Contingency Fee Arrangement With Appointed Appraisers
As there is no Pennsylvania case law on this exact issue, it is helpful to discuss the cases from other jurisdictions that are closely on point.
The Supreme Court of Iowa has ruled that a contingency fee arrangement between an insured and his appointed appraiser renders the appraiser per se unfit. Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257 (Iowa 1991).
This ruling was made, however, in the context of an appraisal clause that required party-appointed appraisers to be "competent and disinterested".
Although that court hinted that the holding would have been the same regardless of the inclusion of the word "disinterested," we hold that the two words have different meanings, and that an appraiser may be "competent" (i.e. capable of rendering a fair judgment) and at the same time be somewhat partial.
A holding that the two words mean the same would ignore the reality of the tri-party appraisal process that, in a great majority of cases, some amount of partiality exists between an insured and his appraiser.
A Florida court recently held that the existence of a contingency fee agreement does not render the appraiser per se unfit. Rios v. Tri-State Ins. Co., 714 So. 2d 547, 549 (Fla. Dist. Ct. App. 1998).
The appraisal clause in that case called for "competent, independent" party-appointed appraisers. the court held that even the use of the word "independent" in the policy did not prohibit a party from paying his appraiser with a contingency fee.
In a 1991 case, the Supreme Court of Rhode Island purported to prohibit the use of contingency arrangements. Aetna Cas. & Sur. Co. v. Grabbert, 590 A.2d 88 (R.I. 1991).
However, in that case, the court actually went on to affirm the appraisal award in question on the basis that the challenging party failed to "demonstrate the required causal nexus between the party-appointed arbitrator's improper conduct and the award ultimately decided upon." Id. at 96.
The ruling, then, was essentially that although such arrangements are undesirable, they may not, in and of themselves, form the basis for vacating an award.