Public Adjuster Controversy Continues for State Regulators

Despite acknowledgment through licensing requirements in 44 states, public adjusters continue to face skepticism as evidenced by new legislation and criticism from the remaining states.

In a statement released shortly after April tornadoes ripped through the state, causing more than $2 billion in insured losses, Alabama’s State Bar Association said, “Alabama does not license claims adjusters so any claims settled by such third party recovery firms are considered to be the unauthorized practice of law which is subject to criminal prosecution.”

Brian Goodman, legal counsel for the National Association of Public Insurance Adjusters (NAPIA), says the association, comprised of 600 individual members, is behind creating licensing requirements in Alabama. “It creates more chaos when you don’t have licensing,” says Goodman.

While he knows of no specific incident that caused Alabama officials to question the public adjuster role, he is aware of an issue that arose last year involving roofing contractors who advertised public adjuster services.

Warnings issued to contractors who attempt claim negotiations remain a constant issue for state insurance departments.

Just last year, the Arizona Department of Insurance issued a statement after a massive hail storm produced over 100,000 claims in a single day, resulting in out of state restoration contractors flocking to the state. One contractor, True-Built Construction, LLC, was ordered to stop acting as an insurance adjuster without a license. True-Built had customers sign an authorization form, stating the company was operating on their behalf in negotiations with the insurer. That same year, Iowa’s Insurance Department issued cease and desist orders to two contractors who solicited storm repair business without being properly licensed.

Gene Veno, president of the American Association of Public Insurance Adjusters (AAPIA), reiterates the contractor issue.

“There is a problem nationwide with non-licensed public adjusters, some of whom are contractors, who prey on homeowners to solicit insurance claims in the areas of hailstorm damage or other roofing and siding issues, especially after a catastrophic loss,” says Veno.

Some states address the problem by enacting more stringent public adjuster laws.

“Illinois, in its newly enacted Public Adjuster Law, states that a person who acts as a public adjuster without a valid license in Illinois is ‘inimical to the public welfare and [is] to constitute a nuisance,'” says Veno. “Minnesota has enacted a new law and regulations that specifically target roofing contractors who have been acting as public adjusters without a license.”

In the few states that don’t offer licenses, public adjusting is considered the unauthorized practice of law, although Veno says there are states such as Nebraska, North Dakota, and a few others that license ‘insurance consultants’ who perform the same function as a public adjuster.

Alabama isn’t the only state scrutinizing public adjusting practices. In recent months, three states reviewed bills addressing public adjusting activities.

On June 15, the Pennsylvania House of Representatives unanimously passed a bill (H.B.424) that strengthens the state’s public adjuster regulations, which hadn’t been updated in 25 years. The bill moves to the state Senate for consideration.

An Arkansas bill (S.B. 378) aimed at allowing property owners the opportunity to hire public adjusters failed to pass in March, despite three attempts.

In a statement provided to Claims Journal, Insurance Commissioner Bradford says, “Public adjusters are not allowed in Arkansas. The system which currently exists appears to be working for our consumers. There has been no public outcry for licensure of public adjusters here. This fact speaks well for the claims management by the agents and brokers licensed by the state of Arkansas.”

Florida’s legislature recently passed property reform bill (S.B. 408) that includes language capping public adjusters’ fees on reopened claims at 20 percent.

Additional legislation is expected within the coming months. Veno cites Louisiana as an example. The state has allowed licensed public adjusters for the past six years; however, they cannot participate in negotiations. He is hopeful the law will be amended to address the issue in 2012.