After winning the battle against an insurance company, many public adjusters and policyholder attorneys have a second fight against banks. Banks are often included on insurance payment checks as mortgagees. They then refuse to acknowledge the fee for services by public adjusters and attorneys that produced the pool of money benefiting the bank and policyholder. In New Jersey, public adjusters and attorneys have equitable liens superior to banks following insurance recovery payment.

A New Jersey bankruptcy court opinion, In re Alston,1 had the following discussion and finding:

New Jersey courts recognized attorneys’ equitable liens for services upon judgments they had obtained for their client… an attorney was entitled to an equitable lien, pursuant to a contingency fee arrangement, on monies his client had recovered….it was recognized that when an attorney had obtained “a judgment or order for payment of money in favor of his client he has what is sometimes called a lien thereon for his costs.” 

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[B]oth elements of an equitable lien exist. First, there is the agreement between debtors and adjuster pledging property—the insurance proceeds—as security for an obligation—to advise and assist in the adjustment and settlement of the insurance policy. Second, the party responsible for creating the funds, the adjuster, was promised payment out of the insurance proceeds for his efforts in getting those proceeds released. Accordingly, this court finds an equitable lien upon the insurance settlement proceeds in favor of the adjuster.

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In reviewing the facts of this case, equitable principles lead to a finding of an equitable lien on the insurance proceeds for the insurance adjuster. To begin with, while there was no written agreement between the adjuster and the secured creditors, there was a written agreement signed by the adjuster and the Debtors on December 29, 1999. This brief, one-page document recites the services the adjuster agreed to render and states that the signatories “hereby agree to pay and assign to [the adjuster] for services rendered 5% when adjusted, paid or otherwise recovered from the insurance companies.” Thus, the adjuster expended effort and resources under the belief that he would be paid out of the insurance proceeds. The secured creditors concede that the adjuster did in fact render services—including reviewing the insurance coverage, preparing and submitting necessary documentation to the insurance company—which resulted in a settlement of insurance claims.

The insured and the adjuster agreed that the adjuster’s fee would be paid from…the fire insurance proceeds and the adjuster’s efforts created the fund of insurance proceeds. Therefore, the [public] insurance adjuster has an equitable lien on the proceeds of the fire insurance policies. Since the secured creditors’ rights to the insurance proceeds are derivative of the insured’s, the adjuster’s equitable lien has priority over the claims of the secured creditors to the same proceeds of the fire insurance policy covering the damaged collateral.

Public adjuster Michael Miller of M. Miller and Son similarly won his claim for public fees against a bank trying to keep all the insurance recovery:2

In this case, Miller argues that the mortgagee, Select Portfolio, remained passive and did not actually pursue a recovery independently, thus, despite its “independent right of recovery” Miller has a priority equitable Hen on the funds. Miller asserts that the mortgagee did not engage experts or building contractors to establish the extent of the damage and the amount of the loss, as required by the policy; the mortgagee did not secure arid protect the building as required by the policy; it did not submit the require sworn statements in proof of loss, as required by the policy; it did not appoint its own independent adjusters to conduct a “walk-through” inspection and it did not even submit a claim. These are all things that the insured’s adjuster – Miller – did. The Court finds that there exists no evidence that Select Portfolio actively sought to pursue its independent right of recovery.

Select Portfolio argues that the impact of concluding that Miller is entitled to a priority lien is that there would be nothing to prevent a defaulted borrower from entering into an exorbitant contingent fee agreement with public adjusters knowing full well they are not entitled to the proceeds. Such an event, according to Select Portfolio, would be inherently unfair to innocent mortgagees making an independent and not a derivative claim. However, this hypothetical scenario is not the case at hand; there is nothing to suggest that the 10% contingency fee is exorbitant. In addition, were it the case that an exorbitant fee agreement was made, undoubtedly the Court would decrease the fee to be fair and reasonable as the Court is operating under the principles of equity.

Even when viewing the evidence in the light most favorable to Plaintiff, the Court finds that the mortgagee’s rights, if any, to the insurance proceeds is subordinate to Miller’s lien for professional services. Without Miller’s efforts there would be not be a fund against which a Hen may attach. No genuine issue of material fact remains in this matter. Accordingly, Select Portfolio’s claim against the entirety of the fund fails and the Court grants the release of funds to Miller in the amount of $22,788.96 representing the amount agreed to in the retainer and fee agreement.

These two cases demonstrate that New Jersey courts will not allow banks to benefit from the fruit of others labor.

1 In re Alston, 322 B.R. 265, 269 (Bkrtcy.D.N.J. 2005).
2 Select Portfolio Servicing v. Wiley, No. ESX-L-2009-09, 2010 WL 10900488 (N.J. Super. L. Aug. 27, 2010).