If you were a public adjuster and God was judging the truth of your answer, would you say you are the best public adjuster to be selected on a given claim? I have posed a similar question to members of our law firm, emphasizing the importance of professional and technical excellence. If you are not good enough to be the best or at least among those in that discussion, why should a policyholder select you as the professional to represent them rather than somebody better? 

The bottom line is that the selection of the public adjuster to represent a policyholder is extremely important. In some rare cases, the wrong selection can be disastrous, as demonstrated by a recent Illinois case where the public adjuster’s fraud was attributed to the policyholder.1 

The case involved a situation where the public adjuster took the insurance company’s payment, forged the policyholder’s signature, and negotiated the check. The banks honored the forged check. The policyholder then sued the insurance company, arguing that the insurance company never paid the policyholder’s claim.  

The Illinois court made the following holding for the insurance company: 

Paramount was Thirteen’s designated public adjuster, its agent for claim negotiation, and a joint co-payee. Thirteen, by agreement, retained Paramount “to be [its] agent and representative to assist in the preparation, presentation, negotiation, adjustment, and settlement” of the fire loss. Thirteen even “direct[ed] any insurance companies to include Paramount … on all payments on” the fire loss claim. Paramount thus acted within the scope of its express, actual authority when it negotiated, settled, and received the checks for the claim….

Nothing in the policy says the checks were to be sent to Thirteen. But more importantly, Foremost’s delivery to Paramount was, by law, delivery to Thirteen. Kelly v. Parker, 54 N.E. 615, 619 (Ill. 1899) (‘A delivery to an agent is a delivery to the principal … .’). In fact, Illinois law contemplates that a public adjuster not only negotiates claims but also ‘receives, accepts, or holds … funds on behalf of an insured toward the settlement of a claim for a loss … in a non-interest bearing escrow or trust account.’ 215 ILL. COMP. STAT. 5/1580. All this is to say that Paramount received the settlement checks on be- half of Thirteen.

[P]olicy debates give way to Illinois’s apparent statutory preferences, revealed through its licensing and regulatory regime for public adjusters. See generally 215 ILL. COMP. STAT. 5/art. XLV. Public adjusters must be bonded to provide recovery ‘on behalf of any person to whom the public adjuster has been found to be legally liable as the result of erroneous acts, failure to act, fraudulent acts, or unfair practices in his or her capacity as a public adjuster.’…. They ‘may not agree to any loss settlement without the insured’s knowledge and consent.’ 215 ILL. COMP. STAT. 5/1590(k). And failure to comply with statutorily defined standards can result in a civil penalty as well as consequences for a public adjuster’s license… The Illinois Director of Insurance also has ‘the authority to enforce the provisions of and impose any penalty or remedy’ for violations of Article XLV. § 5/1555(e).

Requiring the insurer to bear the costs of a public adjuster’s violation of statutory standards runs contrary to Illinois law, under which the public adjuster bears such consequences, whether by tort or through remedies and penalties under the licensing scheme. It would be odd if a wronged insured could pursue the insurer—who had no participation in the selection of the public adjuster/agent—for the agent’s alleged wrongs. It would be stranger still if an insurer would bear a drawee bank’s possible negligence in disbursing funds without ascertaining proper endorsement by joint co-payees.

Thirteen seeks to impose monitoring duties upon the insurer far beyond their insurance contract. Foremost agreed to provide coverage and payment for negotiated claims. But it did not agree to take responsibility for the actions of the public adjuster Thirteen hired or to ensure the bank performed proper diligence before paying a draft.

There are a number of lessons from this holding. First, policyholders need to carefully investigate who they hire as their public adjuster. What are the credentials and experience of the public adjuster? Have you questioned others in the industry regarding the professional reputation and prior results?  A lot of information can be gathered by a search on the internet and following up. Never be pressured into signing a public adjuster contract without first doing this investigation. 

