Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
It is not unusual for an insurance adjuster to arrive at a new loss to find that the insured has already hired a public adjuster and the public adjuster’s retained remediation company has started to clean up the site. While the quick response may be helpful, what if the adjuster later learns that the public adjuster has an ownership interest in the remediation company or receives a referral fee? Naturally, situations like this call into question the propriety of a public adjuster receiving both a contingency fee on the insurance proceeds and income from its ownership interest in the remediation and/or repair company. Also, how can this situation affect the public adjuster’s ability to act in the best interests in representing the insured when negotiating or settling a claim with the insurance company on the insured’s behalf? Legislatures in both Pennsylvania and New York have enacted statutes to address this issue.
In Pennsylvania, Section 1605(d) of the Professions and Occupations Code titled “Contracts limited to adjustment of insurance losses” prohibits a public adjuster from “directly or indirectly, through or with any person, partnership, corporation or association in which it has an indirect or beneficial interest” entering into any contract with an insured for the repair, replacement, restoration, renovation or demolition of damaged property at any time prior to the date that payment is received from the insurance carrier or the date of a verdict or award. (63 P.S. § 1605).
In other words, the public adjuster cannot, through a repair or remediation company in which it has a direct or beneficial interest, enter into a contract to repair the damaged property unless payment has already been issued by the insurance carrier or the claim is otherwise resolved. Section 1606(a)(7) of the Code states it is improper for a public adjuster to receive any compensation from any person or entity engaged in the business of salvage, repair, replacement, restoration, renovation or demolition of damaged property unless such compensation is disclosed to the insured and agreed to in the public adjuster contract. Should these Sections be violated, penalties such as fines, suspension or revocation of the public adjuster’s license may apply.
New York has adopted similar laws, prohibiting a public adjuster from receiving any compensation, either directly or indirectly, for a referral of the insured to any other entity for work relating to the insurance claim unless the compensation is disclosed to the insured in writing. (New York Insurance Law Section 2106). Further, any such compensation shall be deemed to be compensation from the insured and, in combination with any other compensation received, shall not exceed the maximum amount that the adjuster may charge under New York law.
As contractors and remediation vendors are attempting to take on larger roles in adjusting claims through the assignment of benefits and other means, these laws are designed to clearly differentiate the roles of contractors and public adjusters. The legislatures are directing the public adjuster to focus on negotiating the insurance claim as opposed to profiting from remediation or remediation efforts and to ensure that all relationships are properly disclosed to the insured. This is certainly a move in the right direction.