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2003 errors & omissions claims analysis.

THE NUMBER AND TYPE OF ERRORS AND OMISSIONS CLAIMS HAVE CHANGED SIGNIFICANTLY SINCE 1987. Today, unlike the 1980s, it is not unusual for the appraiser to be included in most real estate lawsuits along with the other professionals, e.g., real estate agents, termite inspectors, etc., involved.

In 1987 the most common complaint came from lenders. Not surprising in this age of consumerism, today the most common complainant is the borrower.

Gaglione & Dolan, who monitor the Liability Insurance Administrators claims, evaluates each case on its merits. It is committed to providing a vigorous defense, even where it would be less costly to simply settle. Over 500 claims were received during the past two years. To date, 33 of those claims have settled and 41 have been dismissed by the courts.

The 337 claims presented during 2003 represented an increase of 20 percent over the previous year. Of these, 30 percent were administrative complaints, which are usually complaints, made to state licensing boards against appraisers. When faced with an administrative complaint, the appraiser is well advised to act as quickly as possible to contact the E & O carrier for advice on how to respond to the licensing board's requests. Of those administrative complaints covered under the E & O program, the vast majority are closed with no violations found and no action taken. At this time, only three files with state board complaints reported have resulted in disciplinary action imposed against the appraiser. (See LIA's Web site, www.liability.com to read the Claim Alert, "A Licensing Board Administrative Notice," on how to address these complaints and minimize your risk.)

Complainant trends

Repeat claimants, claimants who bring multiple suits, are observed closely to detect exploitive trends. An especially strong defense is put forth in these matters. We hope to discourage the proliferation of claims by avoiding "cost of defense" settlements. Many well-known national mortgage companies and lenders are involved and constantly being monitored.

The same holds true for certain plaintiff counsel who appear to have targeted insured appraisers in their regions, be it Los Angeles; Dayton, Ohio; or Charleston, West Virginia.

Seventeen years ago the sun belt states provided much of the litigation against appraisers, with California, Arizona, Texas and Florida providing most of the claim activity. In 2003 there were claims from 44 states, with Michigan, California, Ohio and Florida generating over 20 claims each. North Carolina showed an increase in fraudulent activity, particularly involving real estate flip deals. There have been many articles in newspapers across the nation describing "flips," mentioning how "important" the real estate appraiser is to the scheme and, again, bringing unwanted notoriety to the appraisal profession. (See LIA's Web site to read the Claim Alert on "Flips.")

Payouts

With regard to claim payments, the two largest settlements incurred over the past two years have been paid. In the most costly, a case in Kansas for $375,000, the insured failed to disclose that a significant parcel of property was in a flood zone. When the loan was defaulted, the lender was unable to sell the property for the balance of the loan. The second settlement of $200,000 concerned two Alabama lawsuits involving seven appraisals wherein numerous valuations lacked supporting documentation. With a policy limit of $300,000, a settlement was reached to avoid exposure in excess of the remaining policy limits.

The third largest payout, $65,000 was awarded in California to settle a lawsuit over a recycling plant appraisal. The remaining 30 matters were settled for amounts of $30,000 or less, 22 of these being for $10,000 or less. Four other claims were settled for nominal amounts by the insured, within the policy deductible.

In the past 20 years, appraisers have come a long way in being recognized as professionals. With that, unfortunately, also comes notoriety in the courts. The Claim Alerts on LIA's Web site, along with a series of Loss Prevention Seminars throughout the nation, help the appraiser avoid becoming prey.

by Robert C. Wiley, President, Liability Insurance Administrators, and Claudia L. Gaglione, Gaglione & Dolan

Liability Insurance Administrators (LIA) administers the Appraisers Liability Insurance Trust E & O insurance program, which has been endorsed by the Appraisal Institute since 1991. Their Claim Alerts, such as the above, appear regularly in Valuation Insights & Perspectives. LIA will gladly address your questions or ideas for topics of interest regarding E & O insurance or loss prevention. Please send your inquiry to ocarreon@appraisalinstitute.org.
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Title Annotation:Insurance Connection
Author:Wiley, Robert C.; Gaglione, Claudia L.
Publication:Valuation Insights & Perspectives
Date:Mar 22, 2004
Words:739
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