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A federal district court on Tuesday agreed to vacate an appraisal award against a Travelers Corp. unit because of a contingency fee arrangement that was made with an appraiser.
The protracted dispute began in 2017, when a former showroom turned storage building in Owensboro, Kentucky, owned by Owensboro-based Mudd’s Furniture Showrooms Inc., was damaged by a severe wind and rainstorm, according to the ruling by the U.S. District Court in Owensboro in Travelers Casualty Insurance Co. of America v. Mudd’s Furniture Showrooms, Inc., CMS Roofing Inc., and Jaron Jaggers.
Mudd’s later entered into an agreement with Bowling Green, Kentucky-based CMS Roofing Inc., a roofing contractor, which was authorized to assist Mudd’s in the insurance claim. CMS found additional damage. Travelers has paid a total of $141,169.64 to Mudd’s to date.
Mudd’s then assigned its rights in the insurance claim to CMS’ owner, Mr. Jaggers. Mr. Jaggers had discussions with an official of Nashville-based Howarth Group, an appraisal firm that is not a party to the litigation, which led to a contingency fee arrangement.
Travelers sought a declaratory judgment in the case December 2019. In an amended complaint, it said the award should be vacated because Howarth was not impartial as an appraiser because of the contingency fee arrangement.
In siding with the insurer, the ruling said, “The question of Howarth’s impartiality runs deeper than simply his fee arrangement, particularly when viewed against case law.” It cited an earlier ruling that says appraisers should not be partisan.
“This type arrangement means the higher the award, the more Jaggers earns, both as an assignee of the claim, and in a referral fee,” the ruling says.
“A satisfied Jaggers is more likely to send additional business to the Howarth Group,” it said, in ruling in Traveler’s favor, vacating the appraisal award, and granting Traveler’s motion for summary judgment.
Attorneys in the case had no comment or did not respond to a request for comment.
In a victory for insurers, a unanimous Delaware Supreme Court overturned a lower court ruling Friday and held that costs associated with a stock appraisal sought by shareholders in connection with a merger are not insurable under directors and officers coverage.