Appraiser Liability Claims -- Why Do Claims Get Settled?

The article below comes from the most recent Claim Alert published by LIA Administrators & Insurance Services -- Why Do Claims Get Settled?  This article describes why and how lawsuits and other claims against appraisers in our E&O insurance program are settled.  Appraisers should take heart in knowing that most claims against appraisers defended in our program do not result in any monetary payment to the plaintiff. Additional Claim Alerts from LIA are available here in the Loss Prevention section of LIA's website.  The article was written by Claudia Gaglione of Gaglione, Dolan & Kaplan, national claims counsel for LIA's appraiser E&O program.

Claim Alert: 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 litigation will be handled, and what will be expected of the appraiser during the course of the lawsuit, we inevitably 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 [in our program]. There must always be a strong reason for settlement to be an option. Most of the time, a claim is settled because after careful analysis and review, it is determined that the appraisal in question cannot be supported. 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. In this article we will look at some actual claims from the LIA archives and discuss the facts and circumstances that made settlement the best, and sometimes only, option.

Tell Tale Claims...

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Presentation of LIA's Loss Prevention Program to North Bay Chapter of the California Real Estate Appraisers Association on January 19, 2012 in Petaluma, CA

LIA and READI are pleased to support the North Bay Chapter of the California Real Estate Appraisers Association by presenting their 4-Hour CE seminar "Loss Prevention Program for Real Estate Appraisers" at a meeting of the North Bay Chapter on January 19, 2012, 8:00 a.m. to 12:30 p.m., in Petaluma.  Here is a link to the North Bay Chapter's sign-up page for the seminar.  The North Bay Chapter's has made this seminar free for members and $50 for non-members -- which provides a good reason to join this great appraiser group.


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LIA's Seminar "Loss Prevention Program for Real Estate Appraisers" at the ATA’s Rio Grande Valley State Appraisers Conference, Jan. 17-18

LIA is pleased to be affiliated with the Association of Texas Appraisers (ATA).  I will be teaching LIA’s 4-Hour CE seminar "Loss Prevention Program for Real Estate Appraisers" at the ATA’s Rio Grande Valley State Appraisers Conference in McAllen, TX, January 17-18.  The conference offers a total of 11 CE hours at reasonable cost to both members and nonmembers.  Here is a link to the conference information on ATA's website.  A 2012-13 USPAP Update course will be given on the first day.  Our seminar will be presented in morning of the second day. 

Appraisers who are insured by LIA for their E&O or who purchase E&O from LIA later this year become eligible for a one-time discount on their E&O premium of $50 (for a $500K or $1m per claim policy) or $25 (for a $300k per claim policy) per appraiser by completing the Loss Prevention Program at the conference.  This discount may be applied toward any payment due after the seminar.

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Year-End Self-Assessment: How Did We Do on Our 11 Predictions for AMC Liability Risks in 2011?

One year ago, we offered 11 Predictions for AMC Liability Risks in 2011.  Being at the end of the year, it's time for self-assessment.  How did we do on our predictions?  It's important because when we do a good job at our company (LIA Administrators & Insurance Services) in understanding where future liability risk will exist and in sharing that knowledge with our insurance clients, then we and our clients are better able to cover that risk with appropriate insurance or other risk mitigation.  How does your insurance broker do?

Please keep in mind that predicting the risk of a liability event is not the same thing as predicting whether the event will actually occur.  However, this assessment is based on whether the liability events actually did occur.  Using that standard, my grade for our performance in the predictions is an "A-," a good grade that I feel is deserved for the particular accuracy of our FDIC prediction. 

Here is my assessment of how we did on each prediction that we made December 21, 2010 about AMC liability risks in 2011:

1. "Several AMCs will be sued by the FDIC."  We did well on this prediction.  Two AMCs were, in fact, sued by the FDIC on May 9, 2011 for more than $100 million each.  A third AMC's appraisals have become the subject of another FDIC action, but the AMC is not named as a defendant. 

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WaMu's Top Officers Pay Pennies on the Dollar to Settle FDIC Claims. What's the FDIC's Case Against LSI Appraisal of Lender Processing Services Worth?

