Are Public Adjusters, Door-to-Door Salesmen? The Importance of Contract Conformity

In January of 2015, the Appellate Division of the Superior Court of New Jersey for Camden County issued their opinion in SAB Public Adjusters v. Gormley.1 The question before the Court was whether a public adjuster's contract should be unenforceable due to the absence of a three-day right to rescind clause. In their decision, the court contemplated whether public adjusters are door-to-door salesmen.

First, the simple facts:

On December 2, 2011, a fire destroyed defendant’s home…Scott Scelso, a representative of plaintiff SAB Public Adjusters, soon met with defendant James Gormley, and defendants agreed, by contract dated December 3, 2011, to hire plaintiff to adjust their loss in exchange for plaintiff’s receipt of fifteen percent of the total sum collected from any property insurer. Defendants ultimately received $446,456.23 on their claim but refused to pay plaintiff.2

Shortly after filing suit, the Defendants filed a motion for summary judgment, “arguing the contract is unenforceable due to the absence of a three-day right to rescind – a right defendants claim [was] militated by the Public Adjusters’ Licensing Act (the Public Adjusters’ Act), N.J.S.A. 17:22B-1 to -20.”3 The trial court denied the motion. Following the denial, defendants appealed to the Appellate Division.

The court started their analysis with the Public Adjusters’ Act:

We start by acknowledging the Public Adjusters' Act applies because plaintiff acted or aided “an insured in negotiating for, or effecting, the settlement of claims for loss of damage caused by, or resulting from, any ... occurrence covered under a property insurance policy.” N.J.S.A. 17:22B–2. The Public Adjusters' Act prohibits a public adjuster from being compensated for its efforts “unless the right to compensation is based upon a written memorandum, signed by the party to be charged and by the adjuster, and specifying or clearly defining the services to be rendered and the amount or extent of the compensation on a form and with such language as the commissioner may prescribe.” N.J.S.A. 17:22B–13(b). Based on this delegation of power, the commissioner adopted a regulation declaring the written memorandum required by the statute must “conform to the requirements of the Consumer Contracts Act” (the CCA).

The court quickly determined that, apart from the question of the absence of a right of rescission, the contract was otherwise compliant with the Public Adjusters’ Act. The defendants argued that N.J.S.A 17:22B-13(b), requires a public adjusters’ contract to include a three-day right of rescission clause as it, “declares that a public adjuster’s ‘right to compensation’ must be ‘based upon a written memorandum’ that, among other things already mentioned, contains ‘such language as the commissioner may prescribe.”4 Here, there was specific language from the commissioner stating that a public adjuster’s contract must include a three-day right of rescission, however, if “the commissioner intended to impose such an obligation, that intent was conveyed-if at all-only indirectly, by reference to three other authorities: the CCA, and ‘as applicable’ the Federal Trade Commission Act and 16 C.F.R. §429.1.”5

In reviewing each of the three authorities, the court stated:

[W]e first conclude that the contract did not depart from the CCA's requirements. It is “written in a simple, clear, understandable and easily readable way as a whole,” N.J.S.A. 56:12–2, and does not, in our view, violate any of the more specific provisions contained in N.J.S.A. 56:12–10. In addition, we note the CCA does not require the inclusion of a right of rescission in any contract bound by its terms. Second, it does not appear, and defendants do not argue, that the form of plaintiff's contract violated any provision of the Federal Trade Commission Act, 15 U.S.C.A. §§ 41 to 58. The matter, thus, turns on the third authority referenced by the state regulation.

The third reference—16 C.F.R. § 429.1—imposes an obligation on “door-to-door sale[s persons]” to “furnish each buyer, at the time the buyer signs the door-to-door sales contract ..., a completed form in duplicate captioned either ‘NOTICE OF RIGHT TO CANCEL’ or ‘NOTICE OF CANCELLATION,’ which shall (where applicable) contain” a statement that the buyer may cancel the transaction within three business days without penalty or obligation.

