Public Adjusters: Documenting/Reporting Misconduct

Although many property insurers complain about misconduct by public adjusters, little is done to document those abuses and instances of misconduct. More importantly, nothing has been done to try to create a database through DFS for complaints about the actions of public adjusters. Clearly, it is time for the industry to take a more organized and aggressive approach to this problem.

As we all know, many public adjusters represent their clients fairly and ethically. The problem is not with the profession as a whole. Instead, as with many other professions, there are a select few public adjusters who are responsible for most, if not all of the problems.

Public adjusters are bound by the Code of Ethics for all insurance adjusters. There are specific statutory regulations applicable to public adjusters, as well. Additionally, the Department of Financial Services has recently enacted some emergency rules relating to public adjusters in the wake of the hurricanes which have affected Florida.

Improper actions by public adjusters can take almost any form. In trying to identify those public adjusters who are creating the problems and committing the violations, we need to focus on some of the more common and more significant violations which can occur. To that end, it is my recommendation that we focus on the following areas:

1. Unlicensed Activities. Whenever a public adjuster appears on a claim file, it should be confirmed that the public adjuster is the holder of a current license with DFS. Also, attention should be paid to other individuals assisting the public adjuster. Any of those individuals engaging in adjusting activities must be licensed. After the recent hurricanes, public adjusters are going to be handling literally thousands of cases across Florida. They may not be able to handle the file loads. Attention should be paid to the actions of other individuals working with the public adjuster to be sure they are not engaging in adjusting activities which require licensure by the state.

2. Exorbitant Fees. Under the Emergency Rules recently promulgated by DFS, public adjusters are limited to a ten percent (10%) fee in handling hurricane claims. This Emergency Rule requires insurers to report to DFS all claims being handled by public adjusters with a copy of the retainer agreement or contract. With the requirement of this Emergency Rule, there is now a legal basis for requiring full disclosure of the fee basis on all contracts. This should be requested and documented. It should be noted that although this Emergency Rule applies to hurricane claims, exorbitant fees in handling other claims may still be an issue for reporting to DFS.

3. Referrals/Kick-backs. A number of public adjusters have business relationships with contractors, restoration companies and other vendors. Under the Code of Ethics they are required to make full disclosure of this to their clients. A request for disclosure should be made by insurers whenever a public adjuster presents a repair estimate or bill for services from one of these types of companies. This has always been an area of concern in dealing with certain adjusters.

4. Unauthorized Practice of Law. Public adjusters are prohibited by the adjuster licensing statutes and the statutes regulating the practice of law in Florida from engaging in any activities which constitute the unauthorized practice of law. Particularly with the hurricane claims insurers will be facing, there is the potential for a public adjuster to engage in the unauthorized practice of law in the interpretation of policy coverages and statutes applicable to insurance claims, such as the Valued Policy Law, the Fifty Percent Rule, code upgrades, flood/windstorm issues and the like.

5. Access to Insured's. Public adjusters are not allowed to prohibit insurers from having contact directly with insured's even as they demand to be involved in all activities in the adjustment of a claim. When a public adjuster prevents direct access with an insured or prevents an insurer from communicating directly with the insured about the settlement of a claim, this is a violation which should be reported.

6. Inflated estimates/Fraudulent claims. This may be the

most common type of problem encountered in dealing with public adjusters. In a system where their fees are based upon the ultimate claim recovery, it is inevitable certain public adjusters will seek to maximize their fees through inflated damages estimates and outright fraud. The difficulty is in drawing the line between differences in opinion over the scope of a loss and an attempt to fraudulently overstate the loss.

These are the areas most likely to result in complaints about the activities of public adjusters. Certainly, there is the potential for misconduct in almost any other area. However, I believe these are the primary areas which need to be closely monitored.

In terms of responding to suspected violations or misconduct, several important steps should be taken:

1. The violation or misconduct should be well-documented. Records should be obtained and witnesses should be interviewed in order to verify any suspected violations or misconduct.

2. An internal reporting procedure should be developed so that violations or misconduct are referred to a responsible person at the insurance company, preferably an SIU representative or manager.

3. Written reports of suspected violations or misconduct should be sent to DFS with identifying information and documentation. DFS should be requested to investigate the allegations after the information has been provided. This should be documented in writing and followed-up on a thirty (30) day basis.

4. When serious allegations surface suggesting possible criminal actions by a public adjuster, the case should be referred to management and legal counsel. For obvious reasons, these cases will require a more careful approach and a more thorough investigation.

5. When a damages estimate appears to be grossly overstated or potentially fraudulent, several things should be done. First, the loss should be reviewed for a “second opinion” by another adjuster to see if there is any justification possible for the discrepancy in damages. Particular areas of the claim which are in dispute should be the focus of this review. Where it may involve issues such as the need to replace an entire roof structure or the pricing of materials and labor, it would be appropriate to bring in a roofer or contractor to review the damages or price the cost of repairs. Second, the discrepancies should be directly addressed with the public adjuster to document the basis for disagreement. On the subject of documentation, this should always be confirmed in writing. Third, it may be appropriate to invoke the right to an Examination Under Oath of the insured and/or the public adjuster. The resistance to appearing for an EUO by public adjusters is well-known. The best approach is to first demand the EUO of the insured to inquire into the damages issues. If the insured cannot explain the discrepancy in damages estimates or defers to the public adjuster as having prepared the claim, then the justification for demanding the EUO of the public adjuster is established and a more compelling argument is presented.

6. Perhaps the best approach to all of these issues is to go in prepared to face them as they appear. A protocol should be established for handling these issues which involves the field adjusters, SIU and management. There are a number of legal issues which may arise, requiring an immediate response. A legal contact should be designated to handle inquiries from the field. With the creation of a “team” to respond to these issues, you will be much better equipped to handle the challenges you will face. It will also ensure consistency in the responses taken by the company.

I hope that this will provide some guidance to you in handling these issues. If you have any questions or wish to discuss this further, I invite you to contact me at my office. As always, I am ready to assist you in any way.