Can a North Carolina lawyer call a public insurance adjuster as an expert witness when the client is paying the adjuster a contingency fee out of the insurance proceeds?

Plain-English summary

A homeowner with hail damage signs a contract with a North Carolina-licensed public insurance adjuster who will be paid a percentage of the insurance proceeds, then hires a lawyer for trial. The question is whether the lawyer may call the adjuster as an expert witness when the adjuster is being paid on a contingency. The opinion concludes the lawyer may.

Rule 3.4(b) bars a lawyer from offering an inducement to a witness that is prohibited by law, and Comment [3] notes the common-law rule that paying an expert witness a contingent fee is improper. But the contract here is between the client and the adjuster, not the lawyer, and is governed by state insurance law rather than the Rules of Professional Conduct. The opinion observes that many other jurisdictions treat paying a public adjuster a contingency fee as against public policy, but North Carolina does not: the 2009 enactment of Article 33A of Chapter 58 regulates public adjusters and, in N.C. Gen. Stat. § 58-33A-60(d), expressly caps catastrophic-incident fees at ten percent of the settlement or proceeds and bars pre-settlement fees, which presupposes that a contingency arrangement is permitted. Because state law permits the client to pay the adjuster a contingency fee tied to the outcome, the lawyer who calls the adjuster as an expert is not offering an inducement prohibited by law under Rule 3.4(b).

In practice

Under this opinion, a North Carolina lawyer may call a client's public insurance adjuster as an expert witness even though the client pays the adjuster a contingency fee, because the client-adjuster contract is governed by state insurance law (which permits the fee under N.C. Gen. Stat. § 58-33A-60(d)) and not the Rules of Professional Conduct, so Rule 3.4(b)'s bar on offering a witness an inducement prohibited by law is not triggered. The opinion is limited to that question and does not opine on whether the adjuster qualifies as an expert, which the inquiry assumes the court would find.

Common questions

Q: Can a North Carolina lawyer call a public adjuster as an expert when the client pays the adjuster on contingency?

A: Yes. The opinion concludes the lawyer may, because the client-adjuster contingency contract is governed by state insurance law, not the Rules of Professional Conduct, and North Carolina law permits it.

Q: Doesn't Rule 3.4(b) prohibit paying an expert a contingent fee?

A: Rule 3.4(b) bars a lawyer from offering a witness an inducement prohibited by law, and Comment [3] notes the common-law rule against contingent expert fees, but the opinion explains the contract here is between the client and the adjuster and is governed by insurance law that North Carolina permits, so the lawyer is not offering an unlawful inducement.

Q: Why is North Carolina different from states that bar this?

A: The opinion explains that while many jurisdictions treat paying a public adjuster a contingency fee as against public policy, North Carolina's Article 33A of Chapter 58 (enacted 2009) instead regulates and caps such fees (N.C. Gen. Stat. § 58-33A-60(d)), so the arrangement is permitted rather than prohibited.

Background and rules framework

The opinion interprets North Carolina Rule 3.4(b) (a lawyer shall not offer an inducement to a witness that is prohibited by law) and its Comment [3] (compensation of an expert witness on terms permitted by law; the common-law rule against contingent expert fees), corresponding to ABA Model Rule 3.4. The analysis turns on North Carolina insurance law, specifically Article 33A of Chapter 58 of the General Statutes and N.C. Gen. Stat. § 58-33A-60(d), which caps and regulates public-adjuster fees.

Citations and references

Rules of Professional Conduct:

• Model Rule 3.4 / NC Rule 3.4(b) (inducement to a witness prohibited by law; Comment [3])

Statutes:

• N.C. Gen. Stat. § 58-33A-60(d) (public adjuster fees; catastrophic-incident cap; no pre-settlement fee)
• Chapter 58, Article 33A (regulation of public insurance adjusters; enacted 2009)

Cases:

• Accrued Financial Services Inc. v. Prime Retail Inc., 298 F.3d 291, 300 (4th Cir. 2002), public policy against contingent witness fees
• Taylor v. Cottrel Inc., 795 F.3d 813, 816 (8th Cir. 2015), same
• Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 73 (2d Cir. 1990), same

See also

• ABA Formal Op. 96-402: Payments to Occurrence Witnesses
• Alabama Ethics Op. 1997-02: Paying an Expert Witness a Reasonable, Customary Fee

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2022-formal-ethics-opinion-5/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

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).