Why Do Claims Get Settled?
When an appraiser reports a new claim one of the first questions he or she asks is, “What happens now?” After we explain how the claim or litigation will be handled, and what is to be expected of the appraiser during the course of the lawsuit, we invariably get into a discussion about settlement. Many appraisers are afraid that the insurance company will pay to settle just because a claim has been made. That is not the case with LIA’s Appraiser Program. Since the inception of the program more than half of all claims have been dismissed with $0 loss payment. If the facts, and the law, support the defense of a lawsuit, that is the direction that will be pursued.
Unfortunately, in certain situations, and after careful analysis and review, it is determined that the appraisal in question cannot be supported or defended. If that is the conclusion reached, then efforts from that point forward are designed to put the case into the best posture for settlement.
Sometimes a case is settled for other reasons, such as economics or the personal desire or circumstances of the insured. Approximately 80% of the settlement matters we have supervised involved payments of less than $50,000. It is difficult to think of any jurisdiction in the country where a lawsuit would be resolved in less than a year. Resolving a case, within a year of it being commenced, for an amount of less than $50,000 is sometimes the best resolution for an insured.
Sometimes mistakes are made
If liability is clear, settlement is typically the best option. In a NV claim, it became obvious that the insured had appraised the wrong parcel of vacant land. The insured’s estimate of value was $1.6M. The lender had agreed to loan the borrower $850,000. It was the lender/client that was asserting the claim and suggesting that the true value of the parcel that should have been appraised was no more than $350,000.
While we could not deny that a mistake had been made, it appeared that the lender was understating the value of the parcel that should have been appraised. The defense also questioned the lender’s underwriting practices. It was discovered that the lender agreed to loan the borrower $850,000 despite the fact that this individual was already in default on at least one other sizeable loan. It was suggested that the lender had to accept some percentage of fault for their own negligence. In the end the case was settled for less than $100,000.
Circumstances can be beyond our control
In a CA case, the decision to settle was brought about by the untimely death of the insured a little more than a month prior to trial. We were preparing the case for trial and thought there was an excellent chance that the defense would prevail. Defense counsel was shocked and saddened to learn the insured, a young man in his 40's, had suffered a massive stroke. He passed away soon after. Plaintiffs lost no time substituting his estate in as a defendant in the lawsuit.
The appraiser left behind his wife and 2 young children. His wife was, of course, concerned that the outcome of the case might impact marital assets like the family home and bank accounts. Even though the odds of that happening were slim, we understood her concerns, especially in light of the fact that we had no one who could be in the courtroom on behalf of the insured. The appraiser was a 1 person operation. He was the only one that prepared and signed the report. Defense counsel didn’t know how effective he would be presenting the case when he could only rely on documents and reading the insured’s deposition transcript into the record at trial.
Taking all of the various circumstances and concerns into consideration, defense counsel did approach plaintiffs’ counsel about settlement. To their credit, plaintiffs did not take complete advantage of the situation. The case settled for $150,000. Plaintiffs’ last demand prior to trial was for $420,000. Defense counsel estimated a budget for trial prep and trial for attorney and expert fees that would have been close to $100,000.
Sometimes settlement just makes sense financially
A staff appraiser for the insured appraisal firm was retained to prepare a purchase loan appraisal of the subject property. The subject was a custom built, high end, single family residence on acreage in MT. The home had 6 bedrooms, 5 bathrooms, a theatre room, 4 car heated garage, a heated driveway, a shop, an outdoor kitchen and other lavish amenities. After the sellers spent almost 2 years building the home they lived in it for less than a year before listing it for sale. They relocated out of state to be with a family member that was diagnosed with a terminal illness.
After having lived in the home for less than 2 months the buyers/borrowers began experiencing symptoms such as headaches. Their several dogs were also ill on a continuing basis and they could not figure out why. One day, a hired carpenter who was working on an outbuilding called one of the owners outside and showed them a disturbing discovery. After further investigation, the buyers found out that what they found in the pasture behind the outbuilding was raw sewage and waste from their home. The sellers had applied for all the necessary permits but they had never completed the construction of a septic system. There was a series of pipes that carried waste away from the home and dumped it out into the pasture area. This was subject to a citation from the local Health Department.
There was public sewer in the area but it was not close enough for connection to the subject property. The only option was to build a septic system. The tank would have to be large to service a house with numerous bedrooms, plus the outbuildings and the existing pipes would have to be capped off. Obviously, the buyers were not happy about this discovery. They filed a lawsuit naming the sellers, the listing agent, their real estate agent, the home inspector, the lender, and the real estate appraiser. They alleged that everyone lied to them about the home being serviced by a working septic system.
The only people that may have “lied” were the sellers and they had relocated out of state. The fact that waste from the house was being deposited into the yard was not even obvious to the buyers who had been living in the house for several months. How could they claim anyone else should have seen what was going on?
This case was defensible and we likely could have filed a successful motion for summary judgment. However, the judge ordered that no such motions could be filed until discovery was complete and that day was a long way away.
The insured had a large office with several appraisers on staff. The senior appraiser/partner who made decisions for the firm understood the realities of litigation. He met with defense counsel and with the appraiser that prepared the subject appraisal and it was painfully clear that with the number of parties and potential witnesses, depositions could last for well over a year. The appraiser asked defense counsel to “explore” settlement with plaintiffs’ counsel. He really didn’t want the company to be involved in this long, drawn out lawsuit when they had done nothing wrong. They had to report this to several clients...the fact that they were involved in pending litigation...it was worth a shot to see if something could be worked out.
Defense counsel pointed out some good disclaimer language in the report and he was able to negotiate a reasonable deal. Based on the economics involved, and to avoid long and stressful litigation, the insured (and the carrier) agreed to a settlement for $10,000. The senior appraiser involved in the decision making understood that this was just a business decision that made sense for the company. The settlement and agreement to pay was made in return for plaintiffs agreeing to sign a release that included no admission of liability, a confidentiality clause and other terms that were favorable to the insured.
Conclusion
The decision to settle any claim is never a decision made lightly. Only after careful consideration of all factors involved does the carrier ever agree to pay. If an appraiser has questions about settlement and why a case would or would not be settled he or she needs to raise those questions with defense counsel and/or with the insurer.
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