I have been receiving several inquiries about whether it is legal or ethical for public adjusters to sell a portion of their contingent fee to a funding company. For example, I received the following solicitation from a public adjuster who was solicited by a “funding company” that is associated with a law firm:
As we discussed, National Claims Fundings works to get you paid upfront for your contingency fee on insurance settlements. Our goal is to give you the cash and cash flow predictability that you need to run and grow your business. Once you submit a file to us, our goal is to review it and get you a funding answer within three business days.
For PAs, we offer a cash advance service based on our estimate of your contingency fee. We will advance 20% of your contingency fee. When the settlement is complete, our advance gets repaid first. From the balance, you keep between 78% and 90% and the remainder is our fee.
We work with both new and denied claims. The law firm that we work closest with is the The Professional Law Group, led by Marc Ben-Ezra. If you would like to originate the claim, get funded, and transfer them straight to one of our approved law firm, like The Professional Law Group, that is perfectly fine with us. We are also happy to review and fund existing or denied claims, which our approved law firms can also represent and litigate.
I am attaching here the documents you need to get started.
1 Advance Funding Agreement – This is the master contract about our relationship. It has all the terms. It needs to be signed and sent back only once.
2 ACH Authorization – This is so that we know how to pay you the advance. It only needs to be signed once.
3 Limited Power of Attorney – This needs to be signed and sent back once so that the law firm can you pay once the claim settles.
4 Offer to Sell – This cover sheet contains basic information about each file that needs to be filled out for each file you want funding for.
5 Bill of Sale – This needs to be filled out and sent back for each file you want funding for. It records the sale of the invoice, but is not effective until we pay you.
Ilana Ben-Ezra, PhD
National Claims Funding
In a previous post, Public Adjusters and Those Directly Soliciting Insurance Claims on Behalf of Attorneys Are Committing a Crime and Can Go to Jail Along With the Attorneys, I noted:
Any time an attorney promises to provide something of monetary value to a non-lawyer to obtain clients, it is wrong. Examples of this are giving public adjusters discounts for office space or agreeing to pay the public adjusters advertising expenses. People do not pay another’s advertising and marketing expenses or give rental discounts below market value to another out of the goodness of their heart. This goes beyond promotion of the skill and knowledge of a person, to buying that person’s efforts to solicit potential clients.
Law firms cannot pay public adjusters to refer clients to an attorney. They cannot do this in any roundabout way as well. An example of this was a law firm that I reported to the New Jersey and Texas Bar Associations because public adjusters told me they were getting paid $500 for the referral of residential clients and $1,500 for the referral of commercial clients. I told the public adjusters to stop and go get a criminal attorney. The Texas law firm doing this was sued in a class action lawsuit.
However, a law firm can own an “invoice factor” company, which is what this relationship contractually appears to be. Under this funding arrangement, a public adjuster converts part of an expected contingent fee into cash, which can financially benefit the public adjuster.
One problem with the arrangement is that the policyholder chooses the client—not the public adjuster or the funding company. There is a definite ethical issue if public adjusters contemplate “flipping” the claims adjustment work or claim to lawyers rather than personally providing the services promised to the policyholder at the point of solicitation.
I first saw finance companies soliciting claims from public adjusters regarding Hurricane Maria claims and following the California wildfires five years ago. While those arrangements had numerous ethical issues, this solicitation is different because the “approved law firms” create an apparent relationship between the funding company and the law firms to gain business. Indeed, other documents to this solicited transaction show that the law firm represents the funding company.
There are also numerous privacy issues involved. Does the public adjuster have to first obtain permission from the client to turn over these materials? If there is a fiduciary relationship, does the public adjuster first have to get approval from the policyholder client before entering into this type of agreement?
Is any of this in the best interest of the policyholder? To me, it seems like it is for the benefit of the funding company and affiliated law firms, which are trying to entice public adjusters to flip clients to the affiliated law firms. If this is legal and ethical for law firms to do, we can expect that this will be a new way around the prohibition of attorneys paying others to solicit clients for them.
I have not outlined all the ethical and legal concerns others have privately expressed to me about this solicitation. However, I did want to bring attention to what is going on in the property insurance claims business. To be fair and balanced, I welcome any guest blogs and comments from those participating in these types of arrangements to explain how they help the policyholder clients.
Thought For The Day
Things do not change; we change.
—Henry David Thoreau