Always double check the insured’s contract with a contractor doing repair work for a claim. The California Court of Appeal recently ruled, in Jozefowicz v. Allstate Insurance Company,1 that an insurer can directly pay a contractor when the contract provided that the contractor was appointed as the insured’s representative in fact to endorse and deposit insurance checks. The court came to this conclusion despite the fact there was a dispute over the contractor’s work.

In this case, the insured sued Allstate, his homeowners insurer, over a check for his fire-damaged home that the insurer sent to the insured’s contractor, who then deposited it. Allstate’s payment was for cleanup, repairs, and remediation of plaintiff’s home. The contract specifically stated that the contractor was appointed as the insured’s representative in fact to endorse and deposit insurance checks and directed Allstate to include the contractor’s name on any checks relating to the work. Having received a copy of the contract, Allstate issued a check payable to both plaintiff and the contractor. However, plaintiff never cashed it. Around the same time, a dispute arose between plaintiff and the contractor over the scope and quality of the work. The contractor later contacted Allstate and requested that the check be reissued and sent directly to the contractor. Allstate issued a second check, which the contractor deposited.

The appellate court upheld Allstate’s actions, determining that the contractor was validly acting as the insured’s representative in transferring the check to his bank. The court rejected the insured’s claim that no agency relationship was created between him and the contractor. The court reasoned that the insured created a power for the contractor to receive the check coupled with an interest in receiving the funds. The arrangement was plainly to provide security for the contractor to be paid for its work, and it authorized the contractor to act on its own in endorsing and depositing checks related to the restoration work.

Checking the contract is especially important for a public adjuster. In a situation like the above, the public adjuster would have to attempt to directly collect the funds from the contractor. Since a public adjuster and a contractor do not have a contractual relationship, collection attempts may be costly and time intensive.
1 Jozefowicz v. Allstate Ins. Co. (4th Dist. May 28, 2019) — Cal.App. 5th —, 2019 WL 2265126.