The Court of Common Pleas of Lycoming County, Pennsylvania, recently held the expert testimony of a public adjuster is precluded where a contingent fee agreement gave the adjuster a pecuniary interest in the outcome of the proceedings.

In so ruling, the Court confirmed that the adjuster may testify as a fact witness with respect to his adjustor role, but is precluded from giving any opinion as an expert witness.

A copy of the opinion is available at: http://www.lycolaw.org/Cases/opinions/2004/everettcash051404a.pdf

The insured homeowners made an insurance claim to their insurer after a furnace emitted soot into their home, and then retained a public adjuster to assist with the claim on a contingent fee basis.

After making insurance payments, including a payment offered in full satisfaction of the claim that was refused by the insureds, the insurer sued for declaratory relief.

The insureds counterclaimed for breach of contract, negligence, intentional infliction of emotional distress, unfair trade practices act violations, and bad faith.

During litigation, the insureds offered their public adjuster as an expert witness, and produced his expert report opining that the insurer and its adjusters “did not follow proper claims practice.”

The insurer moved to preclude the expert testimony of the public adjuster as the contingent fee arrangement gave him a pecuniary interest in the outcome of the proceedings and his testimony would be against public policy.

The insureds responded that they entered into the contingent fee agreement before the litigation, the public adjuster acted as an expert pursuant to a consultant agreement for $75 per hour, and only his work as an adjuster was subject to the contingent fee agreement.

As you may recall, a special contract to pay more than the regular witness fees in ordinary cases is void for want of consideration and as being against public policy.

In Belfonte v. Mill, 243 A.2d 150 (Pa. Super. 1968), the Court refused to enforce a contract between a realtor and homeowner for an appraisal of damages caused by an eminent domain proceeding and the realtor’s testimony where the realtor was compensated by a percentage of any sums received through settlement or litigation.

In In re Mushroom Transportation Co., Inc., Debtor, 70 B.R. 416 (E.D. Pa. 1987), the Court precluded a debtor’s expert from testifying at trial based on a contingent fee arrangement for the collection debts allegedly due from a certain party.

The Mushroom Transportation Court also rejected arguments that the litigation commenced after the contingency fee arrangement, and found it more likely than not the debtor and expert contemplated litigation at the time of the arrangement.

In addition, in Creative Dimensions in Management, Inc. v. Thomas Group, Inc., 199 U.S. Dist. LEXIS 2757 (E.D. Pa. Mar. 11, 1999), the Court allowed fact witness testimony despite a contingent fee arrangement, but distinguished a fact witness from an expert witness.

Based on this legal precedent, the Court found the insureds’ attempt to segregate the public adjuster’s expert witness and adjusting work was “merely one of form.”

The Court further found the expert opinion is “so undermined as to be deprived of any substantial value” where the timing of the contingent fee agreement was of no consequence as the expert report was subsequent to litigation and the adjuster is entitled to a percentage of any damage award.

Accordingly, the Court permitted the public adjuster to testify as a fact witness with respect to his adjustor role, but precluded his expert testimony.