Second, public adjusters must acknowledge the significant responsibility they undertake when agreeing to represent policyholders. Common law is increasingly placing higher duties of service and regularly treating public adjusters as fiduciaries.

Third, if the law is placing such higher duties on the public adjusting profession, what are the leaders in the public adjusting profession doing to raise the bar regarding who should be allowed to ply their trade as a public adjuster? Right now, just about anybody who can read English can study and pass a public adjuster’s test. After passing the test, they can go advertise and solicit services as a public adjuster with little oversight and zero experience in property insurance adjusting – with notable exception in those states that require some experience. 

The bottom line is that it is very easy to obtain a license to become a public adjuster in most states. 

Can I imagine that some readers are wondering if I am going to mention the attorneys who recently harmed thousands of policyholders in Louisiana? Yes. Bad and greedy attorneys are a problem. Policyholders should fully and carefully investigate attorneys before selecting them to see if they have Bar disciplinary problems, and also question mass advertising methods commonly employed by attorneys. Attorneys who do all kinds of areas of the law and without in-depth experience regarding property insurance claims will often advertise that they have some secret knowledge or method to obtain results. The copy made within internet advertising by attorneys can be misleading and often not monitored by bar associations.  

As a result, the best public adjusters often wonder how some attorneys are allowed to practice in the field of property insurance law. Getting a law degree and saying that one is practicing in the field of property insurance law is meaningless regarding the degree of skill needed to properly take on an insurance company on a complex property insurance claim. Property insurance law is only a very small part of what is needed to be a competent property insurance lawyer. A property insurance lawyer is not going to learn the best way to handle a property loss by simply reading property insurance cases and laws. 

In PayUp!: Preventing A Disaster With Your Own Insurance Company, I noted the following about the selection of the best public adjusters:  

When hiring a public adjuster, perform due diligence and vet them properly. Make sure they are licensed. Check their credentials. Check to see if they participate in your state’s professional organizations for public adjusters. Generally, the best public adjusters are active in the field, are highly experienced, undertake continuing education, and work in leadership roles.

The insurance industry would love for policyholders to stop hiring public adjusters and attorneys. The reason is obvious, and there are costs to policyholders who do not hire experienced help, as I further noted in PayUP!

Not getting a public adjuster has costs. Without a knowledgeable advocate, policyholders are more susceptible to being taken advantage of by the insurance company. Following a loss, policyholders want to get through the hassle of the claims process as quickly as possible. They often accept the insurance company’s assessments and estimate at face value. Doing so can get the claim paid more quickly—but at what cost? Insurance company adjusters are often trained to lowball policyholders. They won’t always inform policyholders of benefits they don’t know they have. 

Insurance company adjusters don’t always alert the policyholder to the possibility of hidden damage that won’t surface for weeks, months, or years. Water can hide behind walls and lead to mold problems that aren’t immediately apparent. Toxins and particulates can hang in the air undetected. Drywall can hide structural damage that only becomes apparent as the building settles. Damage to insulation can lead to higher energy bills that might not be apparent until colder or warmer seasons. 

Events that cause major property damage can lead to all kinds of secondary problems that policyholders cannot see right away. Sometimes the insurance company hides these problems. A coat of paint can hide quite a bit—for a little while. ‘Silver coat’ may be applied to attics, literally spraying everything down with a coat of metallic paint, without first tearing out wet insulation. Sealing in the water can lead to mold and structural damage that the homeowner might not discover until trying to sell the house. 

Experienced public adjusters know how to spot these problems. The insurance company’s adjusters’ job is to represent the insurance company, not you. Hiring a public adjuster allows you to keep tabs on the situation and what the insurance company is doing.

Thought For The Day

Anytime Tom Watson is on your team, you’ve won. His passion, professionalism, attention to detail, and leadership are unparalleled.

—David Lauren

1 Thirteen Investment Co. v. Foremost Ins. Co., No 22-2203 (7th Cir. May 2, 2023).