A latest lawsuit filed in Lee County, Florida, highlights a cautionary story about appraisal umpire compensation that resulted in a vacated award and vital monetary penalties for all events concerned. The case of Estero Seaside and Tennis Membership v. Riteway Insurance coverage Restore Service, and Gustavo Marrero demonstrates how an umpire’s determination to vary his charge construction led to the invalidation of a $10.2 million substitute price worth award. 1
Following Hurricane Irma harm, Estero Seaside and Tennis Membership engaged in an appraisal with American Coastal Insurance coverage Firm (ACIC). Gustavo Marrero was chosen because the umpire, initially offering a charge schedule that specified a flat price of $3,000 for the primary ten hours and $300 per hour after that. As a substitute of following his personal charge schedule, Marrero made a fateful determination to calculate his charge as 2% of the appraisal award. He additional allowed an estimator he employed to cost primarily based on a contingency charge of 0.75% of the award. Per the allegations within the criticism, Marrero then created an after-the-fact exercise log to justify the percentage-based billing.
The umpire’s determination had extreme repercussions:
- The unique appraisal award of $10.2 million RCV was vacated
- A second appraisal resulted in a dramatically decrease award of $1.7 million RCV
- The policyholder needed to return $1.49 million to ACIC
- All bills and time spent from the primary year-long appraisal have been wasted
I’ve been advised that earlier than the second appraisal award, Hurricane Ian struck the condominium. The insurance coverage firm paid a contractor to restore lots of the claimed damages. The second award can’t absolutely be in comparison with what was being claimed within the first award as a result of the scope of damages that the second panel thought-about was a lot much less.
Estero Seaside has now filed swimsuit towards each Marrero and Riteway Insurance coverage Restore Service, alleging negligence. The criticism argues that Marrero breached his obligation to be neutral by implementing a contingency charge association that tied his compensation to the award quantity.
This case offers a number of essential classes for appraisal umpires:
- Stick with Agreed Payment Buildings: As soon as a charge schedule is supplied, keep strict adherence to it. Any adjustments must be mentioned and agreed upon by all events in writing.
- Preserve Detailed Time Data: Umpires should maintain correct, contemporaneous data of their time and actions.
- No Share-Based mostly Charges: Contingency or percentage-based charges create an look of impropriety and might invalidate the whole appraisal course of.
- Disclose, Get Approval for and Monitor Vendor Compensation: Be sure that any retained consultants or consultants are disclosed, authorised of and keep acceptable charge buildings that don’t tie compensation to the award quantity.
Steve Badger and I could debate quite a few delicate points relating to appraisal. There is no such thing as a debate about this case. All states name for an umpire to be impartial and never cost a charge primarily based on a contingent or proportion quantity.
The results of this case prolong past the fast events. This case serves as a sobering reminder that even the easy act of sustaining hourly billing and correct documentation would have averted this complete state of affairs. As a substitute, a deserving policyholder and umpire at the moment are engaged in pricey litigation that would have been prevented via fundamental skilled practices and accepted requirements throughout the appraisal business.
For the appraisal neighborhood, this case ought to immediate a evaluation of charge preparations and billing practices. The integrity of the appraisal course of depends upon sustaining strict impartiality, and that features guaranteeing that compensation buildings don’t create precise or obvious conflicts of curiosity.
Probably the most tragic side of this case is its preventability. Had the umpire merely adopted his authentic charge schedule and maintained correct time data, each he and the policyholder would have averted vital monetary and authorized issues. This serves as a reminder that within the appraisal course of, adherence to established skilled practices isn’t nearly compliance – it’s about defending all events concerned and sustaining the integrity of the insurance coverage claims decision course of. Appraisal can solely work if each events agree that they’d a good and trustworthy alternative, even when the panel finally agreed or disagreed with their place.
Thought For The Day
With out accountability, there is no such thing as a belief, and with out belief, there is no such thing as a management.
—Dave Ramsey
1 Estero Seaside and Tennis Membership v. Riteway Ins. Restore Service, No. 24-CA-006687 (Fla. Cir. Ct. (Lee) Oct. 1, 2024).
