On February 9, 2023, the Supreme Court of Florida released their decision in Parrish v. State Farm Florida Insurance Company,1 (hereinafter "Parrish"). The Parrish opinion firmly states that a public adjuster, including the president of a public adjusting company, cannot serve as a “disinterested” appraiser if they have a pecuniary interest in the outcome of the appraisal.
Background and Facts
In September 2017, the insured sustained a loss to his home as a result of Hurricane Irma. The insured hired a public adjuster and agreed to pay him ten percent of the recovery. After the parties could not reconcile the differences between the estimates, the public adjuster invoked the appraisal provision contained within the subject policy naming as the insured's appraiser the president of the public adjusting firm. State Farm rejected the appraiser appointment as the policy requires a “disinterested” appraiser.
State Farm then petitioned the court to find that, as a matter of law, the appraiser was not disinterested as he had a direct financial relationship with the insured through the public adjuster agreement. The trial court originally found that, because the appraiser disclosed his relationship with the insured, he could act as a “disinterested” appraiser.2
The Second District Court of Appeal reversed the trial court's position finding that, the policy requirement for a “disinterested” appraiser was not ambiguous, and the requirement that appraisers be “disinterested” plainly excluded any appraiser who held a pecuniary interest in the outcome of the appraisal.3 The case was then brought to the Supreme Court.
The Supreme Court Opinion
The Supreme Court held that, as “Black's Law Dictionary defined ‘disinterested' as ‘[f]ree from bias, prejudice, or partiality and therefore able to judge the situation fairly; not having a pecuniary interest in the matter at hand,'” and a public adjuster operating on a contingency basis has a pecuniary interest in the claim, the public adjuster could not, as a matter of law, be deemed a “disinterested appraiser.”4
There was, however, a dissent noting that “disinterested” was an ambiguous term as “Black's Law Dictionary [also] defines ‘disinterested' as ‘able to judge the situation fairly,'” yet, the majority opinion moved past this language to focus only on the pecuniary interest issue.5
Analysis, Impact, and Effect
I previously wrote about this issue in my article on Sanders v. State Farm. There, I noted that while I was representing insurance carriers, I vigorously litigated the position that a public adjuster operating on a contingency fee could not act as a disinterested appraiser, noting that I prevailed on this issue at the circuit court level, possibly (at least in my mind) the first person to do so. At that time, the Fourth District Court of Appeals rejected the argument on a different case issuing a per curium affirmance of a lower court's ruling to the opposite.6 As I also noted in my prior article, my position changed as I realized that the detrimental ramifications of disallowing public adjusters to act as “disinterested” appraisers may far outweigh any benefits.
Interest, I went on to appear in Sanders as amicus curae on behalf of the insureds filing a brief in support of the public adjuster in that case operating as a disinterested appraiser. Perhaps more important than the brief was the appendix.
In the brief, and the appendix, I highlighted one of my own cases where I represented an insured against State Farm.7 In Cauffman v. State Farm, the insured filed an action alleging breach of contract due to an underpaid Hurricane Irma claim. Three months after the lawsuit was filed, State Farm, for the first time, invoked the appraisal provision of the governing policy. The correspondence demanding appraisal noted that “[e]ach party will select a qualified, disinterested appraiser.”8 In alleged compliance with the appraisal provision, State Farm selected Henry Diaz from Precision Claim Associates Inc., to act as their disinterested appraiser. We responded by requesting the following information:
- Mr. Diaz's curriculum vitae;
- Mr. Diaz's fee schedule or compensation agreement with regards to the appraisal in the instant claim;
- The number of appraisals Mr. Diaz has conducted on behalf of State Farm;
- The number of appraisals Mr. Diaz has conducted in claims in which the carrier, State Farm or otherwise, is represented by [defense counsel];
- The percentage of Mr. Diaz's income derived from State Farm, whether through appraisals or other such adjustment of claims;
- The percentage of Mr. Diaz's income derived from claims in which the carrier, State Farm or otherwise, is represented by [defense counsel];
- The percentage of Mr. Diaz's income derived from representing insurance carriers whether through appraisals or other such adjustment of claims; and
- The percentage of claims in which Mr. Diaz's has represented the carrier versus the policyholder in appraisal.
