As occurred when FNC announced its previous revision (which was to go in effect on September 13 but was subsequently withdrawn), we are beginning again to receive numerous calls from our insured appraisers. This post is meant to explain our view of the major issues for those appraisers who are concerned about the user agreement.
As we explained in our initial post about the agreement on September 24, appraisers should understand that an agreement such as this does not change an appraiser’s E&O insurance coverage or "void" the policy. Your E&O policy will still provide the same degree of protection and coverage as if the agreement did not exist and will still provide the same level of defense set forth in the policy for claims alleging professional negligence against you. This is because your contract with a different party (in this case, your agreement with AppraisalPort under its user agreement) does not change the separate contract you have with your insurance company (i.e., your E&O insurance policy). Thus, you would still be defended under your insurance policy against claims by lenders or borrowers alleging professional negligence relating to an appraisal even if you delivered the report through AppraisalPort (assuming that you maintain current insurance and that all other regular terms and conditions of your policy are met and no regular exclusions in the policy apply, etc.). However, as explained below, your insurance policy is not going to expand to cover any new liabilities that might be created by your contract with AppraisalPort (e.g., liabilities to AppraisalPort if AppraisalPort gets sued).
The main issue with AppraisalPort’s current user agreement – the agreement that is in effect until December 13 – is the “indemnity clause” in paragraph 6. The troublesome part of that paragraph reads:
SUBSCRIBER shall indemnify AppraisalPort and its suppliers (whether of Information or otherwise), defend and hold them harmless from and with respect to any liability, damages (including without limitation any consequential, incidental, general, special or exemplary damages), losses, or claims which may arise, whether now or in the future, with regard toUnder this language, an appraiser (or anyone subject to the agreement) is purportedly agreeing to pay all of AppraisalPort's losses, damages, expenses, etc. which might result from an appraisal delivered through AppraisalPort -- even if the loss or damage results from AppraisalPort's own conduct or even its own "sole negligence." The problem for the appraiser here is that he or she is agreeing to pay potential costs and damages that are broader than can be covered by the appraiser’s insurance. An appraiser’s E&O policy can only cover mistakes or damage caused by the insured appraiser (not a third party such as AppraisalPort). In addition, your insurance cannot cover potential liabilities that you agree to in a contract.
i. the use of AppraisalPort or any aspect or service thereof, or
ii. the accuracy, authenticity, or completeness of the Information, or
iii. any aspect of the operation of SUBSCRIBER's business in relationship with or in connection with AppraisalPort or SUBSCRIBER's use of the Information or software, whether any such liability, damages, loss, or claim arises from any act or omission of AppraisalPort (including its sole ordinary or gross negligence) or act or omission of any supplier of data to AppraisalPort (including their sole ordinary or gross negligence).
The revised language on the subject of indemnity is contained in paragraph 8 of the new user agreement. The new provision reads:
USER shall indemnify AppraisalPort and its suppliers (whether suppliers of Information or otherwise), defend and hold them harmless from and with respect to any liability, damages (including without limitation any consequential, incidental, general, special or exemplary damages), losses, or claims which may arise, whether now or in the future, with regard toThe only material difference between the two versions is that FNC took the following words out of the last item: “whether any such liability, damages, loss, or claim arises from any act or omission of AppraisalPort (including its sole ordinary or gross negligence) or act or omission of any supplier of data to AppraisalPort (including their sole ordinary or gross negligence).” While facially appealing, in our view, this deletion does not really change the meaning of the indemnity provision. In other words, if FNC gets sued for any reason based on an appraisal delivered by you through AppraisalPort, FNC could still argue that you are obligated to indemnify FNC for losses or damages that FNC incurs as the result of that lawsuit even if the lawsuit is based on a problem caused by FNC. This means that, for example, if FNC is sued by a lender for a problem that occurred in your report such as the omission of appraisal data caused by an error inherent in the software, FNC could potentially argue that you must pay FNC’s costs in defending that lawsuit and any damages that FNC may pay to the lender. In this way, the two versions are more or less the same. And again, your insurance cannot cover these additional liabilities that you agree to assume to FNC and its suppliers in the user agreement.
i. USER's use of AppraisalPort or any aspect or service thereof, or
ii. the accuracy, authenticity, appropriateness or completeness of the Information, or
iii. any aspect of the operation of USER's business in relationship with or in connection with AppraisalPort or USER's use of the Information or software.
The deletion of the quoted words may have one potential impact to the advantage of the appraiser: based on our limited research, it is possible that under Mississippi law (which purportedly applies under the user agreement), FNC might not be able to obtain indemnification from the appraiser for FNC’s own active negligence. The determination of this legal point, however, would involve contractual interpretation of the parties’ intentions by the judge or arbitrator hearing the dispute and is not something that we can predict the outcome of. The fact that FNC has taken out the specific wording regarding “any act or omission of AppraisalPort (including its sole ordinary or gross negligence)” would be an argument in the appraiser’s favor.
In the end, we feel that nothing substantive has changed in the new agreement with respect to the issue of indemnity and potential liabilities that cannot be covered by insurance. As under the prior agreement, if you are worried that using AppraisalPort is risky, then you should carefully consider whether you are willing to use AppraisalPort under the terms of its user agreement. If you are not willing to accept that risk, you should contact AppraisalPort to try to change the terms and conditions or, alternatively, not use the service to deliver your reports. If you are satisfied that AppraisalPort does not present much risk or that the fears of altered reports are unfounded, then you would likely be more comfortable with the user agreement and comfortable that you are unlikely to experience potential liabilities that cannot be covered by insurance. Because we do not use the service ourselves and have no way of assessing the actual risk to you of using AppraisalPort, it is not our place to make the decision for you. It comes down to a business judgment of whether you are willing to accept the apparent advantages of using AppraisalPort (such as more business) in exchange for the potential risks it may cause.
We can offer the following information based on our claims experience: as of this date, we have not yet received a claim against one of our appraisers that specifically relates to a problem using AppraisalPort nor are we aware of any claim by FNC for indemnity against any of our insureds. At the same time, however, it is FNC that is in the best position to gauge the risks posed by its service, and it is FNC that believes it is necessary to protect itself from lawsuits stemming from use of its service by including the indemnity language in its user agreement.
Aside from the above, there are other matters of concern in the new user agreement. We’ll be brief on these because they do not directly impact insurance concerns and have not materially changed from the prior version. First, under paragraph 12 of the new agreement, if an appraiser has a dispute with FNC relating to AppraisalPort or if FNC decides to sue an appraiser, the dispute is subject to binding arbitration in Lafayette County, Mississippi, where FNC is located. This means that you give up your right to have the case heard in court, before a jury, in a more convenient location or as a class action.
In addition, under paragraph 9, if you believe AppraisalPort has injured you as the result of some action, the types of damage you may recover from FNC are strictly limited under the user agreement. Moreover, the total monetary damages that you may recover from FNC are limited to “the amount actually paid by [you] to AppraisalPort hereunder within the most recent 12 month period.” If individual appraisers could do it, we’d love to see appraisers limit their liability to their clients to the amount that a client pays them for an appraisal.
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