Tuesday, December 29, 2015

USPAP - My Pathway to Expert Witness

By Suzanne Sellers Houck, ISA CAPP, B.A. and M.A.L.S., ISA Board Member

Have you added expert witness testimony to your bank of services yet? If not, and a perceived lack of “expertise” is your reasoning, USPAP could be your solution. Throughout my career, my courtroom experience has been very limited. But all of that changed recently, when I had the opportunity to provide expert witness testimony in a class action lawsuit against a major insurance company.

The suit claimed that settlements for depreciable household items were being settled illegally, specifically by age depreciation only. I was skeptical about what role I could play given my limited experience in writing insurance claims appraisals. I’ve often considered specializing in an area but never did, and I still classify myself as a generalist; generalists, in my mind, don’t often provide expert witness testimony. But that was all before USPAP opened the door for more business possibilities for me.

During our initial conversation, the plaintiffs’ attorney told me he had found me through the ISA website. What surprised me most about our initial conversation was that he was most interested in talking to me about appraisal methodology, not necessarily my “product knowledge,” although that too was relevant. I had just taken the USPAP update a couple months prior, so I was feeling very refreshed and empowered. "Tell me more," I said.

The suit involved California Insurance Code 2051 2014. (I’m sure other states have similar laws.) This law addresses claims settlement procedures and focuses on the concept of physical condition at the time of loss without ever mentioning consideration of a specific marketplace, specifically payment of actual cash value. I explained that Actual Cash Value is considered an insurance term and that as an appraiser I deal with Replacement Cost New or Comparable.

I explained to him that all appraisals by definition consider the Intended Use of the appraisal (insurance, selling, estate planning, etc.) and Objective of the appraisal (determining fair market value, market value, estimating replacement cost, determining loss of value, etc.) and that each value definition has a specific market. There are four primary markets we consider. They are the retail market, wholesale market, orderly liquidation market, and distress liquidation market. Appraisers choose the market based upon the intended use of the appraisal, the object(s) being appraised and its many value characteristics: Type of Item, Size, quality, Age, Condition, Alterations and/or restorations, style, Materials, Authorship or manufacturer, Country of origin, Subject matter, Provenance, and obsolescence/usefulness. I explained how using just age or physical condition would result in different (often inflated) value conclusions, a fact that further emphasized the importance of considering multiple value characteristics within a specific marketplace.

He then asked for details about my training through ISA. I am proud of our extensive educational program and welcomed the opportunity to explain it. He had no idea certified appraisers went through such extensive training.

Moving forward, I prepared for my depositions by reviewing my ISA and USPAP manuals, concentrating on Standard Rules 7 and 8, as well as sections relevant to appraiser's use of marketplace. I highlighted and sent the attorney Standard Rule 7-3 (b) which defines and "analyzes the appropriate market consistent with the type and definition of value and comments the appraiser must recognize that there are distinct levels of trade (measurable marketplaces) and each may generate its own data."

In Standard 8, I highlighted 8 (a) iii which states: "Content of an Appraisal Report must be consistent with the intended us of the appraisal and at a minimum ... summarize information sufficiently to identify the property involved in the appraisal including the physical and economic property characteristics relevant to the assignment."

When you are providing expert witness testimony, you need to be aware that everything in your work file will likely become public. Mine was copied and, during the trial, my highlighted sections of USPAP were used as Exhibits and projected onto all screens in the courtroom. What great exposure for USPAP and ISA .

The information I sent might seem basic to you seasoned appraisers, but my observations were that this information was news to the attorneys present. At one point I was asked if I was "certified" in the state of California.

"No sir, I am not," I answered, observing the surprised glances between the attorneys before continuing. "I have a business license in the state of California, but I am a certified appraiser of personal property through the International Society of Appraisers and all my reports are compliant with the USPAP standards as set forth by the Appraisal Standards Board, a Congressional subcommittee."

After the trial, I was waiting by the curb for my taxi when the main defense attorney approached me and asked, “Where are you from?” 

“Southern California,” I replied, quickly adding, “Where I often write appraisals for your insureds and hope to continue to do so!”

He smiled and asked, “Do you have a card? I am looking for an appraiser.”

I don’t yet know the outcome of the trial, but I believe my concentration on USPAP and my ISA education helped promote my professionalism and hopefully that of the entire appraisal business for those present that day. Thanks, ISA, for providing that education and allowing me to expand my business practice in a very lucrative and exciting direction.

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