The issue before the court, was whether the federal regulation applies to the state regulation, the Public Adjuster Act. In order to answer that question, the court had to first decide, “whether a public adjuster generally acts-or whether this public adjuster in particular can be said to have acted-as a ‘door-to-door’ salesman.”6

Defendants contend that the answer to this question is to be found in another federal regulation—16 C.F.R. § 429.0(a)—which defines what is meant by a “door-to-door sale.” This other federal regulation—not cited in or referenced by N.J.A.C. 11:1–37.13(b)—defines a door-to-door sale as one “in which the seller or [seller's] representative personally solicits the sale, including those in response to or following an invitation by the buyer, and the buyer's agreement ... is made at a place other than the place of business of the seller [.]” Ibid. Because these two essential aspects—location and solicitation—are joined by the conjunction “and,” both must be satisfied in the buyer's favor to support a finding that a transaction constitutes a door-to-door sale.

In looking at the case, there was no question as to the location of the transaction, as it had taken place at the defendant’s home. Whether there was solicitation was yet another question for the court. As the regulation did not include a definition for the word, ‘solicit,’ the court looked to Webster’s Dictionary for its ordinary meaning and held that, “for there to be a finding of solicitation, the buyer would have to show that, notwithstanding the buyer's invitation to the seller, the seller urged the formation of the contract.”

In reviewing the record, the court ultimately decided there was no evidence of solicitation or state regulation’s intent and affirmed the trial court’s denial of the defendants’ motion for summary judgment. The court noted however, that they “have not necessarily held that the definition of ‘door-to-door sales’ for purposes of the Public Adjusters' Act or the underlying state regulation is that which is contained in 16 C.F.R. § 429.0(a), because the commissioner did not refer to that particular regulation in adopting N.J.A.C. 11:1–37.13(b)(4); the commissioner referred only to 16 C.F.R. § 429.1, which encompasses only what is required in door-to-door sale contracts.”

The court went on to discuss the ambiguity of the issues, and deferred any definitive decisions concerning some of the murkier problems the case brought to light, but did take the time to state the following:

We would add one other thing regarding plaintiff's right to compensation even if the factual and legal dispute about the contract's formation is ultimately decided in defendants' favor. In canvassing the record, we observe that defendants do not contend they attempted to cancel the contract prior to February 15, 2012, more than two months after its formation. It may be that plaintiff's performance of the contract was substantially completed by that time; it may also be that plaintiff performed in a highly competent manner and defendants benefited from those services. Notwithstanding those possibilities, defendants persist that plaintiff is entitled to no compensation either by way of its contract or through equitable principles. This argument is based on the Public Adjusters' Act itself, which links the adjuster's “right to compensation” to the execution of a contract conforming to the Public Adjusters' Act and the state regulation in question.

In this manner, the Public Adjusters' Act may have the unforeseen consequence of working a forfeiture against a public adjuster who may have, in all good faith, competently performed a legally-deficient contract. As we have demonstrated, plaintiff was in compliance with the Public Adjusters' Act so far as the Act goes, and it is only with the possible violation of the convoluted state regulation that plaintiff's right to compensation has been jeopardized. Equity, as the ancient maxim declares, “abhors a forfeiture.” And, although a court's inherent equity power to preclude a forfeiture may be invoked only so far as the law permits, in adjudicating the parties' disputes we do not necessarily foreclose consideration of a quantum meruit award even if it is ultimately found plaintiff acted in the manner of a “door-to-door salesman.” In short, a rejection of plaintiff's monetary claim may prove highly inequitable if the sole ground upon which rejection is based arises from a tenuous and tortured connecting of the dots from statute to state regulation to federal regulation. In that circumstance, we do not foreclose the trial judge's consideration of whether it would be equitable to allow defendants to be unjustly enriched by plaintiff's services.

Contract conformity is extremely important, as the court notes above, it could be the difference in getting paid on a claim you worked diligently on, or getting burned for a simple error. If you are a public adjuster, take this opportunity to make sure your contract, or contracts are compliant in each of the states you practice. While the court here makes no real decision concerning whether the three-day right to rescission must be in the contract, I subscribe to Franz Kafka’s maxim, “Better to have, and not need, than to need, and not have.”

As always, I’ll leave you with a (mildly) related tune, here’s Franz Ferdinand with Take Me Out.


1 SAB Public Adjusters v. Gormley, 2014 WL 7497087 (N.J. App.Div. Jan. 9, 2015).
2 Id. at 1.
3 Id.
4 Id. at 2.
5 Id.
6 Id.

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Comments (1) Read through and enter the discussion with the form at the end
Joanna Stirt - March 18, 2016 9:03 AM

Good read.

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