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Ann Frohman, Esq.
Ann Frohman, Esq.
Frohman Law Office LLC
(402) 416-6612
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COMPLIANCE REQUIREMENTS AND UPDATES RELATING TO PUBLIC ADJUSTING 

INTRODUCTION

Public Insurance Adjusters, also known simply as public adjusters, are licensed individuals and businesses who assist policyholders with insurance claims on property losses. Public adjusters are more often hired by businesses to represent them on commercial property losses.  These can often become complex and may include a claim for loss of revenue when the business is interrupted by the loss.  Public adjusters are less often hired by homeowners although they certainly can be.[1] 

REGULATION

The business of public adjusting is heavily regulated. Nearly all states require public adjusters to hold a license issued by the insurance commissioner.  Arkansas, Alaska, South Dakota and Alabama are the only states that do not currently license public adjusters.[2]

The National Association of Insurance Commissioners (NAIC) adopted a model law establishing the licensing and compliance requirements for public adjusters in 2005.  Importantly, the Public Adjuster Licensing Model Act, #228, (“Model Law”) notes that public adjusters handle first party claims and the licensing and compliance requirements note this fact in the Purpose and Scope, Section 1 of the of the Model Law.[3]  

  1. Definition
    A public adjuster is defined in the Model Law as “any person who, for compensation or any other thing of value on behalf of the insured, 1) acts or aids, solely in relation to first party claims arising under insurance contracts that insurer real or personal property of the insurer, on behalf of an insured in negotiating for, or effecting the settlement, of a claim for loss or damage covered by an insurance contract; 2) advertises for employment as a public adjuster of insurance claims or solicits business or represents himself or herself to the public as a public adjuster of first party insurance claims for losses or damages arising out of policies of insurance that insure real or personal property; or 3) directly or indirectly solicits business, investigates or adjusts losses, or advises an insured about first party claims for losses or damages arising out of policies of insurance that insurer real or personal property for another person engaged in the business of adjusting losses or damages covered by an insurance policy, for the insured.”[4]
  1. Competence
    A public adjuster must sit for an examination in his or her state of residency and can obtain a nonresident license in most states where reciprocity is recognized. Continuing education is also required of public adjusters and the courses must be approved by the Commissioner.[5]
  1. Contract and Disclosure
    A public adjuster retains a fiduciary relationship with the insured and the requirements of the relationship and the Model Law provides that the contract must be in writing. The public adjusting contract must define the services be provided, the loss and its location, a reference to required bonding of the public adjuster along with the compensation.  In addition, the Model Law requires a public adjuster to provide separate written disclosure document regarding the claims process.  The disclosure is intended to educate the insured on the claims process by describing company adjusters, independent adjusters and that the fee is the responsibility of the insured.  The disclosure must also note that retaining a public adjuster is optional.  Most importantly, the insured has the right to initiate direct communication with his or her attorney, the insurer or his attorney, or anyone regarding the settlement of the claim.

Once a public adjuster has been retained, the public adjuster must provide the insurer with notification signed by the insured indicating the public adjuster has been retained on the claim.  Usually, an insured has a right to rescind the representation but must do so within a short period of time, due to the amount of work and urgency centered around property loss.  The Model Law contains a three day right of recission.[6]

  1. Market Confusion

Not all states have used the materials of the NAIC’s Public Adjuster Licensing Working Group (PAWG), and less than half of states have adopted the Model Law in substantial form.[7]  Regulators continue to recognize that insureds can be easily confused about the roles and responsibilities of various service providers at the time they suffer a property loss.  Fundamental confusion in the marketplace continues regarding the role of public adjusters vis-a-vis independent adjusters and contractors within the insurance claims process.  This is quite understandable given that the term independent adjuster is not independent but rather, a contracted adjuster working on behalf of an insurer.  Moreover, a repair contractor or restoration company may be important service providers who are involved and must communicate with all the stakeholders to better understand and explain their bid for services on a claim.  This can become confusing to an insured.  Even more confusing is the fact that public adjusters can follow different business models.  Some only serve small businesses, large commercial businesses, or homeowners, which can drive different fee structures.  Some, called storm chasers, only work catastrophes and when those harm consumers, are given the title of unscrupulous storm chasers.

