Public Adjusters as Expert Witnesses – Challenges to Use as Cost Experts

Bad Facts Make Bad Law

Recently, I Clint Brasher, was speaking at a legal conference for Colorado public adjusters and attorneys where I mentioned that public adjusters could be expert witnesses in damage cases. I stand by that statement. A lawyer, at the close of the meeting, disagreed with my assessment and sent me some court orders. I had reviewed Colorado law on this issue before the presentation. Colorado has developed some jurisprudence with some hostility toward public adjusters’ participation in appraisal (more on that later). But can public adjusters serve as expert witnesses – to testify to the quantum of damages – the very thing that they were hired to do?

The complication comes from the public adjusters’ contract. Public adjusters share some portion of the playing field with attorneys – we are both advocates for policyholders. And, by statute, public adjusters in most states are entitled to charge a contingent fee – a percentage of the claim proceeds recovered. So, does allowing public adjusters, who maintain a contingent interest in the outcome of some portion of the litigation, testify as an expert witness run afoul of the general maxim that attorneys cannot pay experts (or witnesses) for their testimony? No. But it does depend on the language of the public adjusters’ contract.

While many practitioners elect against using public adjusters as expert witnesses for cost of repair because of the danger of cross-examination, it is not per se prohibited. In a Texas case, the public adjuster’s contingent interest was limited to “10% of the RCV (Replacement Cost Value) of total insurance settlement, plus reasonable expenses in accordance with Texas Insurance Code section 2102.104.” Arthur v. Liberty Mut. Pers. Ins. Co., No. SA-21-CV-00602-FB, 2022 WL 14225368, at *2 (W.D. Tex. Oct. 24, 2022) (with emphasis). Since the public adjuster’s contract pre-dated litigation and was limited to the RCV and not general settlement funds, the public adjuster could testify as to the cost to repair the building. The court noted that the public adjuster’s contract was with the policyholder, not the attorney, thus the attorney was not in violation of the Texas Disciplinary Rule of Professional Conduct 3.04 — prohibiting attorneys from offering to compensate a witness contingent upon the outcome of the case. Most states have similar ethical prohibitions. Noting that the contract was approved by the Department of Insurance and the contract enforceable, it did not prohibit the public adjuster from testifying.

But language in a public adjusting contract can disqualify public adjusters from providing testimony as an expert witness on cost to repair. If the contract relates the contingent interest owed to the public adjuster to funds other than claim proceeds, it is a red flag. Here are some examples where courts have excluded public adjusters as damage experts:

  • “10% of funds paid by the insurer pursuant to a settlement or litigation.” Hiland Hills Townhouse Owners Ass’n v. Owners Ins. Co., 2022 U.S. Dist. LEXIS 110101, 2022 WL 2198262 (D. Colo. Feb. 8, 2022) (with emphasis).
  • “10% of the total recovered amount of the claim …including funds recovered via litigation.” Midtown Invs., LP v. Auto-Owners Ins. Co., 641 F.Supp.3d 1066 (D. Colo. Nov. 17, 2022) (with emphasis).
  • “Recovery is based upon the full Replacement Cost Value (RCV) plus any additional funds acquired via the above means,” including litigation. Midtown Invs., LP v. Auto-Owners Ins. Co., 641 F.Supp.3d 1066 (D. Colo. Nov. 17, 2022) (with emphasis).

The language from the contracts excerpted above give the public adjuster a contingent interest in more than the insurance claim. In fact, it gives the public adjuster interest in parts of the claim that but for representation by counsel the public adjuster would not have. In other words, when the public adjuster claims its contract covers “extra-contractual damages,” like attorney’s fees, penalty interest, or even bad faith damage, it is likely the witness will be limited from testifying regarding damages. Otherwise, the pre-litigation contract with a percentage interest in the claim only will be subject to cross-examination. Quite frankly, if attorneys are sharing attorney’s fees and other damages with public adjusters, that may be unlawful for other reasons.

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