Duties of the Public Adjuster

How a Public Adjuster Helps Resolve a First Party Property Claim

Most policyholders do not have the in-house capability to investigate, evaluate, and negotiate significant property insurance losses. While some losses, such as a small fire loss requiring only minor repairs, may be dealt with easily, others, which involve more complex damages and different potential causes of loss, are much harder to assess. Resolving them may require expertise in understanding the scope of coverage provided by the applicable property insurance policy, scientific or other specialized background to determine the cause of a specific loss, the ability to determine the cost to repair or replace the damaged property, and the calculation of the amount of a time element (business interruption) loss.

In such cases, the policyholder may wish to engage a public insurance adjuster (PA). PA’s are licensed by almost every state and their contract forms must be approved by the state. All PAs claim to be experts on property loss adjustment. Most are. They represent only policyholders in fulfilling the duty to prepare, file, and adjust insurance claims. The PA should handle every detail of the claim, working closely with the policyholder and the insurer to obtain a prompt and reasonable settlement.

PAs invariably charge a contingency fee. When seeking an assignment, the PA will present the contingency fee to the insured as a fait accompli. Every person seeking the service of a PA must be aware that the PA’s fee is negotiable.

The insured should negotiate with the various representatives of PA firms who flock to fire and other loss sites, try to obtain the lowest contingency as possible. Negotiating with a PA is much like negotiating to buy a vase at an estate sale, one never pays the asking price. If there are multiple representatives from PA firms seeking to provide service it is appropriate to play them against each other to obtain a fair contingency since whatever the PA takes will be funds not available to repair the property.

For a major loss, more than one PA will arrive at the site seeking a contract. Rates can be negotiated from a low of 3% to a high of 40%, although the average charge for a run-of-the-mill loss is 10% to 15%. When considering a PA, the insured must take into account the skill, experience and reputation of the firm. The insured must also understand the fact that even if the insurer pays the full amount of the loss, the cost of the adjuster’s fee may not leave enough funds to fully repair the damaged structure. If the insured is a busy professional his or her time may be more valuable to the family than the fee paid to the PA who will take on the arduous task of putting together a complete proof of loss.

The Public Adjuster Contract

The public adjuster contract is technically an assignment of a portion of policy proceeds due to the policyholder from the insurer. To protect the ability to be paid the assignment gives the PA ownership of a percentage of any claims payments.

Upon being retained, the professional PA will often do nothing until the three-day cancellation provision most states require be in every PA contract. Then, whether immediately or after the expiration of the cancellation provision, the PA should:

1. immediately inspect the loss site;

2. meet at the scene with the insurer’s adjuster to set a scope of loss;

3. analyze the damages;

4. assemble the necessary support for the claim presentation;

5. review the coverage to determine the portions of the loss which are covered;

6. assess the value of the loss; and

7. negotiate with the insurance company to reach the end result.

States like California license and regulate public insurance adjusters.[1] Their contracts are subject to approval by the insurance departments in the states in which they operate.  In the state of Michigan, for example, a public insurance adjuster is required to apply for and obtain a license through the Department of Insurance and Financial Services prior to representing any insureds who have suffered losses covered by insurance for fire or other hazards. [MCL 500.1222]

In Texas, Chapter 4102 expressly prohibits a "person" from acting as a public insurance adjuster in Texas without a license. See Tex. Ins. Code Ann. § 4102.051(a). It requires that a person may not act as a public insurance adjuster in Texas or hold himself or herself out to be a public insurance adjuster in this state unless the person holds a license issued by the commissioner.

The term "person" is defined as including a corporation. Id. § 4102.001(2). And a "public insurance adjuster" is:

a person who, for direct, indirect, or any other compensation ... acts on behalf of an insured in negotiating for or effecting the settlement of a claim or claims … while acting as a public insurance adjuster and also includes advertising, soliciting business, and holding oneself out to the public as an adjuster of claims. [§ 4102.001(3)(A)(i), (ii)].

A licensed public insurance adjuster is expressly prohibited from participating directly or indirectly in the reconstruction, repair, or restoration of damaged property that is the subject of a claim adjusted by the license holder; acting as a public insurance adjuster and a contractor on the same claim is a statutorily-defined conflict of interest. [Lon Smith & Assocs., Inc. v. Key, 527 S.W.3d 604 (Tex. App., 2017)

Usually, when a PA is involved, the insurer’s settlement payments will name both the insured and the public adjuster.

The validity of a post-loss assignment was approved by the Pennsylvania Supreme Court in Egger v. Gulf Ins.[1] Although this judgment did not involve a first party case, it applied law that has been adopted in other states.[2]

Similarly, in Insurance Adjustment Bureau v. Allstate Ins.,[3] the policyholders’ house suffered a serious fire loss and the policyholders retained Insurance Adjustment Bureau (IAB) as their public adjuster. The contract called for a fee to IAB of 10% of any recovery, plus expenses.

IAB sued Allstate. IAB did not sue the policyholders because they had spent all the money and were essentially judgment-proof.

The Supreme Court of Pennsylvania reversed holdings in favor of Allstate by both the trial court and the superior court. The supreme court held that the issue was not whether there was an assignment, but what type of assignment the parties intended. If the parties intended an assignment for the purpose of collection, it created a revocable agency relationship. If, on the other hand, it was an assignment for the purpose of security, the assignment was irrevocable once the contract was partially performed. The court, therefore, reversed and remanded so that the intent of the parties could be determined. The supreme court concluded:

The Eighth Circuit found a threshold question—and one which the trial court and Superior Court did not address—was whether this non-transfer provision was merely intended to make the Policy itself non-transferable (e.g., in the event the property changed ownership), or whether it was additionally intended to exclude an assignment of insurance benefits after a loss. If the latter was intended, and the provision is enforceable in the post-loss timeframe then the assignment is void and IAB’s case would fail.