Somewhere in Texas at this very moment a public adjuster is knocking on the door of a home or business owner offering to inspect the roof for wind or hail damage and assist with the submission of an insurance claim. It is inevitable the public adjuster will find some “evidence” of wind or hail damage. At that point, the public adjuster will encourage the homeowner or business owner to sign a 10 percent contingency fee contract that in essence states the public adjuster will not get paid unless he can convince the building owner’s insurance carrier the structure incurred covered storm damage. Once the homeowner or business owner signs the public adjuster’s 10 percent contingency fee contract, the public adjuster has a vested interest in making sure the claim is paid. The larger the claim, the more interested the public adjuster becomes.
Insurance carriers and public adjusters obviously do not always agree on the existence or extent of coverage for a claim. Disagreements can include, among other things, scope of damage issues, unit pricing issues or even whether there was a weather event during the policy period significant enough to have caused the damage claimed. In such instances insurance carriers often deny claims either in whole or in part and litigation ensues. Each week, hundreds of hail damage lawsuits are filed all across Texas.[1]
During litigation, the attorney representing the building owner must decide which fact witnesses to call and which expert witnesses to retain. Given their knowledge about the alleged damage and claim history, the public adjuster who initially handled the claim is often designated by counsel for the building owner as a fact or expert witness.
This designation is not without considerable risk.
Rule 3.04 of the Texas Disciplinary Rules of Professional Conduct provides as follows:
A lawyer shall not:
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(b) ... pay, offer to pay or acquiesce in the offer or payment of compensation to a witness or other entity contingent upon the content of the testimony of the witness or the outcome of the case. But a lawyer may advance, guarantee or acquiesce in the payment of:
(1) expenses reasonably incurred by a witness in attending or testifying;
(2) reasonable compensation to a witness for his loss of time in attending or testifying;
(3) a reasonable fee for the professional services of an expert witness.
In a nutshell, Rule 3.04 states that a Texas lawyer (and his client) cannot pay a fact witness or an expert witness on a contingent fee basis. It is simply unethical to do so. There are no Texas cases addressing whether a public adjuster who signed a contingency fee contract presuit can serve as an expert witness or even as a fact witness, in litigation and expect to retain his contingency fee. However, the Texas Center for Legal Ethics issued an opinion in August 2004 that is instructive on the issue.
In Opinion 553, the Texas Center for Legal Ethics considered the contingency fee arrangement of a property tax consulting company that assisted real property owners in protesting property tax assessments.[2] The consulting company’s services included presenting the protest and negotiating with the tax assessor to determine an appropriate tax assessment value. If an agreeable tax assessment could not be reached, the consulting company’s contract obligated it to assist the property owner’s lawyer with a lawsuit against the local tax assessor and to provide expert witness services. The consulting company was paid a contingency fee based on the achieved tax savings — 12 percent presuit and 50 percent if the consulting company assisted with litigation. The Texas Center for Legal Ethics determined that a lawyer’s use of the consulting company’s services as an expert witness was unethical due to the contingent fee agreement:
It is a violation of the Texas...