In response, counsel for State Farm advised that the request for information was premature and the only way State Farm would provide same was through an order of the court. Counsel for State Farm further disclosed that Henry Diaz did not have “a pecuniary interest in the claim by way of any type of agreement with State Farm.” According to counsel for State Farm, this was all that was needed to render Henry Diaz “disinterested.” When they did not respond, we propounded interrogatories mirroring and formalizing above referenced requests. While the court granted the motion to compel appraisal, it also ordered that “the parties may engage in discovery for the limited purpose of rendering a determination as to the ‘disinterested' nature of the opposing party's appraiser” and ordered as follows:
Within 20 days after Plaintiff has named his appraiser, the parties shall exchange information regarding their selected “disinterested” appraisers including the appraisers' curriculum vitae, the number of appraisals conducted on behalf of the respective parties along with the general percentage of the appraisers' income derived from same, the number of appraisals conducted involving the respective attorneys and law firms along with the general percentage of the appraisers' income derived from same, and a general percentage of appraisals conducted on behalf of policyholders versus insurance carriers along with the general percentage of the appraisers' income derived from same.9
State Farm then responded, providing for the first time the following information: Mr. Diaz worked for State Farm from 1998 to 2006; Mr. Diaz conducted approximately 148 appraisals on behalf of State Farm from January 2017 through December 2019; Mr. Diaz derives 100% of his income by working as an appraiser representing insurance carriers; and, perhaps most importantly, Mr. Diaz derived approximately 53.4% of his income over the last five years serving as an appraiser (or in other similar roles) on behalf of State Farm.10 Mr. Diaz's curriculum vitae also boasted a number of State Farm related credentials as qualifications, including having been “[s]elected as one of eight Fire Claim Representatives in Florida to attend State Farm's ‘Florida Development Group,'” “[s]elected as first member of State Farm's ‘Special Handling Unit' (SHU),” and touting a “[l]andmark appraisal victory,” something that only needs to be included on a resume in order to showcase Mr. Diaz's ability to “win” appraisals on behalf of carriers.11 To reiterate, more than half of Mr. Diaz's income over five years is derived from State Farm yet, somehow, in State Farm's eyes, he qualifies as a “disinterested” appraiser. For State Farm to, on one hand, assert that someone operating on a 10-20% contingency basis cannot be considered a “disinterested” appraiser because they stand to recover a portion of the appraisal award whilst simultaneously holding a former employee who boasts of his inclusion in State Farm programs and whose livelihood, or at least a majority thereof, depends on being hired by State Farm as a “disinterested” appraiser is disingenuous at best.
It is my opinion that “[a]n appraiser may be considered interested in a number of ways, such as being frequently or habitually employed by insurers as an appraiser and ... by his conduct [making] it clear that he understands that he is acting in their interests.”12 “An appraiser may also become biased by having a financial interest in the outcome of the appraisal, even if indirectly.”13 Such indirect financial bias may come from a prior employer-employee relationship.14 Interestingly, in Cauffman, even when questions regarding Mr. Diaz's disinterestedness were raised, there was no voluntary disclosure of his prior relationship to State Farm, only a statement that “Mr. Diaz does not have a pecuniary interest in the Cauffman claim by way of any type of agreement with State Farm.”15 To limit it the definition of “disinterested” solely to the pecuniary interest a public adjuster has in the outcome of a claim is a narrowminded view point and will cause more harm then good.