In 2017, the NAIC created the Public Adjuster Licensing Working Group (PAWG), led by Oklahoma, to create education materials for the public.  PAWG created materials and their recommendation was adopted by both the Market Conduct “D” Committee and the Property and Casualty “C” Committee of the NAIC in 2018. One of the NAIC bulletins recommended by PAWG for use by insurance departments was in the form of a consumer outreach notice.   With Pennsylvania taking the lead, the consumer notice has been repurposed and placed on regulator websites and provided as brochures in their consumer education efforts.  The notice contains the following comments on the role of public adjusters:

“A public adjuster’s main responsibilities are to protect the interest of you, the policyholder, and advocate on your behalf with the insurance company. While not an all-inclusive list, some examples of these actions are:

  • Evaluate an insurance policy in order to determine what coverage(s) may be applicable.
  • Inform you, the policyholder, of the policy’s deadlines, technical requirements and other terms and conditions, and otherwise advise you on your rights and duties under the policy.
  • Research, detail and substantiate damage to buildings and contents and any additional expenses that you incur.
  • Evaluate business interruption losses and extra expense claims for businesses.
  • Prepare, document and support the claim(s) on your behalf.
  • Provide the insurance company’s loss estimates and evaluations and proposed resolutions to you and explain them to you, as well as what the differences are, if any, between the insurance company’s estimates and the estimates submitted on your behalf.
  • Convey and explain the insurance company’s other positions, such as any coverage positions, to you.
  • Convey and explain your positions on the amount of loss, any coverage disputes, etc., to the insurance company.
  • Negotiate a settlement with the insurance company on your behalf.
  • Assist you in understanding, preparing and submitting any required documents related to the claim, as well as assist you in the appropriate distribution of settlement monies so that your interest and any other interest, such as a mortgagee’s interest in the building, are protected.”[8]

To clarify confusion on the role of contractors in the claims process, the notice further clarified that contractors can do the following without also holding a public adjusters license: 

“1. Approach a homeowner or business owner offering repair or reconstruction services.
2. Offer an opinion to a policyholder as to whether damage is from a storm or other incident normally covered by a homeowner’s policy.
3. Prepare an estimate and scope of work for the loss.
4. Discuss the estimate or scope of work with their customer.
5. Recommend that the policyholder file an insurance claim with their insurer.
6. Be present when an insurer’s adjuster inspects the damage.
7. Answer questions the policyholder or the insurer’s adjuster has about the estimates.”[9]

PAWG also noted that unless a contractor is also licensed as a public adjuster, they may not do the following:

“1. Investigate, appraise, evaluate, give advice, advocate on behalf of or assist their customer in adjusting a claim.
2. Prepare the insurance claim for their customer.
3. Negotiate the claim with the insurance company on their customer’s behalf.
4. Offer to review the insurance policy or advise their customer on the insurance policy’s coverage.
5. Advertise or provide written materials indicating they can negotiate or investigate a claim on their customer’s behalf. This includes advertising to be “claim specialists” or “claim analysts” or any other similar terms, or advertising or claiming that they can “deal with insurance companies” or in any way increase the claim settlement amount for the policyholder.”[10]

STATUS ON NAIC MODEL LAW AMENDMENTS

In 2023, the NAIC reconstituted the Public Adjuster Licensing Working Group, this time under the Producer Licensing Task Force. PAWG was asked to consider updates to the Model Law in order to enhance consumer protections.  The working group, chaired by Commissioner Navarro of Delaware, met numerous times and, after accepting public comments, recommended adoption of changes to the Model Law in its report to the Producer Licensing Task Force meeting held August 13, 2024.

