A Video About The Public Adjuster & Fraud
Every Profession has the Occasional Crook
by Barry Zalma
See the full video at https://rumble.com/vjmohb-a-video-about-the-public-adjuster-and-fraud.html and at
When a public insurance adjuster exceeds his or her authority and attempts to defraud an insurer on behalf of the adjuster’s client, the standard “Concealment or Fraud” provision precludes the insureds from obtaining any recovery under their policies as the claims submitted by Berson, their public insurance adjuster, in his capacity as their agent, were fraudulent. [Astoria Quality Drugs, Inc. v. United Pacific Ins. Co. Of NY, 163 A.D.2d 82, 557 N.Y.S.2d 339).] “Chubb, therefore, is entitled to full recovery of the claims paid.” [Chubb & Son v. Consoli, 283 A.D.2d 297, 726 N.Y.S.2d 398, 2001 N.Y. Slip Op. 04550 (2001).]
The Texas legislature has statutorily made a contract that is void for illegality under the common law enforceable or voidable at the option of the least culpable party—the insured—when a person contracts with the insured to perform services as a public insurance adjuster but does not have a public insurance adjuster's license. [Lon Smith & Assocs., Inc. v. Key, 527 S.W.3d 604 (Tex. App. 2017
In U.S. v. Saada, 212 F.3d 210 (3rd Cir., 1999) the government's evidence at trial showed that:
[i]n 1990, appellants contacted Ezra Rishty, Isaac's cousin, for help in an insurance fraud scheme. Rishty was a public insurance adjuster in New York City who had conspired with various clients in over 200 fraudulent insurance schemes in the past.
Rishty agreed to assist Isaac in filing a fraudulent insurance claim, and enlisted the help of Morris Beyda, a former employee who by then owned his own business. Rishty also enlisted the help of Sal Marchello, a general adjuster for the Chubb Insurance Group ("Chubb"), which was Scrimshaw's insurer. Marchello assured Rishty that Chubb would assign him to handle the future Scrimshaw claim.
In U.S. v. Lemm, 680 F.2d 1193 (8th Cir. 1982) a scheme to defraud insurers was defeated with the testimony of a putative PA. He explained to the trial court that the arson and insurance fraud activities underlying the convictions of various defendants resulted from fire to fire, but a general scenario was summarized by Eugene P. Gamst, the government's chief witness, who was a public insurance adjuster licensed in Minnesota. The government's case showed that at some point in the early 1970's Gamst began mixing his legitimate adjustment activities with arson, eventually becoming the center of an arson ring alleged to have existed from April 1, 1975 to September 1, 1978.
The basic mode of operation was that Gamst, or occasionally another coconspirator, would recruit an individual to start an arson fire for insurance proceeds. Gamst would instruct the individual how to start the fire, how to act, and what to tell the authorities. After the fire, Gamst would pose as a legitimate public adjuster of an accidental fire. Occasionally, Gamst would also act as a private contractor and repair the fire damage in order to obtain a larger portion of the insurance proceeds. The roles of the other conspirators included providing seed money for the purchases of property, locating property for burning, providing property to be burned, preparing and torching the property, and recruiting others to the scheme resulted in convictions.
In Everett Cash Mutual vs. Bonnie Sue Gibble, the Court of Common Pleas of Lycoming County, Pennsylvania, NO. 01-01,640 was faced with a motion to exclude expert Testimony of Patrick Cassidy, Defendants’ proposed expert witness.
When Ms. Gibble’s furnace emitted soot into her home and the claim made with her homeowner’s insurance company, was not handled to Ms. Gibble’s satisfaction. Ms. Gibble sought the assistance of Mr. Cassidy, a public adjuster, and signed a “Public Adjustor Contract”, retaining Cassidy Public Adjustment “to advise and assist in the adjustment of the insurance claim”, agreeing to pay a contingent fee comprising a certain percentage “of the amount paid by the insurance companies in settlement of [the] loss and necessary expenses.”
After making several payments, including one which it offered as payment in full satisfaction of the claim, which payment Defendants refused to accept, Plaintiff filed the instant action, seeking a declaratory judgment that it had fulfilled all of its obligations under the insurance contract. Defendants counter-claimed for breach of contract, negligence, intentional infliction of emotional distress, unfair trade practices act violations and bad faith, and also joined the adjusters brought in by the insurance company as additional defendants. In support of their claims, Defendants plan to introduce the testimony of Mr. Cassidy as an expert witness, and in that regard have provided Plaintiff with a copy of his report, in which he opines, inter alia, that Plaintiff and Additional Defendants “did not follow proper claims practice.”
Gibble, in response, argue that Mr. Cassidy is acting as an expert in his role as a consultant, at the rate of $75 per hour, and only his work as a public adjuster is subject to the contingent fee agreement.
The long established rule of law that a special contract to pay more than the regular witness fees in ordinary cases is void for want of consideration and as being against public policy. Section 552 of the Restatement of Contracts, which provides, in subsection (2): “[a] bargain to pay an expert witness for testifying to his opinion a larger sum than the legal fees provided for other witnesses is illegal only if the agreed compensation is contingent on the outcome of the controversy.”
In In Re Mushroom Transportation Co., Inc., Debtor, 70 B.R. 416 (E.D. Pa. 1987), the court precluded an expert witness from testifying at trial because of a contingent fee arrangement whereby the expert had been hired to assist the debtor in a bankruptcy proceeding in collecting monies allegedly due the debtor from a certain party. Public adjusters, when acting as an expert witness, must be paid a reasonable fee. They may not share in the recovery.
The testimony of interested lay witnesses about historical facts generally does not pose a risk of the same proportion as that of an expert with a contingent financial interest. The concealment of a contingent financial arrangement with a witness would be unconscionable. With the disclosure of such an arrangement, an opinion proffered by an expert would likely be so undermined as to be deprived of any substantial value.
Defendants’ attempt to segregate Mr. Cassidy’s work as an expert witness from his work as a public adjuster claiming it was “merely one of form” failed. It was also of no consequence that the public adjuster contract was entered into prior to the commencement of litigation.
Mr. Cassidy’s preparation of the expert report followed the commencement of litigation and, as Defendants admit, Mr. Cassidy will be entitled under the contingent fee agreement to a percentage of any damages awarded for their loss. The Court concluded, therefore, that the opinion rendered in the report is “so undermined as to be deprived of any substantial value”. While he may testify as a fact witness with respect to his adjuster role, Mr. Cassidy must be precluded from giving any opinion as an expert witness.
A contingent fee can bring the expert much more than an hourly rate would provide. Because of the opportunity of a windfall public adjusters and lawyers are willing to gamble they will get nothing for their efforts in exchange for the opportunity of a windfall. That opportunity colors the testimony a public adjuster, who will profit from a verdict, as an expert and such testimony must be precluded.
When I was an adjuster, I dealt with one PA who had a methodology to increase the value of every fire claim he had contracted: his insureds would always lose 10 cans of Libby’s Peas and a Lalique perfume bottle.
When the insured was questioned about the list of claimed losses, she testified that she always bought Green Giant peas, never more than two cans at a time, and had never even heard of Lalique perfume – a brand that does not exist although Rene Lalique made beautiful crystal perfume bottles.
It is incumbent on an adjuster, when dealing with a claim presented by a public adjuster to compel the PA to produce some evidence to support the claim or review the claim in detail with the insured who probably never saw the proof of loss and proof of claim prepared by the PA.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4