Client Paying Public Adjuster-Witness a Contingency Fee
Adopted: October 21, 2022
Opinion rules that a lawyer may call as an expert witness a public adjuster who will collect a statutorily authorized contingency fee paid by the client.
Inquiry:
A homeowner experiences hail damage to his real property. The homeowner enters into a contract with a public insurance adjuster licensed by the North Carolina Department of Insurance whereby the adjuster will be paid a percentage of insurance proceeds the homeowner receives. The homeowner subsequently hires Lawyer for the trial of the matter. Assuming the court would qualify the public adjuster as an expert for homeowner’s case, may Lawyer call the adjuster as an expert witness at trial?
Opinion:
Yes. While the Rules of Professional Conduct generally prohibit a lawyer from paying an expert witness a contingency fee, the contract entered into by the client and the public insurance adjuster is not governed by the Rules of Professional Conduct.
Rule 3.4(b) provides in pertinent part, “[a] lawyer shall not offer an inducement to a witness that is prohibited by law.” Comment [3] to Rule 3.4 states, “[w]ith regard to paragraph (b), it is not improper to pay a witness’s expenses, including lost income, or to compensate an expert witness on terms permitted by law. The common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying and that it is improper to pay an expert witness a contingent fee.” Except as allowed by law, lawyers cannot pay a witness a contingency fee.
Other states have opined that it is against public policy for anyone to pay a public adjuster a contingency fee. See Taylor v. Cottrel Inc., 795 F.3d 813, 816 (8th Cir. 2015); Accrued Financial Services Inc. v. Prime Retail Inc., 298 F.3d 291, 300 (4th Cir. 2002); Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 73 (2d Cir. 1990); Stranger v. Raymond, No. 08-2170 (C.D. Cal. May 9, 2011); J&J Snack Foods Corp. v. Earthgrains Co., 220 F. Supp. 2d 358, 367 n.8 (D.N.J. 2002); Farmer v. Ramsey, 159 F.Supp.2d 873, 883 (D. Md. 2001); Buckley Powder Co. v. State, 20 P.3d 547, 559 (Colo. App. 2002). However, in North Carolina, it is not against public policy to pay a public adjuster a contingency fee. In 2009, the North Carolina General Assembly amended Chapter 38 of the General Statutes to include Article 33A, which governs the qualifications and procedures for, inter alia, public insurance adjusters. The statute specifically provides:
In the event of a catastrophic incident, there shall be limits on catastrophic fees. No public adjuster shall charge, agree to, or accept as compensation or reimbursement any payment, commission, fee, or other thing of value equal to more than ten percent (10%) of any insurance settlement or proceeds. No public adjuster shall require, demand, or accept any fee, retainer, compensation, deposit, or other thing of value before settlement of a claim.
N.C. Gen. Stat. § 58-33A-60(d).
The statute is silent on whether the public adjuster may testify as an expert witness. However, because the statute permits the client to pay the public adjuster a contingency fee based upon the outcome of the underlying case, Lawyer is not “offer[ing] an inducement to a witness that is prohibited by law.” Rule 3.4(b).