The other glaring issue which remains unaddressed is the unconscionability argument. “Unconscionability is a common law doctrine that courts have used to prevent the enforcement of contractual provisions that are overreaches by one party to gain ‘an unjust and undeserved advantage which it would be inequitable to permit him to enforce.'”16 In order to obtain a ruling that a contract provision is unconscionable, “a party must demonstrate both procedural and substantive unconscionability."17 “Procedural unconscionability concerns the manner in which the contract is entered, whereas substantive unconscionability looks to whether the contractual terms are unreasonable and unfair.”18 The burden of proving unconscionability lies with the party seeking to avoid the complained of provision.19
Addressing whether a contract provision is procedurally unconscionable “involves consideration of facts such as the relative bargaining power of the parties and their ability to understand the contract terms.”20 There is no doubt that the “disinterested” appraiser requirement contained within the Subject Policy is procedurally unconscionable as it was never presented to the insured prior to the insurance contract taking effect. As has been noted in the past, “[i]nsurance contracts are unusual in that, at the onset of the contractual relationship, one of the contracting parties, i.e., the insured, has not yet had the opportunity to review the terms of the insurance contract.”21 As such, there is no doubt that the element of procedural unconscionability can be met.
A term that is “substantively unconscionable” is “one that ‘no man in his senses and not under delusion would make ... and as no honest and fair man would accept…'”22 Florida law provides insureds the right to contract with a public adjuster for assistance in submitting their claims to savvy and sophisticated insurance carriers.23 Insurance companies have tried to take away this statutory right to a public adjuster for portions of claims by requiring insured to hire a different claims professional for appraisal based on an arbitrary, unbargained for term of insurance policies for which no consideration is given. While, in many situations, appraisal is an expeditious option for a fair and final resolution afforded by the terms of the Subject Policy, no reasonable person would knowingly enter into an agreement which would force them further out of pocket after hiring the claims adjuster necessary to assist with the presentation of a complicated insurance claim. Because the “disinterested” appraiser requirement is wholly one sided and designed to prevent an insured from utilizing a public adjuster for both the adjustment and appraisal of a loss and force the insured further out of pocket, the element of substantive unconscionability can be similarly met. Frankly, it seems as though this unbargained for term in the verbose insurance contract is included solely to discourage an insured from utilizing the appraisal process for fear that it will result in excessive out of pocket expenses. For these reasons, it is clear that each of the elements of unconscionability of contract are met through the inclusion of the “disinterested” appraisal requirement in the appraisal provision.
The purpose of appraisal is to finalize a claim expeditiously to net an insured the amount of money required in order to place the property in its pre-loss condition. By requiring an insured to hire another claims professional in order to assist as a “disinterested” appraiser, insurers are simply forcing insureds further out of pocket so as to ensure they are never left with enough money to perform repairs.
While it does not apply to insurance contracts, Section 672.302, Florida Statutes, governing unconscionable contracts related to the sale of goods provides persuasive authority regarding the general scope of a court's ability to enforce or modify an unconscionable contract. The statute states, in pertinent part, that “the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”24 Again, while this particular statutory provision does not specifically apply to insurance contracts, courts have used the statutory language as a guideline in determining how a court may handle a contract containing an unconscionable term.25 To that end, the Supreme Court would have been well within its right to determine the “disinterested” appraiser requirement is unconscionable, strike only that portion of the contract which contains the requirement that “disinterested” appraisers be utilized, and enforce the remainder of the otherwise proper appraisal provision.
Unfortunately, the Parrish appeal seemed to fly under the, or at least my, radar. While the Sanders court rejected jurisdiction after oral arguments on procedural grounds, the lawyer's ego in me likes to think that our amicus brief highlighting the hypocrisy in State Farm's conduct may have played a role in the case being punted. I would have been proud to file another brief on the issue in Parrish; however, despite State Farm having three amicus briefs filed in support of its position, the insured had none.
Moving forward, as I previously noted in my Sanders article, insureds and public adjusters alike should request information as to the relationship between the carriers and their appraisers. This information should necessarily include any past employment by the carrier, the appraiser's compensation structure, any contract between the appraiser and carrier, the number of appraisals in which the appraiser has been hired by the carrier, and the total amount of compensation paid to the appraiser. As always, should you have any questions about how this analysis may relate to your own claim, please do not hesitate to contact us for a free consultation.