In March of this year, the FDIC sued Washington Mutual's former CEO Kerry Killinger, its former chief operating officer Stephen Rotella and its former head of residential lending David Schneider for $900 million in alleged damages resulting from their "gross negligence" in running WaMu's residential lending business.  The FDIC claimed that their negligence caused what is the biggest bank failure in U.S. history.  It also alleged that two of them unlawfully transferred assets to their wives to protect the assets from potential collection efforts.  Despite those strong allegations, however, the FDIC is now settling that case in a settlement that apparently stipulates for a cash payment of only $40 million -- almost all of that coming from WaMu's insurers.  From their own pockets, the former CEO will pay only $275,000, the former chief operating officer will pay $100,000, and the former head of WaMu's residential lending will pay $50,000.

FDIC Judgment Against Individual Appraiser

Here's an interesting comparison -- individual residential real estate appraisers have had judgments entered against them by the FDIC relating to just one bad loan for much more than the total amount that the three former WaMu officers will pay out of their own pockets.  To be sure, the former officers of the failed lender did give up their right to collect "unpaid bonuses" and "severance pay."

Leaving aside that comparison, how is it that the settlement value of a case which the FDIC originally said was worth $900 million is now worth settling for only $40 million in cash plus some incidentals?  I can't offer guidance as to how the parties in that case valued the FDIC's case against WaMu's former officers, but I can offer a peak into part of an analysis that I prepared last summer of the FDIC's case against WaMu's former appraisal management company LSI Appraisal (a subsidiary of Lender Processing Services), which the FDIC is presently suing for $154 million.  The assessment sheds a little light on how the FDIC sometimes comes in blazing with bold allegations when the value of its case is really much smaller.  Three pages of the 12-page memorandum are below.


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Two Free Appraiser CE Classes in East Brunswick, NJ on 12/14/11

This is a reminder about LIA and READI’s free 4-Hour CE seminar on appraiser liability prevention on 12/14/11 in East Brunswick, NJ -- the prior announcement of this class is copied below. 

In addition, I am pleased to announce that we’ve added an additional free seminar at the same location on the same day.  The additional class will be taught by Dennis Scardilli, JD, MAI.  He is one of the few MAI/attorneys in the U.S., and he is also a certified USPAP instructor.   His seminar is approved for 2 hours of appraiser CE in NJ (#2011-4000000).  It is entitled “New Jersey Real Estate Law, USPAP and You.”  His seminar particularly addresses common USPAP violations for which discipline is given in New Jersey.  He will be using real life examples.  As an attorney licensed in New Jersey, Dennis handles appraiser disciplinary actions and he’ll be sharing his knowledge and experience in the seminar.  He has performed a comprehensive review of discipline in the state and has detailed information to share.  The seminar is a perfect complement to our appraiser liability prevention seminar in the morning.  His seminar will begin at 1:30 and end at 3:30 at the Days Hotel, 195 Route 18 South, East Brunswick, New Jersey 08816(same location as the class described below).

Registration for either class is by email to class@readimember.org.  Both classes are free for appraisers who register for READI membership at www.readimember.org or who are insured by LIA.

Here is the prior announcement regarding the 4-hour CE seminar:


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FDIC Files Amended Complaints in Lawsuits Against LSI Appraisal and CoreLogic

In the wake of Judge Carter's order granting motions to dismiss the FDIC's gross negligence and alter ego-type claims against LSI Appraisal and CoreLogic Valuation Services, the FDIC has filed first amended complaints against the appraisal management companies in each case.  It also has reserved the right to later appeal those rulings.

In its amended complaints, the FDIC does not seek to re-plead any negligence or other tort claims.  Instead, the FDIC recasts its breach of contract claim in each lawsuit into 2 parts: (1) for breaches relating to appraisals delivered prior to the execution of the comprehensive written contract between each AMC and WaMu (a small number of appraisals in each case for which the FDIC seeks damages of $8 million against LSI and $15 million against CoreLogic), and (2) for breaches relating to appraisals delivered during the period covered by each executed contract (a much larger number of appraisals in each case for which the FDIC seeks $145 million in damages against LSI and $113 million against CoreLogic).  If this strategy succeeds, it would aid the FDIC by blunting some of the effect of the limitations of liability found in each company's comprehensive contract with WaMu.  Aiming for that same goal, the FDIC also has added a brief allegation that any cap on liability should be disregarded because of each AMC's alleged gross negligence -- the FDIC's presumed theory being that under New York law, parties generally cannot limit their liability for gross negligence.  Here is that allegation from the amended complaint against CoreLogic:

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