions regarding the appraisal process.

On May 27, 2022, the appraisers participated in a joint inspection. The appraisers could not reach an agreement on the price and scope of damage, and the umpire was invoked on August 23, 2022. It is unclear whether the umpire inspected the property as he provided no photographs. The umpire signed the appraisal award on March 24, 2023. The opposing appraiser with Irwin + Associates signed the award on March 26, 2023 for $146,436.65. Interestingly, GeoVera’s appraiser was not even provided the proposed award until March 27, 2023 and was not given any opportunity to produce any remarks on the award prior to it being executed.

On April 19, 2023, GeoVera requested the examinations under oath (‘EUO’) of Plaintiff, the umpire, and Plaintiff’s appraiser, per the terms of the Policy.  These requests went unanswered and eventually Plaintiff filed suit. The parties proceeded through the CMO, and albeit woefully late, Plaintiff produced her initial disclosures on September 25, 2024. The initial disclosures included documents related to the appraisal, as required by the CMO. Upon review of the appraisal documents from Plaintiff, it became clear that a contingency fee existed. This Motion follows.

One lesson for policyholders and public adjusters from this case is that everybody’s actions and communications will be judged by others if there is a dispute. The defense lawyer’s rhetoric, backed up by facts in the motion, suggests a story to the judge that the policyholder was delaying and hiding facts without saying that. She let the facts speak for her, including the reason why the motion was not brought sooner—the policyholder did not disclose the appraiser’s contract until well after the litigation commenced.

The Problematic Appraiser’s Fee Arrangement

The appraiser’s contract was titled as a “Ranged Flat Fee Appraisal Contract,” but its fee structure revealed it functionally operated as a contingency fee. The contract set different “flat fees” that increased based on the appraiser’s valuation ranges – from $3,900 for valuations up to $50,000 to $174,000 for valuations between $1.75-2 million.

The court found this arrangement problematic because the appraiser’s fee increased as their valuation of loss increased, gave the appraiser a direct financial interest in the appraisal outcome and the arrangement violated the policy’s explicit requirement that appraisers be “impartial.” The unique language of this policy stated in part:

F. Appraisal

If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written demand from the other and notify the other of the appraiser’s name and contact information. An appraiser will not be considered impartial if their compensation is determined by the amount of the appraisal award. If the appraisers cannot agree on the amount of loss or the actual cash value in accord with this Condition, the two appraisers will choose a competent and impartial umpire. If the appraisers cannot agree upon an umpire within 15 days, you and we shall jointly ask a judge of a court of record in the judicial district where the “residence premises” is located to choose an umpire. Neither you nor we may assign the right to demand appraisal to anyone. [emphasis added]

The court’s order carefully dissected why this “flat fee” appraisal contract was actually an impermissible contingency fee:

Because Irwin’s fee increases as its valuation of loss increases, § 17 functionally creates a contingency fee arrangement…This gives Irwin a direct financial interest in the outcome of its own appraisal, i.e., its valuation of loss, which could have either established the final award upon agreement of the appraisers or, as here, been one of two valuations upon which the umpire’s award was based.

The court rejected arguments that the umpire’s involvement cured any issues with the appraiser’s partiality. It found the appraisal process was tainted because the umpire’s award was based in part on the interested appraiser’s valuation, an agreement of two panel members was required to set the loss amount, and the interested appraiser was one of the two who agreed to the final award.

This case serves as a critical reminder that an appraiser’s fee arrangements must be carefully drafted and billed to avoid any suggestion of contingency or financial interest in the outcome. Even if labeled as a “flat fee,” any fee structure that increases based on valuation amounts risks invalidating the entire appraisal process and award. There are only a couple of jurisdictions where a contingent fee may be permissible, but probably not if the policy language is the same as in this case.

The court ordered the parties to restart the appraisal process with truly impartial appraisers whose compensation is not tied to their valuations. This ruling reinforces that the integrity of the appraisal process depends on having genuinely independent and unbiased appraisers focused solely on accurately determining the amount of loss.

I am certain this case will make it to Steve Badger’s PowerPoint slides next time we debate and teach appraisal issues.

Reading the pleadings, I must give the devil its due. The Kelley Kroneberg firm did excellent legal work on behalf of the insurer in this matter. I remember when it was a small insurance defense firm that was based solely in Florida. I was surprised to learn of its substantial presence in other areas, including New Orleans, until I viewed the firm’s website.

Thought For The Day    

“A good judge should be deaf to praise and popularity, and vigilant over his own impartiality.”

—Lord Mansfield


1 Kennedy v. Geovera Specialty Ins. Co., No. 23-6395 (E.D. La. Nov. 22, 2024).