1 Parrish v. State Farm Fla. Ins. Co., SC21-172, 2023 WL 1830816 (Fla. 2023).
2 State Farm Fla. Ins. Co. v. Parrish, 26 Fla. L. Weekly Supp. 829, 830 (Fla. 20th Cir. Ct. Dec. 14, 2018).
3 State Farm Fla. Ins. Co. v. Parrish, 312 So. 3d 145 (Fla. 2d DCA 2021).
4 Parrish v. State Farm, 2023 WL 1830816 at 4, 6 (Fla. 2023).
5 Id. at 8.
6 Federated Nat'l Ins. Co. v. Koberling, 228 So. 3d 569 (Fla. 4th DCA 2017).
7 Richard Cauffman v. State Farm Fla. Ins. Co., Case No. 2019 CA 004829 (Fla. 10th Cir. Ct.).
8 Sanders Appendix at 202.
9 Sanders Appendix at 241-242.
10 Sanders Appendix at 245-246.
11 Sanders Appendix at 247.
12 TAMKO Bldg. Products, Inc. v. Factual Mut. Ins. Co., 890 F. Supp. 2d 1129, 1140 (E.D. Mo. 2012) (citations and internal quotations omitted).
14 See Land v. State Farm Mut. Ins. Co., 410 Pa. Super. 579 (PA Supr. Ct. 1991) (finding that the existence of a past employer-employee relationship was sufficient to deem the insurer selected arbitrator interested in the outcome of the arbitration.).
15 Sanders Appendix at 231.
16 Basulto v. Hialeah Auto., 141 So. 3d 1145, 1157 (Fla. 2014) quoting Steinhardt v. Rudolph, 422 So. 2d 884, 889 (Fla. 3d DCA 1982); Peacock Hotel, Inc. v. Shipman, 103 Fla. 633, 138 So. 44, 46 (1931).
17 Zephyr Haven Health & Rehab Ctr., Inc. v. Hardin, 122 So. 3d 916, 920 (Fla. 2d DCA 2013) citing Orkin Exterminating Co. v. Petsch, 872 So. 2d 259 (Fla. 2d DCA 2004).
18 Fonte v. AT&T Wireless Services, Inc., 903 So. 2d 1019, 1025 (Fla. 4th DCA 2005) citing Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d 59, 62 (Fla. 4th DCA 2003).
19 FI-Pompano Rehab, LLC v. Irving, 221 So. 3d 781, 784 (Fla. 4th DCA 2017) citing Basulto v. Hialeah Auto., 141 So. 3d 1145, 1158 (Fla. 2014).
20 Orkin Exterminating Co. v. Petsch, 872 So. 2d 259, 265 (Fla. 2d DCA 2004).
21 Lloyds Underwriters at London v. Keystone Equip. Fin. Corp., 25 So. 3d 89, 93–94 (Fla. 4th DCA 2009); see also Basulto, supra, 141 So. 3d at 1160–61 (“In the typical case of consumer adhesion contracts, where there is virtually no bargaining between the parties, the commercial enterprise or business responsible for drafting the contract is in a position to unilaterally create one-sided terms that are oppressive to the consumer, the party lacking bargaining power.”).
22 Florida Holdings III, LLC v. Duerst ex rel. Duerst, 198 So. 3d 834, 842 (Fla. 2d DCA 2016) quoting Woebse v. Health Care & Ret. Corp. of Am., 977 So. 2d 630, 632 (Fla. 2d DCA 2008).
23 See Fla. Stat. § 626.854 (2022).
24 See Fla. Stat. § 672.302(1) (2022).
25 See, generally, Bennett v. Behring Corp., 466 F. Supp. 689 (S.D. Fla. 1979).