CAADE Legal & Ethical Considerations in Appraisal 3 — Questions and Answers
Question 1: In a total loss situation, the insurer's duty to act in good faith requires:
- Settling claims at the lowest possible amount to protect company assets
- Prompt and fair investigation and settlement based on actual vehicle value (Correct answer)
- Waiting 90 days before making any settlement offer
- Deferring entirely to the appraiser's estimate without negotiation
Correct answer: Prompt and fair investigation and settlement based on actual vehicle value
The implied covenant of good faith and fair dealing requires insurers to conduct a prompt, thorough investigation and offer fair compensation based on actual loss.
Question 2: A state-licensed vehicle appraiser operates across state lines in a neighboring state without that state's license. This practice is:
- Permitted under interstate commerce principles
- Allowed if both states have reciprocity agreements
- A violation of the neighboring state's licensing laws (Correct answer)
- Legal as long as no compensation is received
Correct answer: A violation of the neighboring state's licensing laws
Vehicle appraisal licensing is state-specific, and practicing in a state where you are not licensed violates that state's professional licensing statutes.
Question 3: During arbitration of a disputed vehicle value, an appraiser serving as an umpire must:
- Favor the insurer who typically pays the umpire's fee
- Remain impartial and base decisions solely on evidence presented (Correct answer)
- Adopt a value between the two parties' positions without independent analysis
- Defer to the highest qualified appraiser's opinion
Correct answer: Remain impartial and base decisions solely on evidence presented
An umpire in appraisal arbitration must be neutral and base their determination on the evidence and merits, not on who selected or pays them.
Question 4: What is 'steering' in the context of automotive damage repair, and why is it unethical?
- Directing vehicles to specific repair shops for personal financial gain, violating consumer choice (Correct answer)
- Providing directional guidance during vehicle inspection
- Recommending OEM parts over aftermarket, acceptable under most codes
- Estimating structural realignment costs, a standard practice
Correct answer: Directing vehicles to specific repair shops for personal financial gain, violating consumer choice
Steering occurs when adjusters or appraisers improperly direct claimants to preferred shops for kickbacks or cost-reduction purposes, violating consumer rights and ethics codes.
Question 5: Which element is NOT required for a valid appraisal contract to be enforceable?
- Offer and acceptance
- Consideration (payment or fee)
- A notarized signature (Correct answer)
- Mutual assent to terms
Correct answer: A notarized signature
Notarization is not a standard requirement for an appraisal contract; valid contracts require offer, acceptance, consideration, and mutual assent.
Question 6: An appraiser is subpoenaed to testify in a lawsuit involving a vehicle they appraised. Regarding their work file, the appraiser should:
- Destroy the file before the deposition to protect client confidentiality
- Retain all records and comply with the legal process (Correct answer)
- Share only verbal testimony, never written documents
- Claim attorney-client privilege to avoid disclosure
Correct answer: Retain all records and comply with the legal process
Appraisers must comply with lawful subpoenas and preserve work files; destroying records after receiving a subpoena constitutes obstruction of justice.
Question 7: The doctrine of 'privity of contract' traditionally limited appraiser liability to:
- Only the appraiser's licensing board
- Only the parties directly named in the appraisal agreement (Correct answer)
- All foreseeable users of the appraisal report
- Insurance companies exclusively
Correct answer: Only the parties directly named in the appraisal agreement
Under traditional privity doctrine, appraisers were only liable to the contracting parties; however, modern negligent misrepresentation theory has expanded this in many jurisdictions.
CAADE Legal & Ethical Considerations in Appraisal 3
In a total loss situation, the insurer's duty to act in good faith requires: