Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

A former president of MAPIA, the Massachusetts Association of Public Insurance Adjusters, and a member of NAPIA, this adjuster has also worked with the Massachusetts Commissioners office regarding public adjuster standard contract form and licensing. In addition, he is a member of CAI, Condo Association, and IREM, Real Estate Management Association.

After discussing his practice and adjustment of claims in Massachusetts, I asked him to share a few success stories to illustrate how claims adjusting occurred in his area, and he sent me the following in an email:

1. Worked with an excellent Independent Adjuster to resolve a hail claim on a roof. Went back and forth to determine scope and price. Final settlement was 3.4 times the initial offer, but the negotiation was congenial and respectful—the way it should happen.
2. Settled another roof claim at ten times the initial offer. Damage was caused by icicles from a radio tower that punctured a flat, membrane roof 164 times. Plotted each hole to show the extent of the damage and convinced the insurer that claim was valid and that roof should be replaced.
3. Adjusted an explosion claim for a pharmaceutical company that was a startup with no profitable experience. Company could not have rebuilt the manufacturing plant in the same location. Would have taken two years to reopen in another location due to FDA permitting and they would have gone out of business. Spent a great deal of time with the company’s president to understand his business and arrive at a solution. Worked with the insurer to provide my client with the full amount of the BI/Extra Expense coverage available to enable them to buy a competitor, the only way they could have survived. It helped a great deal that the adjuster had a great deal of experience and had a reputation of being fair. He understood the problems and recommended payment.
4. Took an aerial photo of an apartment complex while roof was being removed and tarped over after Hurricane Rita. When a thunderstorm tore off the tarp and caused significant additional damage, the adjuster denied the claim on the basis that the tarp was inadequate. After I showed the photo (which proved that the tarp was secured properly) to the insurer’s attorneys at a settlement meeting, the claim was paid. (My Perry Mason moment.)

LESSONS LEARNED

I was really impressed with these success stories; in just a few short paragraphs there are lessons for every public adjuster to note.

Success Story 1
A compliment to an adversary? Very impressive. The independent adjuster is complimented in the first sentence as being “excellent” and the claim adjustment was respectful and congenial! Now, I am sure if you are a public adjuster reading this you are thinking—if my opposing side was excellent the claim would be too. However, I think it is important that the two sides did not agree at the onset. Something had to happen to get to the final favorable agreement. I think it was reached because each side presented the claim in a professional way. Even though the claim took extensive negotiation, it was resolved on the high road. Now, this public adjuster has earned the respect of the independent adjuster and respects the independent adjuster. This will be beneficial to both sides the next time they meet at a loss because the two have developed a professional working relationship. The public adjuster also told me not all independent adjusters have authority in the field, and this was an exception because most of the claims are reviewed by an inside examiner who does not visit the property.

Success Story 2
This sounds like the familiar story of repair vs. replace the roof. The plotting of each area of damage on the roof is no small task, but I think it showed the carrier three things. Number one, the roof was damaged in 164 separate and distinct areas. Number two, this public adjuster can document and prove the damage to anyone (even a jury) based on his hard work and the plotting of each individual area of damage. Finally, the claim has to be paid.

Success Story 3
This claim was a commercial loss where the building was so badly damaged that a rebuild could not be done and a new build would take too long. At this point, I think most people would have given up. However, this public adjuster did not and he should be proud of the resolution because this was more than adjusting, this was client advocacy with creativity. Even if you have been adjusting for several years or your entire life, it is important to remember the resolution for each client can be different. What worked for you on another successful loss, might not work for a new client. You need to keep the current client’s individual circumstances at the forefront. The best option for this pharmaceutical company was to buy out the competitor, but for this start-up company it is no small act to convince a carrier to pay limits on Business Income and Extra Expense Coverage. Documentation and claim presentation was key in this claim. The public adjuster explained the situation the client was facing (including the alternative) in the claim package and a resolution was achieved. Kudos to the public adjuster!

Success Story 4
Going the extra mile. The foresight to take the aerial photo of the loss after the tarp was placed saved this claim. I know most adjusters take photos of the damage but here, taking photos of the mitigation efforts resolved the claim.

One final note, what I really liked about the success stories from this Massachusetts-based public insurance adjuster was how he explained his proud moments. He did not list the figures of the settlements or tell me how much money he made. Instead, he told me how he properly adjusted and how his adjustment helped the clients.

I asked this public adjuster if he had any advice for other public adjusters, and he explained that he learned a long time ago to spend time on the claims (even the small claims), and give the adjuster two copies of his claim presentation with support in a organized book or binder—one for the adjuster and the other for the claims manager who is really calling the shots. I think this is a very helpful and simple suggestion—show them the proof!

Want to share your story with Merlin Law Group? Email Nicole Vinson at nvinson@Merlinlawgroup.com.

Because this is a public blog, I do not write the names of the firms or adjusters unless mentioned in a published opinion. I do note community involvement and professional associations.

If you would like to learn more about the firm listed here, contact me and I will forward your information to the PA.

This has been a year long study for me, and the point for all of us is that professional conduct leads to better results and a more satisfying life. The problem is few works truly break down exactly what professionalism consists of and how it drives results for individuals and organizations. Some may say that it is common sense. From observation, I am convinced that some ignorantly believe that professionalism is for losers.

Jim Beneke, a past president of NAPIA, wrote me a letter on professionalism that I hope he will allow to be published in its entirety. Part of what he wrote explains how teaching and mentoring make the teacher and mentor much better for the effort. He stated:

...about a year ago, I hired a young, trainee adjuster, Matt Thannisch. He has a very bright future in this business. I promise you that you don’t have a good appreciation for what you know until you have to explain every step you take every day of the week. Having worked more or less alone for almost 20 years, I have developed a routine and habits that just come naturally to me. Being responsible for a young adjuster has caused me to take stock in what we do, and focus on issues that I had long since left behind.

...over the last year, I have been involved in the reemergence of TAPIA, and am the current President. Historically, TAPIA has been made up of "experienced" adjusters who have practiced in Texas for years. This time around, the group is made up, primarily, of new public adjusters. Every meeting is an eye opener (one guy wanted to know why we couldn’t add 10 and 10 to our fee!), and is a reminder that what we really do is take care of the small details in making sure that our clients are treated fairly.

All of us pride ourselves on the biggest of our successes, but it wouldn’t hurt any of us to step back and take a look at what we are doing through the eyes of a newcomer. I think it will surprise you what you learn.

I look forward to more discussion on the topic of professionalism and to my presentation of this important topic on Thursday. Since my presentation is in the Los Angeles area and one of my favorites is the recently deceased John Wooden, this may be of interest to those making it this far:

Genuinely helping others to the best of your ability at a time of catastrophic trouble is “noble.” The insurance industry recognizes that its claims adjusters obtain a satisfaction in their occupation that goes beyond a mere paycheck because of the importance of properly conducting the claims function. Many of the books written by insurance companies which explain their history proudly describe instances where claims activities were carried out, despite great personal hardship to the claims adjusters, so that the promise of the insurance contract-- prompt and full indemnification—
was fulfilled.

Claims representatives are taught honest and honorable ways to handle claims. The standard textbook for claims handlers, which leads to an Associate in Claims designation, was historically James J. Markham, et al., The Claims Environment (1st ed., Insurance Institute America 1993). There is now a revision to that book. Doris Hoopes, The Claims Environment (2d ed., Insurance Institute of America 2000). These textbooks for claims handlers and students of insurance set forth simple, clear claims handling principles that highlight duties of ethical and good faith treatment owed to policyholders.

Indeed, the Insurance Institute of America has published a treatise dealing exclusively with this basic relationship. William Park Rokes, Aggressive Good Faith and Successful Claims Handling (1st ed., Insurance Institute of America 1987). In another claims management reference which specifically discusses ethical behavior, the Insurance Institute of America provided:

The business of insurance, perhaps more than any other, is based on trust and commitment. Insurance products are intangible and simply reflect a promise on the part of insurance companies to indemnify insureds for financial losses if an insured event occurs in the future. The contract between the insurer and the insured is a contract of utmost good faith and requires honesty and trust from both parties.

George A. White, Ronald Duska & Victor D. Lincoln, Organizational Behavior in Insurance, vol. 1, 62 (1st ed., Insurance Institute of America 1992).

Many, if not most, executive claims managers possess the Society of Chartered Property and Casualty Underwriters designation, CPCU. A CPCU agrees to abide by the Canons of the CPCU Code of Professional Ethics, which include, in part:

CANON 1: CPCUs should endeavor at all times to place the public interest above their own.

CANON 2: CPCUs should seek continually to maintain and improve their professional knowledge, skills and competence.

CANON 3: CPCUs should obey all laws and regulations; and should avoid any conduct or activity which would cause unjust harm to others.

CANON 4: CPCUs should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism.

CANON 5: CPCUs should assist in maintaining and raising professional standards in the insurance business.

CANON 6: CPCUs should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance practitioners, and with members of other professions.

So, to those who suggest that claims handling is not supposed to be a “noble” occupation, you may be unfamiliar with these guidelines or may not have witnessed noble conduct.

For public adjusters, I did not mean to suggest that the public adjusting certifications were not to be obtained. Instead, I would also suggest public adjusters obtain the AIC and CPCU designations as well either the CPPA or SPPA designation. What is the downside to being better educated? Public adjusters should strive to obtain the NAPIA sponsored certifications which are described as follows:

The Certified Professional Public Adjuster (CPPA) and Senior Professional Public Adjuster (SPPA) designations are awarded to public insurance adjusters who have met specific experience and educational requirements, completed a qualifying examination prescribed by a Board of Examiners, and subscribe to a code of ethics for business and professional conduct. The program is sponsored by the National Association of Public Insurance Adjusters (NAPIA).

The Certification program requires experience and credentials—it is not as easy as simply taking a test:

The CPPA/SPPA designations are awarded by NAPIA. The American Institute for CPCU / Insurance Institute of America (AICPCU/IIA) is responsible for administration of the examinations.

Candidates are required to have at least five (5) years experience in adjusting on a full-time basis to sit for the CPPA examination. Ten (10) years full-time adjusting experience is required to sit for the SPPA examination.

Applicants must have a college degree or its equivalent in education, experience, or knowledge. Applicants who are not college graduates or who cannot obtain acceptable educational credentials should write to the Board of Examiners at NAPIA regarding methods of establishing the equivalent.

Obtaining and maintaining peer reviewed certifications is not easy, but I feel that it is worth every penny and minute spent. I believe my own experience in becoming a Florida Bar Board Certified Civil Trial Lawyer is well worth the time and money. Attorneys are ethically prohibited from advertising as being “specialists” except for few exceptions. This is what the Florida Bar says about my Certification:

While all lawyers are allowed to advertise, only certified attorneys are allowed to identify themselves as "Florida Bar Board Certified" or as a "specialist." Certification is the highest level of recognition by The Florida Bar of the competency and experience of attorneys in the areas of law approved for certification by the Supreme Court of Florida.

A lawyer who is a member in good standing of The Florida Bar and who meets the standards set by the Supreme Court of Florida, may become a "Board Certified Civil Trial Lawyer."

Certified lawyers in civil trial law deal with litigation of civil controversies in all areas of substantive law before state and federal courts, administrative agencies and arbitrators. In addition to actual pretrial and trial process, civil trial law includes evaluating, handling and resolving civil controversies prior to the initiation of suit.

Every board certified civil trial lawyer has practiced law for at least five years and been substantially involved -- 30 percent or more -- in the area of civil trial law during the three years preceding application. To be certified, the lawyer is required to have conducted at least 15 contested civil cases in courts of general jurisdiction during the lawyer's practice, including cases before a jury and as lead counsel….

Each certified lawyer must also have passed peer review, completed 50 hours of continuing legal education within the three years preceding application and passed a written examination demonstrating knowledge, skills and proficiency in the field of civil trial law to justify the representation of special competence.

Board certification is valid for five years, during which time the attorney must continue to practice law and attend Florida Bar-approved continuing legal education courses. To be recertified, requirements similar to those for initial certification must be met. Not all qualified lawyers are certified, but those who are board certified have taken the extra step to have their competence and experience recognized.

When you are engaged in jobs that are intertwined with helping others in distress and at their most vulnerable moments, why wouldn’t you want to be as well trained as you can be? Why would anybody suggest that the alternative is better? Do yourself, your career, and the public a favor and invest in educational and ethical training that promotes the highest ideals of your profession. 

I previously discussed this legislation in a post, Policyholders and Public Adjusting Under Attack in the Florida House of Representatives. I have met with and discussed the proposed House Legislation with Representative Janet Long which lead to a post last week, Representative Janet Long Gets a Hug From Chip Merlin.

Many Public Adjusters are quite understandably concerned about this legislation. I would urge those that would like to participate in this process to contact and do so through the National Association of Public Insurance Adjusters (NAPIA) and the Florida Association of Public Insurance Adjusters (FAPIA) to learn how your participation can be most positively effective.

Here is the Senate Bill as it currently reads:
 

Florida Senate - 2010                                    SB 2264

      By Senator Bennett

       21-01397-10                                           20102264__

    1                        A bill to be entitled                      

    2         An act relating to public adjusters; amending s.

    3         626.854, F.S.; providing a definition; prohibiting

    4         public adjusters from making certain employment

    5         solicitations; prohibiting certain unsolicited written

    6         communications; providing exception requirements;

    7         revising prohibited solicitations; revising prohibited

    8         charges by public adjusters; providing a definition;

    9         amending s. 626.8796, F.S.; specifying required

   10         information in public adjuster contracts; creating s.

   11         626.70132, F.S.; barring certain personal lines

   12         residential coverage insurance claims subject to

   13         certain notice requirements; providing a definition;

   14         providing nonapplicability to certain civil actions

   15         limitations; providing an effective date.

   16 

   17 Be It Enacted by the Legislature of the State of Florida:

   18 

   19         Subsections (5), (6), and (11) of section Section 1.

   20 626.854, Florida Statutes, are amended to read:

   21         “Public adjuster” defined; prohibitions.—The 626.854

   22 Legislature finds that it is necessary for the protection of the

   23 public to regulate public insurance adjusters and to prevent the

   24 unauthorized practice of law.

   25         (5)As used in this subsection, the term “solicit” or (a)

   26 “solicitation” means contact in person or by telephone,

   27 facsimile, United States postal service, electronic mail, or any

   28 other method of communication directed to a specific recipient.

   29         Except as provided in paragraph (c), a public adjuster (b)

   30 may not solicit professional employment from a prospective

   31 customer with whom the public adjuster has no family or prior

   32 professional relationship, in person or otherwise, when a

   33 significant motive for the public adjuster’s doing so is the

   34 public adjuster’s pecuniary gain.

   35         An unsolicited written communication to an insured for (c)

   36 the purpose of obtaining professional employment is prohibited

   37 unless it complies with the following requirements:

   38         The first page and the lower left corner of the face of 1.

   39 the envelope of such written communication shall be plainly

   40 marked “ADVERTISEMENT” in red ink in 14-point font.

   41         The communication must be sent only by regular United 2.

   42 States mail and not by registered mail or any other form of

   43 restricted delivery.

   44         The communication may not be made to resemble legal 3.

   45 pleadings or other legal documents.

   46         The communication may not contain any information as to 4.

   47 the public adjuster’s or public adjusting firm’s record or

   48 history in obtaining claim payments or settlements for other

   49 insureds.

   50         The communication may not be mailed less than 30 days 5.

   51 after the occurrence of an event that may be the subject of a

   52 claim under an insurance policy. A public adjuster may not

   53 directly or indirectly through any other person or entity

   54 solicit an insured or claimant by any means except on Monday

   55 through Saturday of each week and only between the hours of 8

   56 a.m. and 8 p.m. on those days.

   57         A public adjuster may not (6) directly or indirectly

   58 through any other person or entity initiate contact or engage in

   59 face-to-face or telephonic solicitation or enter into a contract

   60 with any insured or claimant under an insurance policy until at

   61 least 48 hours after the occurrence of an event that may be the

   62 subject of a claim under the insurance policy unless contact is

   63 initiated by the insured or claimant.

   64         If a public adjuster enters into a contract with an (11)(a)

   65 insured or claimant to reopen a claim or to file a supplemental

  66 claim that seeks additional payments for a claim that has been

   67 previously paid in part or in full or settled by the insurer,

   68 the public adjuster may not charge, agree to, or accept any

   69 compensation, payment, commission, fee, or other thing of value

   70 based on a previous settlement or previous claim payments by the

   71 insurer for the same cause of loss. The charge, compensation,

   72 payment, commission, fee, or other thing of value may be based

   73 only on the claim payments or settlement obtained through the

   74 work of the public adjuster after entering into the contract

   75 with the insured or claimant. The contracts described in this

   76 paragraph are not subject to the limitations in paragraph (b).

   77         A public adjuster may not charge, agree to, or accept (b)

   78 any compensation, payment, commission, fee, or other thing of

   79 value in excess of:

   80         Ten percent of 1. any the amount in excess of the insurance

   81 company’s claim valuation to repair or replace damage to covered

   82 property payments by the insurer for claims based on events that

   83 are the subject of a declaration of a state of emergency by the

   84 Governor. This provision applies to claims made during the

   85 period of 1 year after the declaration of emergency.

   86         Twenty percent of 2. any the amount in excess of the all

   87 other insurance company’s claim valuation to repair or replace

   88 damage to covered property for all other insurance claim

   89 payments.

   90         For purposes of this subsection, the term “claim (c)

   91 valuation” means the total amount offered in writing or actually

   92 paid, or any combination of such amounts, by the insurance

   93 company to the policyholder for the claim for the damaged

   94 property, including loss of use, additional living, emergency,

   95 and any other expenses required to be paid under the terms of

   96 the policy.

   97 

   98 The provisions of subsections (5)-(13) apply only to residential

   99 property insurance policies and condominium association policies

 100 as defined in s. 718.111(11).

 101         Section 626.8796, Florida Statutes, is amended Section 2.

 102 to read:

 103         Public adjuster contracts; fraud statement.— 626.8796

 104         (1)All contracts for public adjuster services must be in 

 105 writing and must prominently display the following statement on

 106 the contract: “Pursuant to s. 817.234, Florida Statutes, any

 107 person who, with the intent to injure, defraud, or deceive any

 108 insurer or insured, prepares, presents, or causes to be

 109 presented a proof of loss or estimate of cost or repair of

 110 damaged property in support of a claim under an insurance policy

 111 knowing that the proof of loss or estimate of claim or repairs

 112 contains any false, incomplete, or misleading information

 113 concerning any fact or thing material to the claim commits a

 114 felony of the third degree, punishable as provided in s.

 115 775.082, s. 775.083, or s. 775.084, Florida Statutes.”

 116         A public adjuster contract must contain the names and (2)

 117 addresses of the public adjuster, the public adjusting firm, and

 118 the insured, together with the signatures of the public adjuster

 119 and the insured and the signature date. A copy of the contract

 120 must be remitted to the insurer within 30 days after execution.

 121         Section 626.70132, Florida Statutes, is created Section 3.

 122 to read:

 123         626.70132Duty to file windstorm or hurricane claim.—A 

 124 claim, supplemental claim, or reopened claim under an insurance

 125 policy that provides personal lines residential coverage, as

 126 defined in s. 627.4025, for loss or damage caused by the peril

 127 of windstorm or hurricane is barred unless notice of the claim

 128 was given to the insurer in accordance with the terms of the

 129 policy within 3 years after the windstorm or hurricane first

 130 made landfall, or the windstorm caused the covered damage, in

 131 this state. For purposes of this section, the term “supplemental

 132 or reopened claim” means a claim for recovery of additional

 133 payments from the insurer for losses from the same hurricane for

 134 which the insurer has previously paid pursuant to the initial

 135 claim. This section may not be interpreted to affect any

 136 applicable limitation on civil actions provided in s. 95.11.

 137         This act shall take effect July 1, 2010. Section 4.

Mary Fortson and I were recently reviewing some matters raised by the leadership of the National Association of Public Insurance Adjusters and Florida Association of Public Insurance Adjusters, when I asked her to provide me the Florida regulations pertaining to these ethical rules. Mary is the General Counsel to the Florida Association of Public Insurance Adjusters, and we were certain that many of the conduct issues being raised by the leadership of these organizations were covered in these rules. The violation of which subjects an adjuster to severe penalties, including the possible loss of license. These rules were made to protect the public and consumers of insurance as stated in the first part of the ethical code:

Code of Ethics. The work of adjusting insurance claims engages the public trust. An adjuster shall put the duty for fair and honest treatment of the claimant above the adjuster's own interests in every instance.

Claims managers need to make certain that they are also adhering to this law. Public adjusters who find company and independent adjusters breaking these rules but do not promptly report the violations to the Department of Financial Services also violate the rules. I recently heard a claims manager suggest that his adjusters had a right to immediate access to the damaged property. Certainly, most policyholders welcome prompt investigation and evaluation, but because of some abuses, access into a policyholder’s home or business is covered in these ethical provisions:

(s) A company adjuster, independent adjuster, attorney, investigator, or other person acting on behalf of an insurer that needs access to an insured or claimant or to the insured property that is the subject of a claim shall provide at least 48 hours notice to the insured or claimant prior to scheduling a meeting with the claimant or an on-site inspection of the insured property. The insured or claimant may deny access to the property if this notice has not been provided.

The Florida Association of Public Insurance Adjusters has a Code of Ethics as well. It also has a committee that reviews every complaint regarding its members. I suggest that when company or independent adjusters report ethical violations to the Department of Financial Services that they also copy the violation to FAPIA. Here is the FAPIA Code of Ethics:

All members of FAPIA are required to abide by the following Rules of Professional Conduct and Ethics. This better enables us to ensure that our clients, members of the public, are able to receive proper and ethical treatment at all times.

1. The members shall conduct themselves in a spirit of fairness and justice to their clients, the Insurance Companies, and the public.

2. Members shall refrain from improper solicitation.

3. No misrepresentation of any kind shall be made to an insured or to the Insurance Companies.

4. Commission rates shall be fair and equitable, and strictly in accordance with the prevailing laws or regulations of the Florida Insurance Department.

5. Members shall conduct themselves so as to command respect and confidence. They shall work in harmony with one another, with their clients, and the Insurance Companies' representatives, so as to foster a cordial and harmonious relationship with all branches of the insurance business, and with the general public.

6. Members must be fitted, by the knowledge and experience, for the work they undertake. They must not endanger the interests of the public adjusting profession, or risk injustice to insureds or to the Insurance Companies, by attempting to handle losses or claims for which they are not qualified, and for which they cannot find competent technical assistance.

7. Members shall not engage in the unauthorized practice of law.

8. Members shall not acquire any interest in salvaged property or participate in any way, directly or indirectly, in the reconstruction, repair, or restoration of damaged property, except with the knowledge, consent and permission of the insured.

9. Members shall be cooperative and assist one another in every possible way.

10. Members shall not disseminate or use any form of agreement, advertising, or any printed matter that is harmful to the profession of public adjusting, or which does not comply with the rules and regulations of the Florida Insurance Department, or which might subject public adjusting and public adjusters to criticism or disrespect.

The enforcement of ethical rules by adjusters leads to a recurrent theme that has to be addressed by Alex Sink and the people operating the Department of Financial Services. Alex Sink is a wonderful public servant. Many in the insurance industry are wholeheartedly supporting her quest to become Florida’s next governor. And, when I hear adjusters and their managers say that when they follow the law, report serious violations of ethical laws to the Department of Financial Services, but the Department essentially says that they are “too busy” to do anything about it, I know she will make a change or change the people who are not doing their job. The California Insurance Commissioner was once sued for not fulfilling the statutory duties of that job.

Somebody needs to find out if our paid regulators are either too lazy or too overworked to do the important job of enforcing the laws. This is a serious matter, but many have been complaining about the lack of action by the Department of Financial Services for far too long. Something has to change soon.

Good, honest, and “playing by the rules” adjusters need to know that their profession and the state will hold wrongdoers accountable for breaking rules. Otherwise, why have any rules?

Here are the ethical requirements of adjusters in Florida:

69B-220.201. Ethical Requirements.

(1) Definitions. The following definitions shall apply for purposes of this rule:

(a) “Adjuster,“ when used without further specification, includes all types and classes of insurance adjusters, (company, independent, and public), subject to Chapter 626, Florida Statutes, regardless of whether resident or nonresident, and whether permanent, temporary, or emergency licensees.

(b) “Client“ includes both clients and potential clients; and means any person who consults with or hires an adjuster to provide adjusting services.

(c) “Department“ means the Florida Department of Financial Services.

(d) “Person“ includes natural persons and legal entities.

(2) Violation.

(a) Violation of any provision of this rule shall constitute grounds for administrative action against the licensee.

(b) A breach of any provision of this rule constitutes an unfair claims settlement practice.

(3) Code of Ethics. The work of adjusting insurance claims engages the public trust. An adjuster shall put the duty for fair and honest treatment of the claimant above the adjuster's own interests in every instance. The following are standards of conduct that define ethical behavior, and shall constitute a code of ethics that shall be binding on all adjusters:

(a) An adjuster shall: not directly or indirectly refer or steer any claimant needing repairs or other services in connection with a loss to any person with whom the adjuster has an undisclosed financial interest, or who will or is reasonably anticipated to provide the adjuster any direct or indirect compensation for the referral or for any resulting business.

(b) An adjuster shall treat all claimants equally.

1. An adjuster shall not provide favored treatment to any claimant.

2. An adjuster shall adjust all claims strictly in accordance with the insurance contract.

(c) An adjuster shall not approach investigations, adjustments, and settlements in a manner prejudicial to the in-sured.

(d) An adjuster shall make truthful and unbiased reports of the facts after making a complete investigation.

(e) An adjuster shall handle every adjustment and settlement with honesty and integrity, and allow a fair adjustment or settlement to all parties without any remuneration to himself except that to which he is legally entitled.

(f) An adjuster, upon undertaking the handling of a claim, shall act with dispatch and due diligence in achieving a proper disposition of the claim.

(g) An adjuster shall promptly report to the Department any conduct by any licensed insurance representative of this state which violates any provision of the Insurance Code or Department rule or order.

(h) An adjuster shall exercise extraordinary care when dealing with elderly clients to assure that they are not disadvantaged in their claims transactions by failing memory or impaired cognitive processes.

(i) An adjuster shall not negotiate or effect settlement directly or indirectly with any third-party claimant repre-sented by an attorney, if the adjuster has knowledge of such representation, except with the consent of the attorney. For purposes of this subsection, the term “third-party claimant“ does not include the insured or the insured's resident relatives.

(j) An adjuster is permitted to interview any witness, or prospective witness, without the consent of opposing counsel or party. In doing so, however, the adjuster shall scrupulously avoid any suggestion calculated to induce a witness to suppress or deviate from the truth, or in any degree affect the witness's appearance or testimony during deposition or at the trial. If any witness making or giving a signed or recorded statement so requests, the witness shall be given a copy of the statement.

(k) An adjuster shall not advise a claimant to refrain from seeking legal advice, nor advise against the retention of counsel to protect the claimant's interest.

(l) An adjuster shall not attempt to negotiate with or obtain any statement from a claimant or witness at a time that the claimant or witness is, or would reasonably be expected to be, in shock or serious mental or emotional distress as a result of physical, mental, or emotional trauma associated with a loss. The adjuster shall not conclude a set-tlement when the settlement would be disadvantageous to, or to the detriment of, a claimant who is in the traumatic or distressed state described above.

(m) An adjuster shall not knowingly fail to advise a claimant of the claimant's claim rights in accordance with the terms and conditions of the contract and of the applicable laws of this state. An adjuster shall exercise care not to engage in the unlicensed practice of law as prescribed by the Florida Bar.

(n) A company or independent adjuster shall not draft special releases called for by the unusual circumstances of any settlement or otherwise draft any form of release, unless advance written approval by the insurer can be demonstrated to the Department. Except as provided above, a company or independent adjuster is permitted only to fill in the blanks in a release form approved by the insurer they represent.

(o) An adjuster shall not undertake the adjustment of any claim concerning which the adjuster is not currently competent and knowledgeable as to the terms and conditions of the insurance coverage, or which otherwise exceeds the adjuster's current expertise.

(p) No person shall, as a public adjuster, represent any person or entity whose claim the adjuster has previously adjusted while acting as an adjuster representing any insurer or independent adjusting firm. No person shall, as a company or independent adjuster, represent him or herself or any insurer or independent adjusting firm against any person or entity that the adjuster previously represented as a public adjuster.

(q) A public adjuster shall not represent or imply to any client or potential client that insurers, company adjusters, or independent adjusters routinely attempt to, or do in fact, deprive claimants of their full rights under an insurance policy. No insurer, independent adjuster, or company adjuster shall represent or imply to any claimant that public adjusters are unscrupulous, or that engaging a public adjuster will delay or have other adverse effect upon the settlement of a claim.

(r) No public adjuster, while so licensed in the Department's records, may represent or act as a company adjuster, independent adjuster, or general lines agent.

(s) A company adjuster, independent adjuster, attorney, investigator, or other person acting on behalf of an insurer that needs access to an insured or claimant or to the insured property that is the subject of a claim shall provide at least 48 hours notice to the insured or claimant prior to scheduling a meeting with the claimant or an on-site inspection of the insured property. The insured or claimant may deny access to the property if this notice has not been provided.

The article noted a growing trend of delay and nonpayment many months following a loss:

A large property insurance claim can turn into a soap opera, with dozens of high-end, big personalities trying to steer the plot line. It's not a secret to claims experts, or any risk manager who's faced one, that settling a large loss has only gotten more dramatic, and difficult, in the last couple decades....

...34 percent of physical damage claims are settled before the property is repaired or replaced and 37 percent up to six months after.

Only 17 percent of time/element claims, on the other hand, were settled before the end of the period of liability, while 68 percent took one to 12 months after the period for settlement.

The general trend, however, is that larger, complex losses are taking more time to settle...

As Harvey Goodman often does, he disagreed in part with the article's conclusion that more complex claims require various claims experts or consultants that slow the claim process. He made an important point that the survey never considered public adjusters, which is kind of interesting since they are the only legally licensed individuals who can adjust the loss for policyholders. Goodman commented:

"Take the question about what types of outside professionals were hired by the insured. Goodman took umbrage with the fact that he and his colleagues--public adjusters--weren't even an option...

Insureds bring in Goodman and his colleagues to make sure their interests are being represented as the claims resolution plot unfolds. And we're not just talking about large Fortune 1000 clients. He's dealt with $50 million companies with multimillion dollar losses and no in-house risk management.

"They are so thinly staffed they often have no resources to dedicate to the insurance claims process," he said.

Goodman disagreed with the survey's finding that insureds' expectations about the extent of their insurance coverage diminish significantly during the course of claims settlement. His experience is that expectations increase the longer a settlement takes.

The veteran adjuster also didn't agree with the key takeaway, that property insurance can never fully cover a loss. Sure, there might be disagreement over numbers. But there is coverage out there to cover other economic hits, like loss of value and potential damage to business relationships: for instance, extended business income coverage.

Most importantly, Goodman stressed, it's up to insureds to properly measure their loss. If you don't ask for the right amount, you're not going to get it."

It has been my impression that many get around state licensing requirements by calling themselves "consultants." These "consultants" are out of control in the insurance claims business. Insurance regulators and State Legal Bars need to start prosecuting so called unlicensed "loss consultants" and "claims consultants" for adjusting without a license and practicing law. Legal rules regarding licenses need to followed and those responsible for enforcing the rules need to do their jobs because the rules were made to protect the public from exactly what is going on in the claims industry.

Policyholders should hire licensed, experienced, and dedicated professionals. They should be careful about any individuals or organizations claiming to be "loss consultants." These “loss consultants” are violating the regulatory, and often criminal, laws of most states and have no regulator looking over their ethics and work to determine whether they are acting in accordance with the law.

Barry Zalma wrote a comment worth sharing and pointing out my incorrect explanation of his law practice:

Thanks for the reference.

For your information, most of my work does not involve insurance fraud, it involves insurance coverage. I do write a twice monthly newsletter called "Zalma's Insurance Fraud Letter" because I saw a need. I am an insurance coverage lawyer and an insurance claims and coverage consultant and expert witness who testifies for any party who has a case against a party with whom I have no conflict. I also have written books that are available from my site or from the publishers that are useful to anyone interested in insurance.

In California "appraisal" is an arbitration whose result can be made into a judgment so impartiality -- or, at least, a lack of serious conflict must be shown.

Appraisal, in my opinion, should be used as a last resort. It is often less efficient than trial especially when the appraisers have little or no experience in valuing property or legal procedures.

Regards,

Barry Zalma

Harvey Goodman, a public adjuster from Goodman-Gable-Gould/Adjusters International, once told me that his firm rarely went to appraisal. He felt that they understood their client’s loss better than anybody else and should be able to explain and adjust it to resolution without having to risk third parties coming to a wrong conclusion. He wanted to keep control of the claim and suggested that many bitter disagreements regarding the value of a loss could be resolved through intensive good faith dialogue and negotiation with insurance company representatives. I know a number of prominent public adjusters who share that same philosophy, although most concede that appraisal is invoked much more often today than two decades ago--for a number of reasons.

Zalma’s opinion is not that different than Harvey Goodman’s. I agree that there are a number of case examples where appraisals take longer than litigation or can come out much worse for policyholders. On the whole though, I believe appraisals in most states usually reach resolution faster than litigation and at less cost.

One thing that is missing from the discussion is that the client policyholder should have a say and some legal advice whether the resolution should be through appraisal or litigation. A public adjuster should not unilaterally demand appraisal. The demand for appraisal and a suggestion that appraisal, rather than legal remedy, should be done is a legal decision with considerations of laws to the facts of a case. Adjusters who give advice as to one over the other in a given situation are giving advice that is commonly referred to as practicing law without a license. I am certain there will be a lot of public adjusters who claim that I am pointing this out because it is in my and other attorneys’ economic benefit to do so. On the other hand, it is illegal and a crime for public adjusters to practice law. Every public adjuster agrees to that, but I would suggest that a few do not want to adhere to that rule if it is not in their economic interest.

Indeed, I have met a few public adjusters in Texas who prepare their policyholder clients’ cases for settlements or litigation. They take the view that the Texas consumer protection statutes generally provide significant interest and other remedies that make most cases where an insurer offers an unfair settlement better resolved with attorney involvement. They always seek legal counsel for the client to help make the decision regarding appraisal or litigation.

The National Association of Public Insurance Adjusters, its general counsel, and officers have maintained my view and have warned against the unintentional practice of law by public adjusters for decades. There should be no question that only licensed lawyers should explain legal rights and actions to a client.. Many dedicated public adjusters are concerned that the legal bars of various states will question the licensing of public adjusting if public adjusters continually overstep their authority and provide legal, rather than adjustment, advice.

First, I am merely paraphrasing the lecture. Order the video from NAPIA to fully appreciate the concepts.

Second, I will be discussing some case law regarding these issues over the next several weeks. Judges, not lecturers, decide what is and is not covered. Real life results and case examples are important.

Still, Eshoo made the following notation in his lecture regarding how the all risk policies work when faced with structural losses allegedly caused by a defective product, such as Chinese drywall:

A resulting loss is covered even if a defective product is a "but for" cause of the loss. The intent of the exclusion and exception is to exclude only that portion of the loss attributable to the defective product. In other words, losses that are defective products are not covered, while those losses that result from the defective product are covered.

The exclusion and exception, read together, operate to eliminate the conduct or defect from consideration in analyzing the cause of resulting damage; only the actual risk causing the resulting physical damage is subject to the coverage analysis.

To the extent that cause is neither excluded nor excepted in the applicable policy, coverage exists for the damage which resulted from the defective product.

This is an excellent phrasing of how the "ensuing loss" provision works. I suggest that others seeking coverage adopt it rather than some of the convoluted discussions by courts.

The factual and legal burden of proof to demonstrate that a loss occurs within the language of an all risk policy was properly described as follows:

An insured seeking to recover under an "all risks" insurance policy merely has the burden of proving only that direct physical loss or damage occurred to covered property while the policy was in force.

Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excluded.

The insured is not required to disprove any excluded cause of loss.

...

Exclusion clauses are generally considered contrary to the fundamental protective purpose of insurance. Thus, the courts give a strict interpretation to exclusion clauses, as opposed to the liberal interpretation afforded coverage protections.

I will analyze these principals in greater detail later as they relate to Chinese drywall and how other defective building materials contribute to losses covered under all risk policies. But, the phraseology of the concepts is excellent and should be adopted by all consumer advocates.

I felt his discussion of the commercial and homeowners policy forms was excellent. The points he made regarding the science of drywall, covered risks, ensuing or resulting damage, causation, and exclusions were clear and simple and should be replicated by other attorneys.

The one problem and question raised by those in attendance was the conclusion:

"Is there really coverage--what is the covered cause of loss that is not excluded or is an exception to an exclusion?"

I remind everyone that the FC&S Bulletin has concluded that there is coverage for Chinese drywall under the first party policy, as I noted in FC&S Says Ensuing Loss Coverage Applies to Chinese Drywall Claims. I will post more on Ed's lecture and this topic later tonight. Regardless of the conclusion, the analysis up to that point was an excellent lecture. It made the cost of the conference worth the investment.

The PowerPoint presentation from the lecture is available here.

I am fortunate that Jean Niven works closely with me on my cases because she is extraordinarily thorough and prepared. She makes me look far better than what I am. We have a tremendously successful track record when working on projects together, primarily due to her efforts.

Regarding the subrogation speech, she put together the cases and basic outline of the speech. As I went through it, I remembered various instances where subrogation rights and issues became significant considerations of a first party claim. As I studied the issue and thought about these experiences, I recalled that subrogation provides significant opportunities to a policyholder that may soften the blow from uninsured losses.

The first rule from the policyholder's perspective is that subrogation should become a major consideration when significant uninsured losses occur. It is becoming more frequent that policyholders have such uninsured damage scenarios for a number of reasons. These include, but are not limited to:

1. High Deductibles.
2. Exclusions
3. Being Under insured.
4. Having limited amounts of coverage for certain types of loss.
5. Co-insurance penalties.
6. Gaps in coverage.
7. Non-Covered Property

The greater the uninsured loss, the more important for a claims handler to suggest that policyholder counsel be retained to orchestrate a procedure to recover uninsured losses. Our firm strongly suggests that policyholders retain their own counsel, even if it is solely to work out subrogation and litigation agreements with the insurer.

Ethically, we cannot understand how insurance retained counsel can approach a policyholder for dual representation. Yet, it is commonplace and probably a fertile field for malpractice because no attorney can serve competing masters. Indeed, it has been our experience that independent policyholder counsel can work hand in hand with the insurer's counsel far more productively and ethically than if one law firm is representing entities with competing interests in money and control of how the recovery will be attempted, distributed, and paid for.

A primary coverage issue for policyholders to be concerned about following a loss is to do nothing to waive or impair the insurer's right to subrogation. A typical subrogation clause reads:

In the event of any payment made hereunder, the Company shall be subrogated to the extent of such payment to all Insureds' rights of recovery thereof against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights.

The problem with the clause in cases of uninsured loss is that the papers and agreements are not indicative of who gets what, in what order of preference, who pays for the expenses of legal fees and costs, who controls decisions of settlement, trial and arbitration, who pays for the insured's efforts to aid the insurer, etc. All these matters should be addressed in agreements that are subject to negotiation. It is legally complex because state laws vary on these issues. In some states and situations, policyholders may be giving away rights to free first reimbursement of uninsured losses by not retaining their own counsel to research and negotiate these issues.

Policyholders should also be concerned with "spoliation of evidence" needed to prove responsibility of third parties. Proper preservation of evidence is crucial in these situations. Insurer subrogation departments and policyholders should be urged to cooperate so that mitigation efforts do not destroy crucial evidence. Again, quickly obtaining counsel to orchestrate the loss scene recovery and contemplate claims against third parties is crucial.

Some teach about subrogation by trying to demonstrate all the different scenarios third parties cause, contribute to, or fail to prevent losses to the policyholder. I suggest that policyholders and their representatives first ask how significant the uninsured loss may be. The more that portion of the loss is uninsured for whatever reason, the more crucial it is to quickly retain counsel that can help orchestrate a plan for potential recovery. My experience is that such counsel can decide if it is best for the policyholder to work with the insurer and how those arrangements can be made. Often, counsel will work on a contingency fee basis and advance all costs towards the recovery.

So, in the end, I was pleasantly surprised at how much I enjoyed presenting views and teaching on this topic. Given that deductibles seem to be getting larger and larger, while coverages are becoming more limited, it is a fairly common occurrence for significant uninsured loss to take place. Thus, this area and topic of claims handling will become more important to policyholders, who may find themselves working closely with their property insurer to recover for losses.

I often feel as if one gets a lot more from teaching a subject than simply being taught by another because you have to research, prepare, write about, present and answer questions on the issues. Teaching aspects of insurance coverage makes me a much better insurance attorney.

Roof damage disputes have been significant areas of contention lately because many of the insurance company expert vendors have been providing opinions, seemingly minimizing the impact that wind has on roofs. Accordingly, I need to know this area to do my job. I felt that others in the field needed more knowledge on the topic as well.

Our law firm has a competitive edge over many other policyholder firms because we have invested in a full time “Knowledge Manager.” Ruck DeMinico is an attorney with a library science background. He can help us find rather obscure, but significant, information regarding our cases that can literally mean the difference between winning and losing. Often, the amounts of recovery for our clients are enhanced because information is power and provides our attorneys with better arguments than the insurance counsel we oppose.

Regarding my presentation on the effects of wind on roofs, I asked Ruck to make a bibliography on the topic so others could have a list of scientific references for use in their cases. Some of the more important papers include:

• Baskaran, A., Murty, B. and Wu, J. “Calculating roof membrane deformation under simulated moderate wind uplift pressures”
• Xu, Y. L. “Fatigue damage estimation of metal roof cladding subject to wind loading”
• Lee, K., Rosowsky, D. V. “Fragility assessment for roof sheathing failure in high wind regions”
• Ali, H. M., Senseny, P. E. “Models for standing seam roofs”
• Baskaran, B. A., Koa, S., & Molleti, S. “A novel approach to estimate the wind uplift resistance of roofing systems”
• Cochran, L. “Wind engineering as related to tropical cyclones”

For readers of my Blog, simply click for a download of the bibliography.

I cannot emphasize enough how important it is to understand the physics of wind loads and flow if you are going to be able to fully find and explain the extent of damage caused by wind. Many of these scientific papers develop concepts of how subtle fatigue damage during a high wind event can lessen a structure’s life expectancy because the fastening and structural systems were altered as a result of having been pushed and pulled by the wind. I have been amazed at the numerous engineering committee comments regarding building integrity issues.

Tim Marshall has been my partner in this presentation. He is the other Tim Marshall, and not the infamous one from HAAG Engineering that is the insurance industry’s darling forensic engineer. I suggest that policyholders may want to hire Tim so that they can freak out the insurance industry by claiming that they have a report from Tim Marshall that found significant roof damage.

To be fair to HAAG and its Tim Marshall, they sponsor an in-depth roofing class that provides significant information regarding roof damage claims. While I have heard grumblings that the class is more concerned about how to not find roof damage and thereby lower claims payments, virtually everybody I have talked with urges others to go and learn from HAAG’s experiences on this topic and from what that Tim Marshall has to teach.

I am sorry that everybody could not attend the seminar here in Providence. I promised that the PowerPoint presentation would be placed up for review by all, and it will be available here following the Conference. I will make this topic part of firm’s regular seminar presentations to public adjusters in the future because it is important to understand these issues.

Slaten Bickford of Adjusters International grew up in the business of public adjusting. His father, Pat Bickford is a past president of the National Association of Public Insurance Adjusters. Slaten graduated from Columbia, an Ivy League school. From personal experience, he is one of the smartest, most passionate, and hardest working young public adjusters in the business.

Slaten Bickford spent a couple days driving me to each part of the Port of New Orleans property after we were retained as counsel in the fall of 2007. We had to cover 26 miles of property along the Mississippi River. Even after two years following Katrina, various parts of the Port were difficult to traverse. Indeed, one of the unique supplements to the claim were the tires that were ruined from nails and debris.

Slaten moved to New Orleans from Denver to help adjust this massive claim. Teams of estimators and adjusters were poring over the loss locations. It was obvious to me that while there were older and more experienced adjusters for the insurance companies and with Adjusters International, Slaten was going to be the best choice for me to rely upon as our client's primary adjuster. He was the one person with the detailed knowledge of the claims from all perspectives. He had the organizational skills, creativity, and historical knowledge of what had transpired before to help me refigure the damage into a proof which would withstand a critical review by the insurance company's team of attorneys and experts.

As a result of our close working relationship, I became very familiar with Slaten and his work habits. Since he is about twenty years younger than I, there are some humorous generational differences in how we approach things. I am convinced that professionals 30 years of age and younger live their lives on a laptop and a cellphone. Everything that Slaten produced or was presented to him regarding the Port claim was on his laptop. I asked a question, he looked at his laptop--no paper and nothing tangible that I could hold. For a guy that learned how to practice law with the IBM Selectric and carbon paper copies, he and I would laugh as I tried to navigate in his virtual file world of photos, spreadsheets, scanned images, and emails.

I also learned from Slaten that "the office" was the place his laptop was at, and at the time he was working. Neither were normal nor set. Going to another country to romance a young woman who would later become his fiancé' did not mean stopping work for the Port of New Orleans. 'Where are you working from?' was a question I frequently asked. The answer had some pretty exotic and out of the way venues.

The estimators reporting to him also lived in this virtual world of information sharing with massive data on spreadsheets exchanged and worked on collaboratively despite these individuals being thousands of miles from each other. I was amused while standing at a particular structure and after asking a question to Slaten, as his laptop would open and then he would communicate on cell and email--often discussing photos and videos of damaged structures with others to get my inquiry satisfied immediately. This type of efficient productivity was not possible when I was a young professional, but is the current status of how people work together in the modern adjustment era.

Slaten announced one day at lunch that he planned to propose to his Tulane medical student girfriend. I cannot remember a person as positive and ready to become engaged. Laura and Slaten are both very bright and share a love for informality in their affairs. For example, their wedding was a typical New Orleans affair with beer being served during the ceremony. If brains are determined by genetics, their children will be brilliant.

I was happy to see that so many of the estimators Slaten worked with were there to share the moment. While I demanded that certain work be done until it was done right, Slaten was the guy in the field, drinking beer with those guys, and explaining why my needs as the Port's attorney required work to be reconfigured for proof at a trial---and always right away. I am certain that, but for Slaten, some of those hardworking estimators would have simply walked off the job rather than deal with my demands.

Many of us in my line of work tend to be nomads going from one unfortunate place of disaster to another. The marriage of Lara Yanovsky and Slaten Bickford will certainly be a case study of logistics because Slaten works long and hard in far away places, and most doctors work pretty long hours in one place. I guess modern technology will help them stay close even if they are far away.

So, yesterday was a good time in New Orleans. As we flew over the Mississippi Coast and New Orleans, I was reminded of how many other good things can sometimes come out of catastrophe. 

Public adjusters can do a lot of good for policyholders. Their ability to do so can be highly controversial with the legal bar. Knowing insurance law is as important to a public adjuster as knowing criminal search and seizure law is to a police officer. However, neither may practice law.

The National Association of Public Insurance Adjusters (NAPIA) had a long time general counsel, Paul Cordish. Although deceased, his legacy endures with a Cordish legal writing award to a law student writing the best legal paper on an insurance subject designated by NAPIA. NAPIA presents this award at its annual meeting, and the law student provides a presentation of his or her legal work.

Every six months at every NAPIA mid-year and annual meeting, Cordish presented his views on the current state of public adjusting throughout the country. Cordish always provided wisdom and true insightful thoughts. Many of us miss him greatly.

Today, Brian Goodman performs the same function as General Counsel to NAPIA and does a wonderful job eloquently expressing many of the same messages to the general membership as Paul Cordish. In my view, NAPIA has been blessed by these two attorneys providing terrific counsel to a profession often under attack by the insurance industry and then by the legal bar.

Mary Fortson provides oversight to our firm regarding ethics and logistical oversight of our attorneys. She has attended many NAPIA meetings over the past decade and has heard one clear message from Brian Goodman to all public adjusters, the same message Paul Cordish gave over the five decades he was NAPIA's general counsel. That message is:

Do not practice law if you are a public adjuster. The unauthorized practice of law represents the most serious threat to public adjusters as a profession because the bar associations may limit or prevent the activities of public adjusting under the guise of protecting the public.

So, I was not surprised when Mary Fortson and TAPIA's first President, Jim Beneke, asked me to provide a one hour presentation on the unauthorized practice of law at TAPIA's first meeting. It is an important subject and one professional public adjusters take very seriously.

While I will not provide a detailed analysis of this topic in a limited blog, my view is that many public adjusters hear the warnings, but they still practice law everyday in letters and phone calls. Most of the offenses come in advocating legal issues and coverage disputes with insurance adjusters. The other major offenses come at the time of providing advice to policyholders as to which legal resolution process should be taken to resolve disputes. Advocating a legal position and telling a policyholder to file or not file a lawsuit are acts of practicing law that are routinely breached by well meaning public insurance adjusters.

Over the past year, I have given the same presentation four times. Each time I cringe as I provide examples to the audience of what may constitute the unauthorized practice of law because I can see that public adjusters in the audience are squirming as I explain what they do is illegal--and I am a friend.

The truth is that many insurance company adjusters could make life horrible for those public adjusters who routinely write long legal dissertations about an interpretation of coverage with case law and statutes. I am surprised more public adjusters do not become grieved to the department of insurance and the local bar association.

Most professional public adjusters do not get themselves into this predicament. My hope is that my message and warning will save other public adjusters from the turmoil of such accusations in the future.

I have recently noted the concern that some insurance restoration contractors are acting as surrogate public adjusters and not in the best interests of the policyholder in my posts, Are Insurance Restoration Contractors Ripping Off Insurers and Policyholders? and Former Restoration Insider Comes Out Swinging Against Florida's Limitation of Public Adjuster Solicitation.

The 48 hour solicitation ban was a coup of the insurance companies and Citizens Property Insurance Corporation. I attended the Citizen’s Claims Review Task Force meetings. It was obvious that Citizens claims managers and executives blamed many of their controversial claims delays and underpayments on the involvement of public insurance adjusters. The insurance industry used the Task Force as a vehicle to place before legislators a few examples of how public adjusters solicit for business following a disaster. Door hangers and the lining up of a dozen public insurance adjusters were suggested as being “unsavory’ by many. I guess the connotation is that those that get paid for professional help following a catastrophe must be taking advantage of victims. From the insurance industry’s perspective, it was a “perfect storm” to reduce the retention of pubic adjusters.

The 48 hour solicitation ban states:

A public adjuster may not directly or indirectly though any other person or entity initiate contact or engage in face-to-face or telephonic solicitation or enter into a contract with any insured or claimant under an insurance policy until at least 48 hours after the occurrence of an event that may be the subject of a claim under the insurance policy unless contact is initiated by the insured or claimant.

The lawsuit emphasizes the constitutional aspect of one’s freedom to speak and to contract.

8. By prohibiting the Plaintiffs from directly or indirectly initiating contact or engaging in face-to-face or telephonic solicitation with any insured or claimant, or entering into a contract with an insured or claimant in the first 48 hours after an event that has not been declared an emergency, subsection 626.854(6) constitutes a prior restraint on protected speech in violation of the First Amendment to the United States Constitutions and Article 1, Section 4 of the Florida Constitution.

It also points out some of the practical reasons why the laws are objectionable:

39. Subsection 626.854(6) is not narrowly tailored to further a significant government interest, and other less intrusive means are available to control or prevent any practices of public adjusters which might be needed to adequately protect the public

40. Subsection 626.854(6) is overbroad, in that it restricts the speech of all public adjusters, including Plaintiffs, who are competent, scrupulous, honest, and professional in their dealings with the public

41. Subsection 626.854(6) denies significant business opportunities for Plaintiffs and other public adjusters by denying property owners the services of a licensed public adjuster at the time they are in most distress and have the greatest need.

42. By preventing public adjusters from contacting property owners immediately following a natural disaster, subsection 626.854(6) prevents public adjusters from having any contact with the most severely damaged property owners at the only time they can be located before moving to an unknown address.

43. Section 626.854(6) amounts to an impermissible restriction on the time, place, and manner of conducting the business of public adjusting, and unduly restricts Plaintiffs' freedom of speech.

Pat Catania has done an excellent job assembling a great legal team and getting a case stated clearly. Using a Shakespearean phrase, he told me yesterday that “if they [the insurance industry] want a war, I’ll show them the war.” Pat is not a part of FAPIA or NAPIA. He is creative, bright, energetic, and I find him fun. I believe the lawsuit has a good chance of success. He asked me to let other public adjusters know that he would like to include others as plaintiffs in the lawsuit.

Catania is also a fantastic marketer and entrepreneur. He started two web sites, MySmartClaims.com and SmartClaimsPro.com which help policyholders and professionals regarding the estimating and submittal of property insurance claims. He is a passionate consumer advocate and tireless opponent. I predict he will prevail and many public adjusters will be thanking him for his efforts.

Catania also told me that his dream is to submit the final proof of loss State Farm will pay on before it leaves Florida. He considers State Farm completely unworthy to be in the insurance business because he asserts that most State Farm policyholders are not treated properly regarding claims. He has some inside information on that issue--his wife worked as a property insurance claims adjuster for State Farm.

I noted in the introduction that:

“It is incredibly important for a public adjuster to understand ethical issues that can arise in presenting claims. In order to ethically represent policyholders when they are at their most vulnerable it is important for a public adjuster to appreciate and abide by the ethical rules and obligations under Florida Law. The ethical representation of policyholders is the foundation upon which the system of insurance is designed to operate. Without the system's ethical foundation it cannot achieve its purpose to protect the policyholder.”

One of the most difficult ethical aspects of public adjusting is to not practice law. Many non-lawyers do this everyday. When representing an individual as a public adjuster, it is easy to overstep adjusting duties and provide advice or take an advocate position on legal rights. This is clearly practicing law. Regarding the the unauthorized practice of law in Florida, the Florida Supreme Court has explained:

 

In determining whether the giving of advice and counsel and the performance of services in legal matters for compensation constitute the practice of law, it is safe to follow the rule that if the giving of such advice and performance of such services affect important rights of a person under the law, and if the reasonable protection of the rights and property of those advised and served requires that the persons giving such advice possess legal skill and a knowledge of the law greater that that possessed by the average citizen, then the giving of such advice and the performance of such services by one for another as a course of conduct constitutes the practice of law.

Florida Bar v. Sperry, 140 So. 2d 587, 591 (Fla. 1962). Additionally:

The preparation of legal documents by a nonlawyer, beyond taking down and filling in information to complete a form approved by the Florida Supreme Court, is the unauthorized practice of law. Florida Bar v. Smania, 702 So. 2d 184 (Fla. 1997); Florida Bar v. American Senior Citizens Alliance, Inc., 689 So. 2d 255 (Fla. 1997); Florida Bar v. Schramek, 616 So. 2d 979 (Fla. 1993).

The rendering of services, which could reasonably cause members of the public to rely upon those services to properly prepare legal documents, is the unauthorized practice of law. Florida Bar v. Miravalle, 761 So. 2d 1049 (Fla. 2000).

The use of a business name that may mislead the public and give the expectation that the company has expertise in the field of law is the unlicensed practice of law. Florida Bar v. Davide, 702 So. 2d 184 (Fla. 1997).“

Frankly, many public adjusters know far more law and practical suggestions involving legal aspects of property insurance policies than most attorneys. I find it humorous that a Houston personal injury firm that just started doing property insurance coverage cases is going to provide a seminar to public insurance adjusters. Most public adjusters we deal with have years of experience and could give seminars to attorneys in this field of work. You do not become really good in this field without experience. I have been doing this for twenty-five years, and I learn from some of the most brilliant minds in the insurance claims recovery business everyday—public insurance adjusters.

Everybody has certain obligations to the public. Agents, adjusters and attorneys all play important and distinct roles. I think that many outside the industry do not appreciate how complicated being a property insurance adjuster can be, especially when the public adjuster is trying to accomplish the best result for the policyholder. If you want to be one of those public adjusters, I look forward to seeing you on August 13 and at other NAPIA and FAPIA events in the future.

Fifteen years ago, there were few construction firms dedicated to property insurance recovery, repair and restoration. Today, it is a huge industry, with many firms actively involved in the business on a national basis. The types of construction related vendors vary from small board-up companies, to water dry-out companies, to well-known vendors such as Servicemaster. Major construction companies such as Belfor USA work almost exclusively in major catastrophe insurance construction. The growth is largely due to the bottom line margins, which typically vary from thirty-five to forty-five percent of the total repair. Catastrophe reconstruction can be very lucrative, and the secret is out in the construction industry.

The National Association of Public Insurance Adjusters (NAPIA) has a longstanding ethical rule that its members not act as repairmen and contractors on losses they adjust. The reasons are obvious: the many conflicts of interest. Adjusters determine a theoretical amount of value of damage. The policy wording, benefits, timing of the benefits, laws and regulations affecting the policy all go to determine the amount the policyholder may take as money, repair as it was, repair differently or replace at another location. There are an infinite number of calculations which can be considered regarding the value of a loss such as scope of loss, values of materials, labor, skill of labor needed, time needed, and material quality. Adjusters determine the measures and make estimates to arrive quickly at a full and fair amount of value.

The people and entities doing the repair work have another mission, a defined repair determined by the policyholder at a profit. The policyholder obviously wants it done as inexpensively as possible, and the repairmen want that defined work done for the maximum willing to be paid by the policyholder. So, what happens when the party paying the repairman is the insurance company and not the policyholder? It does not take long for most to figure out that the policyholder may not be getting the full benefit of the insurance product. Even the insurer may subject itself to a bargaining party primarily interested in increasing profit. And this is the simple concern.

Contractors cannot practice law. They cannot practice public adjusting. Indeed, Texas recognizes the conflict: contractors cannot hold a license as a public adjuster, public adjusters cannot hold a license as a contractor. However, many restoration contractors are doing both. It is often illegal as well as unethical, but there is little regulation because few seem to be raising the issue.

In the field, I am finding many insurance recovery contractors that get construction jobs with one page contracts that ambiguously indicate they will fix the repair for the amount paid by the insurance company. To get the business, many promise they will do the job and "absorb" the policyholder's deductible. The work is started, and the contractor then "negotiates" the insurance claim with the insurance company adjuster. Whether the insurance policy is paying all benefits for the quality of the work anticipated or not, the contractor determines the quality of repair based on the amount of money the insurance company agrees to pay. Does anybody ever consider that the insurer could benefit by having a lesser scope of repair or lesser quality of repair and choose not to question unusually high construction costs? Would the insurance company question the construction costs if the bottom line was less than the full amount it owed? This happens frequently. The policy becomes a repair contract rather than one of indemnity.

Some insurers are realizing that the restoration companies are overcharging the entire job as well. Many insurers and contractors have close relationships; contractors have often introduced insurance adjusters to the policyholder. More than ever before, our firm is called by policyholders when the relationship between the insurer and contractor has broken down.

This issue deserves more discussion by everyone in the industry. It is clear though that only attorneys practice law, public adjusters adjust for policyholders, and contractors should do neither--they build and construct. Contractors have the education and licenses required to build; they do not have the education or licenses required to give legal opinions and interpret insurance policies.

At the Massachusetts Association of Public Insurance Adjusters and National Association of Public Insurance Adjusters Fall Educational seminar last year, I started a heated floor debate regarding the topic of public adjusters appearing for examinations under oath. Participants offered the following options when an insurer demanded that a public adjuster appear for an examination under oath and the policy did not clearly mandate it:

1. An insured should write and demand for the public adjuster to do so.

2. File a Declaratory lawsuit determining what to do.

3. Appear for the examination.

4. Appear on a case by case basis.

5. "Hell, no! We won't go!"

I try to work it out on a case by case basis. My client is the policyholder--not the public adjuster. If it is at this stage of a proceeding, my client, the public adjuster, and I all want the same thing--getting paid what is due under the policy as quickly as possible. I try to remind everybody on my side of this concern while they are pounding on tables in frustration and getting upset at the insurance company because it could generally find out the same information by meeting, talking in person or a phone call.

The frustration is understandable. From the policyholder's perspective, many examinations under oath are taken months following the loss and are scheduled by the insurer's attorneys unilaterally and without a good faith attempt to coordinate time and documents requested. Once a request is made to change the time, the insurer's attorney often gives alternative times, months away, despite delay which should be avoided as a part of the insurer’s good faith obligations to the customer. Some insurance companies select defense attorneys who are argumentative and treat policyholders without respect. If the insurer applied the Golden Rule, they know they would fail miserably.

Given this scenario, my mission is to move the matter along while protecting my client and preserving claims for extracontractual damages caused by delay, lack of insurer good faith during the examination and document review process, and poor initial insurer adjustment. I have filed lawsuits when the examinations take too long, lead to a game of 101 questions, and where people the insurer demands to be examined are not required to be examined under the policy. Still, most clients would rather get to the purpose of the claim--getting paid and moving on with business and life. Most public adjusters have the same interest as well.

Sometimes, the public adjuster is a far better witness than my client. The public adjuster may appear more truthful, professional, provide quicker and better answers, explain the loss, the values, why the money is owed, and simply provide a better appearance of truthful, honest knowledgeable information than the policyholder. Often, this is all the insurance company needs in the first place and there are times when I pose no objection to the public adjuster appearing for the policyholder in an examination under oath. The problem is talking the policyholder or public adjuster into it because either may want to legally object. Again, I am focused on getting my client paid as soon as possible. If that practical concern is best served by not objecting to the possible illegal request by the insurer, I may not object and even strongly encourage the public adjuster to appear for the examination under oath.

Many times, I suggest that the insurer cannot legally take an examination under oath, but will suggest that the public adjuster meet with the insurance company's attorney, answer questions and even give a sworn statement, so that information can be exchanged in a framework that is quicker and will likely get the claim adjusted and paid. This practical alternative seems to avoid the legal questions surrounding an examination under oath and possible declaratory lawsuits regarding the process.

I treat the request for a public adjuster's examination under oath on a case by case basis. Whether a public adjuster’s testimony is binding on a policyholder is questionable. Accordingly, it is always important to note that the claim is the policyholder's claim and not that of a person hired to assist in determining the amount owed under the policy. However, the public adjuster is usually an independent contractor who does not make binding contracts, agreements, or is authorized to give legally binding testimony. Most state licensing authorities do not allow public adjusters to do so.

Are there other significantly different views than mine? Absolutely. Some policyholder attorneys file suit right away. Even in my law firm, there are differences of opinion as to the proper methodology in a given case--but I emphasize to the other attorneys that most policyholders want money sooner rather than later and without lawsuits. Still, some clients are best served by such lawsuits and even I have departed from my general course and filed a lawsuit when it served my client’s best interests.

This debate is highlighted by a recent article in the American Bar Association's Tort and Insurance Practice Section's publication, The Brief. The article, “The Power To Compel Submission Of "Others": Are Public Adjusters Subject to Examination under Oath Provisions?” written by insurance defense attorney, Keala C. Ede, suggests that public adjusters may be compelled to appear for examinations under oath. Her conclusion was stated early in the article:

"Notwithstanding the opinions expressed by Goodman and Hammond, the following survey of relevant jurisprudence indicates no prevailing view as to the applicability of EUOs to public adjusters, although cases suggest that such examinations can and should apply in the right factual circumstances."

She explains and argues for this in her final conclusion:

"Applying all of the foregoing cases, an EUO provision applying to "others" in addition to the insured, in conjunction with a factual showing that a public adjuster is within the insured's control, would likely apply to that public adjuster. It is nevertheless arguable that, given the detailed and inextricable role that public adjusters play in adjusting losses for insureds, public adjusters should be subject to an EUO if policy language includes "others," even without a factual showing that a public adjuster is subject to the insured's control.

Cases such as Gipps, where the public adjuster prepared and submitted two exhibits and was held subject to examination thereon, and Jacobs, in which the insured had so relied upon its public adjuster that it was unable to answer questions about the accuracy of the estimate prepared by the public adjuster, support the argument that public adjusters that "handle every detail of the claim" and "inspect[] the loss site immediately, analyze[] the damages, assemble[]claim support data, review[] the insured's coverage, determine [] current replacement costs and exclusively serve[] the [insured]" should be subject to an EUO without requiring any showing by the insurer that such an adjuster is within the insured's control. Indeed, in rebutting Goodman's argument, Hammond referred to the unpublished opinion of Active Fire Sprinkler Corp. v. American Home Assurance Co., which Hammond characterized as holding that the misrepresentations of a public adjuster are attributable to the insured. Like Gipps and Jacobs, Hammond's characterization of Active Fire Sprinkler Corp. would suggest that a public adjuster retained by an insured is by its very nature under the insured's control.

Based on the conflicting views of cases such as Gipps, Payne, and Florida Gaming Corp., however, if either the policy does not extend to "others" or the facts do not indicate that the insured has the power to compel submission of its public adjuster to examination, there can be no clear prediction of whether such an EUO provision would necessarily apply to a public adjuster."

So the debate continues without a clear answer. I am certain all insurers will say they can compel public adjusters to examinations under oath and use them, as they do policyholder examinations, argue defenses such as material misrepresentation possibly voiding the policy. Policyholders should fight this position.

I will look at each situation and policy on a case by case basis. I will try to do my best to help my client to cooperate with the insurer and get the claim paid as soon as possible while protecting my client and preserving my client's rights.

Significantly, it should be noted that "cooperation" is not defined as the slavish obedience to the demands of the insurance company. It is a joint process where both the insured and insurer act in good faith and for common purpose--getting full policy benefits owed to the policyholder as soon as possible.

Sometimes, insurance company attorneys and their client adjusters fail to remember that the policyholder is as much the customer after the loss as when the insurer sold the policy before the loss.

During a break in my presentation at the NAPIA annual conference, Depreciation Should Not Be Taken for Partial Losses That Are To Be Repaired, Dick Tutwiler, a very experienced public adjuster, approached me regarding an ethical obligation he felt I overlooked in the discussion of ethical adjustment of glass door and window claims. He explained:

Public Adjusters have an ethical obligation to submit claims only after conducting a reasonable and honest investigation. Many older glass doors and windows have normal wear and tear and pre-existing loss issues which require the public adjuster to investigate the pre-existing nature of the items rather than to simply submit a claim for all damage seen.

His point is well taken. Adjustment requires investigation and evaluation of damage as well as coverage. Adjusters, whether for the public or the insurance company, are ethically obligated to complete these two primary duties of adjustment. Public adjusters should not place their policyholder clients in the position of having to explain or answer for fraudulently appearing claims without merit because of poor or non-existent investigation into the prior nature of items before a loss occurred.

I neglected to mention this very important point. There is a concern from many leaders in the public adjustment field that the poor work of some creates a public perception that public adjusters care about one thing--how big the claim can be made. A public adjuster’s job is to accurately determine the full amount of the insured's loss. Ethical public adjusting is not a wrongly evaluated claim amount following a cursory investigation. I am certain most professional public adjusters feel the same way and expect their colleagues to perform to this standard or get out of the business in order to maintain the integrity of the profession.

Most public adjusters active in NAPIA and FAPIA have expressed Tutwiler’s concern in a number of different ways. I should have addressed it better in my recent speeches in Florida, Texas and California.

On another note, Sandy Burnette correctly made a comment where I went too far. In response to my post, Is the State Farm Policy Really Worth Anything?, Sandy Burnette made the following observation:

"While I try to resist responding to all your posts, and it sometimes takes quite a bit of restraint to hold myself back, once again I find you have crossed the proverbial line.

Your opening sentence questioning "what is the value of insurance if it doesn't cover an insured loss" is beyond misleading, it is simply untrue. By definition, an "insured loss" is covered.

Suggesting that "insured losses" are not covered by insurance companies is an oxymoron. (Yes, claims are often wrongfully denied. But we have courtrooms to make sure that is corrected.)

It makes for sensational reading when you write those things and it creates a platform for you to once again rail at insurance companies, but unfortunately it just isn't true. This post is nothing more than an expression of the belief that anything bad that happens to somebody "ought" to be covered by their insurance policy."

His comment went on far beyond this quote, but that point is well taken. I wrongly wrote the following line in the context of that post:

"What is the value of insurance if it does not pay for insured losses?"

That is a great and accurate line I have often used in bad faith cases, but not accurate where there is no coverage. I should have written:

"What is the value of insurance if the policyholder is not informed that it will cover only a few losses? How would the public perceive the value of State Farm's product if it fully advertised its positions of what is not covered under the product?"

I think the point is obvious--the value is far less. The security advertised by State Farm in no way reflects how State Farm writes exclusions into its product. Some may say that the ads are disingenuous because they do not adequately warn State Farm policyholders about the common accidental risks of loss that State Farm excludes in its product form. That was my point.  

Policyholders and the public should be made aware of this in advance rather than after purchasing the product or after the loss when it is too late to do anything about it.

I do not want State Farm to be run out of business. As the industry leader, I would hope that somebody in its very able and bright management would critically review these issues. If State Farm changes, many other carriers will do the same. If not, I hope that others with me will raise the issue and make State Farm change through public policy or by purchasing from insurance companies that do not provide false promises of security.

There are other responses to Burnette's comment that need a reply in a later post. I will try to do better in expressing my opinions and not forgetting information. Thanks to all who comment.

We discussed the practice of taking depreciation in partial loss situations for structural damage that is to be repaired. I recently posted in, "Do Not Take Depreciation to Determine Actual Cash Value of Partial Loss to Real Real Property in Texas," that some Texas case law indicates depreciation should not be taken on partial losses. Wilkofsky was adamant that depreciation should not be taken and explained that long standing New York precedent prevents it.

Indeed, in Lazaroff v. Northwestern National Insurance Company, 121 N.Y.S. 2d 122 (N.Y.S. Court 1952), the New York Court, citing previous opinions, held:

"The Court is of the opinion that the defendant's obligation is to reimburse the plaintiff for the cost of repairs with materials of like kind and quality damaged without deduction for depreciation."

It seems straightforward. So, why do the vast majority of New York insurers deduct for depreciation of structural damages destined for repair?

Papa suggested that, from a practical standpoint, it is simply easier to resolve differences with the insurer through blanket payments rather fight on these individual items. He noted that most insurance company field adjusters are taught to take depreciation despite the contrary law.

Papa and Wilkofsky explained that a New York Pattern Jury Instruction reveals that depreciation is not an issue when a structure is to be repaired, contrary to the practice of most insurance adjusters:

"Under the policy language, the cost of (repair, replacement) that you may consider is the cost of (repair, replacement) with material like kind and quality within a reasonable time after such loss. In that calculation, you are concerned only with the cost of restoring the building to its condition prior to the fire, and depreciation plays no part."

I suggest that policyholders and insurers carefully check the law in their jurisdiction and determine whether depreciation should be held back on partial losses where repair is contemplated. While many insurance companies routinely take the deduction and make money playing the float, it does not mean it is a legal or good faith practice.

I find that the best public adjusters show up for this meeting. Those who say they do not need to be here or that they are better than those who are here are wrong. We all can learn and get better at what we do for a living. At NAPIA’s annual meeting, a bunch of smart and motivated colleagues get together to debate and share experiences or views on how to do insurance adjustment better. There is no better place to learn.

While I know everyone is busy and training is expensive, all public adjusters should join NAPIA, go through the educational offerings, obtain certifications, and attend these meetings. Little tips and learned perspectives lead to better and quicker recoveries for the policyholder. I will catch some grief from public adjusters who are not here, however they should be here.

When considering which public adjuster to hire, policyholders should determine how dedicated the public adjuster is to the profession of adjusting as well as that person’s knowledge and skill. Credentials matter. The training and education required to obtain certifications may reflect how dedicated the public adjuster is to your claim. Talk of success is cheap; policyholders should carefully check the background, training and experience of the person they select to represent them in an insurance claim.

Need an example of how the small print is killing the so called, “all-risk” concept of insurance? See the recent California case of Freedman v. State Farm Ins. Co., 173 Cal. App. 4th 957 (Cal. App. 2d Dist. 2009). Here are the facts:

“In or about 2000, the Freedmans' home was repiped, and an upstairs bathroom was remodeled, including the replacement of drywall to cover the new piping. On or about August 12, 2005, “extensive water leakage was discovered in the upstairs bathroom wall. One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.” When the drywall was removed, it was discovered that a nail that had been used to hang the drywall had penetrated entirely through a pipe. “The pipe was corroded around the points of entry of the nail, and water was release[d] through that area of corrosion.” A damage restoration company discovered mold both upstairs and downstairs. On or about August 15, 2005, the Freedmans submitted a claim to State Farm. State Farm conducted an inspection and, on or about August 25, 2005, denied the claim.” (emphasis added)

Now, I bet most State Farm policyholders are wondering, “Is there any type of pipe breakage where water leaks that would be covered?“ I would ask that question as well because once you read what State Farm does not cover, most policyholders probably wonder if “all-risk” means anything. State Farm’s website conspicuously avoids advertising or discussing all the exclusionary language it relies upon to deny claims. However, I did find this promise and statement by State Farm on its website:

“We protect the roof over your head and everything under it, especially your sense of security.

State Farm® has been writing homeowners insurance for over 60 years. Today, we insure about 15 million homes.

We offer broad protection that you can trust, plus affordable rates, and outstanding service.

The State Farm Homeowners Insurance Policy offers protection for your dwelling, as well as your personal possessions and personal liability.”

The lesson to policyholders and the purchasers of insurance is that the small print is reserved for the policy because most would not purchase the product if it accurately advertised accidental losses would not be covered. While not close to all the exclusions found in the State Farm policy, the exclusionary language cited by the Court in the Freedmans’ State Farm policy was:

“Paragraph 2 of Section I—Losses Not Insured provides: “We do not insure for any loss to the property described in Coverage A which is caused by one or more of the items below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: … g. wear, tear, marring, scratching, deterioration, inherent vice, latent defect or mechanical breakdown; … h. corrosion, electrolysis or rust … .”

Paragraph 4 of Section I—Losses Not Insured provides: “We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: … c. Water Damage, meaning: … (4) continuous or repeated seepage or leakage of water or steam from a: … (c) plumbing system … .”

Paragraph 5 of Section I—Losses Not Insured provides: “We do not insure for loss described in paragraphs 2., 3. and 4. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss:… a. conduct, act, failure to act, or decision of any person, group, organization or governmental body whether intentional, wrongful, negligent, or without fault;… b. defect, weakness, inadequacy, fault or unsoundness in:… (2) design, specifications, workmanship, construction, grading, compaction; … of any property (including land, structures, or improvements of any kind) whether on or off the residence premises … .”

Many State Farm policyholders reading these exclusions probably worry that anything that accidentally breaks down will not be covered. State Farm and its competitors should make customers aware of how much is not covered, rather than advertise its affordable rates and those syrupy feel good advertisements. The true nature of the insurance company is determined by the coverage sold and the performance of the claims department. Those advertisements have nothing to do with what truly happens in the field on a day to day basis. Just ask the Freedmans.

The Court upheld State Farm’s denial for a number of reasons which I quote below:

“…the Freedmans' policy exclude third parties' negligent conduct and defective workmanship whenever they interact with an excluded peril…Corrosion and continuous or repeated seepage or leakage of water are excluded perils under the Freedmans' policy…Thus, the Freedmans' policy excludes contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water…The Freedmans have introduced no evidence that contractor negligence caused their loss in any way apart from the nail's role in triggering corrosion and a water leak…Accordingly, the Freedmans' loss is not covered…

…

…the Freedmans contend that the exclusion is “ambiguous” because it does not say how long a leak must last in order to be “continuous” or how many times the leak must stop and start in order to be “repeated.” The argument fails because it does not purport to show that the application of the exclusion to the stipulated facts of this case is in any way unclear. The parties stipulated that the water that damaged the Freedmans' home leaked “through [the] area of corrosion” around the nail through the pipe. Given the small size of the hole(s) through which the water leaked, and given the extensive amount of water damage (“One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.”), the leak must have lasted a sufficiently long time, or stopped and started sufficiently many times, to count as “continuous” or “repeated” under any reasonable construction of those terms…

…the Freedmans argue that the exclusion applies only to “normal deterioration of the plumbing system,” not to leaks “caused by some force other than deterioration.” We disagree because the policy language is inconsistent with the Freedmans' interpretation. The policy excludes “coverage for any loss which is caused by [continuous or repeated seepage or leakage of water from a plumbing system], regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, [or] arises from natural or external forces.” …The policy thus expressly provides that leaks are excluded regardless of whether they are caused by natural forces such as normal deterioration or external forces such as a nail driven through a pipe.

…the Freedmans argue that application of the exclusion here would violate the efficient proximate cause doctrine, because contractor negligence is a covered peril and was the efficient proximate cause of their loss. We have already discussed and rejected that argument…

III. The Mold Coverage

The Freedmans argue that because their policy includes an endorsement relating to mold, the damage caused by mold is covered. We disagree.

The mold endorsement provides limited coverage for losses caused by “fungus,” which is defined to include “any type or form of fungi, including mold or mildew.” Within the specified limitations, such losses to the Freedmans' dwelling are covered if they were “caused by or directly result[ed] from” either a specified peril under the personal property coverage or a peril not otherwise excluded.

…the mold damage to the Freedmans' dwelling was caused by the water leak, which was caused by corrosion, which was caused by the nail through the pipe. As we have explained…ante, contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water are excluded perils…” (emphasis added)

The Freedman result is exactly the type of denial I referred to in a speech I gave fifteen years ago. At an American Bar Association National Institute on Coverage, I delivered a paper entitled "Does this Insurance Policy Cover Anything? An Insured's Perspective of the Late Twentieth Century All-Risk Policy.” I suggested that the anti-concurrent causation language and re-writing of exclusions rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the exclusionary causation language adopted by many insurance companies invited creative findings of excluded causes "directly, indirectly, in any sequence, or as part of or a result of a loss," so that a loss would be denied or threatened to be denied. This is exactly what is happening and is the result I feared.

I am delivering a presentation at the Annual Convention of the National Association of Public Insurance Adjusters this week. In preparation, I spoke with a colleague, Jonathon Wilkofsky who will be part of a panel in the educational discussion. Jonathon was the NAPIA Co-Person of the year with me in 2007. In our discussion, Jonathon complained that he was being forced to request the New York Department of Insurance to decertify newly written exclusions as against public policy in a number of instances. His perception is the same as mine-insurers are significantly limiting the amount of coverage with small, but significant, changes in policy language that most, including regulators, would not appreciate until after a loss occurs.

Are there insurers that offer better protection? Yes. Policyholders should ask their agents that question and should seek alternatives from truly independent agents. After all, if you have a great rate from your insurer, but you collect less or not at all, how truly affordable is that type of insurance? Can you say it has the value that provides peace of mind or a sense of security? I suggest reading Chubb Calls Competitors Cheap And Unfair to obtain one example of a company that generally offers more coverage to commercial and residential policyholders.

From the surveys, I know virtually everyone in attendance felt the same way.  I believe it was the result of the audience's knowledge and experience.  Our firm did a survey earlier in the year to determine what adjusters enjoyed about seminars, what they did not like, and what they wanted to get out of the seminar.  We found, not surprisingly, that they hated to listen to lawyers "preach" about what the law is regarding a topic of insurance law.  Instead, they wanted to know practical tips regarding their business, how to address certain difficult issues that come up during claims, and how to quickly get full claims benefits to their clients. 

In response to the survey, we decided to do the entire seminar in a different manner.  The topics were chosen from the survey we conducted.  We provided an encyclopedia of insurance law and regulations on the topics the adjusters told us they wanted to understand.  The materials helped the various Departments of Insurance approve continuing education requirements, while analyzing the topics our audience wanted.  The panelists talked about their experiences as tips rather than "war stories."  Smaller losses which everybody handles were discussed as well as how clauses in policies can be used to provide better and quicker indemnity to policyholders. 

We discussed subtle and interpersonal aspects about how to handle situational aspects of claims with the insurance company.  Questions and differing viewpoints were encouraged.  For those with a passion for helping policyholders get what is deserved, there was only one place to be on Friday, and I felt honored to be there learning while helping lead the seminar.  Many from the insurance industry perspective often talk poorly about public adjusters. Sometimes the criticism is justified.  Often, it is out of professional jealousy or envy because the public adjusters can make significantly more money than company adjusters.  However, how many insurance company adjusters have law or accounting degrees?  About ten percent of those in my Friday audience had those credentials. 

Marvin Milton, a public adjuster from Boston, went to Stanford undergraduate and then Harvard law school. Of the tens of thousands of insurance company field adjusters hired by insurance companies, I know of none with such qualifications.  At one point, a person in the audience asked me if it would be "bad faith" for a commercial property insurance adjuster to fail to remind or inform a policyholder of extra expense benefits.  My answer was that the vast, vast majority of insurance company adjusters are not even trained to understand the nuances of extra expense benefits and how those coverages may help policyholders. 

The sad truth is that most insurance companies fail to provide such information to their customers because the insurance company claim personnel do not understand the benefits available under the product they sell.  Most insurance companies simply hire accounting firms to figure out what may be payable without truly assisting their customers by explaining how valuable and helpful those benefits can be.  When policyholders are deciding whether and which public adjuster they should hire, I suggest that they look for somebody they can trust and who has the credentials and experience of NAPIA membership.  Often, the benefits obtained by public adjusting firms are far in excess of the minimal fees charged.

Motivated and trained claims professionals are needed to help policyholders obtain benefits the insurers are trying not to pay.  Some of my insurer colleagues may dispute this, but I have yet to read an internal insurer claims goal which increases the amounts paid to its policyholders.  The goals are just the opposite, and the pressure to reduce claims payments is often confirmed by adjusters who leave the insurance industry to become public adjusters.

Tuesday night, I spoke with three former State Farm adjusters.  All three spoke of the pressure to handle and close more claims, to closely read the policy language, and to not pay for certain items following disasters before actually adjusting losses.  They went so far as to have role playing scenarios where they practiced negotiating techniques which dupe customers into believing the insurer position regarding adjustment is proper.  Adjusters should be looking for ways in the policy and facts of the loss to pay more. 

Does any policyholder truly have a chance when all the training is geared towards non-payment? One public adjuster talked of going to a Haag Engineering seminar regarding roof damage.  These are generally attended by the insurance company adjusters.  The Haag trainer opened the seminar claiming that adjusters would learn techniques to pay for little, or possibly nothing, on roof claims where the adjuster would otherwise pay for complete replacement.  How insurance companies can repeatedly escape accountability for procuring outcome oriented investigations still amazes me.  Most policyholders have no clue that an adjustment is being made for the appearance of good faith, when it is anything but that.

These former insurance company adjusters revealed that all these wrongful activities were culturally accepted as proper.  Some admitted they were "brainwashed", by subtle motivation and goal setting on how they paid claims, into thinking they were the guardians of the insurance company treasury.  Without exception, I have never met a public adjuster who wanted to go back to the insurance company.  They all express much greater job satisfaction as public adjusters and genuinely helping people. To be fair, I see the denials and problem cases.  I do not have policyholders calling me when an insurance company adjuster goes out of his way to provide the service required by a good faith adjustment. 

I know there are many well-meaning and professional adjusters helping the company customers.  I am certain I see mostly the unethical adjusters and not those who do their job ethically. So long as the insurance industry promotes severity control goals and motivates its field adjusters to look for ways to pay policyholders less than what is owed, the public adjuster business will be a brisk and growing industry.  In today's claims environment, every policyholder with a significant loss should consider hiring their own claims professional.