One amendment recommended by PAWG seeks to clarify that public adjusting license is not required of those persons who adjust auto claims.[11]  In addition, the current Model Law contains an optional provision pertaining to fee caps.[12] The version recommended by PAWG, if adopted by the NAIC, will have a fee cap on claims arising in catastrophes set at 10 percent of the claim and at 15 percent for any other claim.[13]

To discourage unlicensed adjusters from handling claims on behalf of insureds, the proposed amendments also recommend that insurers be required to verify the person working on behalf of the insured holds a valid license.[14] Another consumer protection contained in the recommended amendments is focused on a person’s ability to circumvent licensing.  In most states today, a contractor can obtain an assignment of the insured’s benefits in lieu of getting licensed as a public adjuster and circumvent the public adjuster licensing laws by dealing directly with an insurer as the rightful owner of the claim.  The PAWG recommendation, if adopted by the NAIC, will prohibit the insured from assigning the insured’s benefits to contractors.  The prohibition against assignment is based on Delaware law.[15]

PAWG recommends a new provision at Section 16 of the Model Law, entitled Bad Actors, to recognize certain activities as a fraudulent insurance act.  Specifically, “a person or entity commits a fraudulent insurance act if he or she: A. Represents or advertises themselves to be a public adjuster who has not met the requirements of licensure under [insert appropriate reference to state law]. B. Conducts business for which a license is required under this Act without a license.”[16]  This is intended to discourage fly-by-night storm chasers who prey upon homeowners and businesses and do not hold a license to represent them.

To further enhance consumer protections, the recommendations also will seek to prohibit a public adjuster from advertising or infer damage unless an inspection of the property has been completed and will prevent a public adjuster from offering to pay an insured’s deductible, or claim the insured’s deductible will be waived, as an inducement to using the services of a public adjuster.[17]

In order to avoid a conflict of interest, the recommended amendments will not allow a public adjuster to have a direct or indirect financial interest in any aspect of the claim, other than the salary, fee, commission or other consideration established in the written contract with the insured.  The current model allows the double dip, so to speak, upon disclosure of a financial interest to an insured.  The amendment recognizes that a public adjuster should not also serve as a contractor or roofer on the same claim or hold a financial interest in a vendor because this creates a conflict of interest given that the public adjuster has a fiduciary duty of loyalty to the insured and must act in the insureds best interest.[18]

CONCLUSION

Although public adjusters have been serving the public for more than eighty years, it has only become subject to extensive regulatory oversight in the last couple of decades.  Practitioners may want to continue to monitor the regulation of public adjusting as it can be expected to continue an increasing role in the property claims process.  The licensing requirements are important consumer protection tools and regulation is also evolving.  The public needs to know they have options to have representatives who are skilled on property claims aside from attorneys who may or may not have the detailed level of construction knowledge.  As a result, everyone can have assurance that those who provide public adjusting services have the license, skills, competence and will also take seriously their fiduciary duty of representation. 

References

4863-9282-8146 v1 [99998-4344]

[1] The National Association of Public Insurance Adjusters (NAPIA) receives advice as a client of Frohman Law Office.

[2] See generally Ark. Code §23-60-101 – 23-103-417 (2023); Alaska Stat. §21.03.010 – 21.97.900 (2023); S.D. Codified Laws §58-1-1 – 58-49-1; Ala. Code §27-1-1 – 27-64-10

[3] Public Adjuster Licensing Model Act #228 (National Association of Insurance Commissioners 2005)

[4] Id.at Section 2H

[5] Id. at Sections 6 and 8

[6] Id. at Section 15

[7] Id. at Model Law Adoption Chart

[8] Public Adjuster Consumer Outreach Notice (National Association of Insurance Commissioners March 22 2018)

[9] Id.

[10] Id.

[11] Public Adjuster Licensing Model Act #228 Draft Revisions, Section 1 (National Association of Insurance Commissioners June 18 2024)

[12] Public Adjuster Licensing Model Act #228, supra note ii at Section 14

[13] Public Adjuster Licensing Model Act #228 Draft Revisions, supra note xi at Section 14D

[14] Id. at Section 15H

[15] Id. at Section 15L; 18 Del. Laws, c. 27, §2720

[16] Public Adjuster Licensing Model Act #228 Draft Revisions, supra note xi at Section 16

[17] Id. at Section 19

[18] Id.