More States Adopting Professional Standards for Public Adjusters

May 15, 2023 by

A movement to establish professional standards for public adjusters gained ground this year, with lawmakers in five states passing bills that impose new controls over a trade that already requires a license in 46 states.

Brian S. Goodman, general counsel of the National Association of Public Insurance Adjusters, says his organization welcomes the new rules.

“I don’t view licensing as the government getting involved in our business,” he said. “It’s a recognized legal profession. It’s a way to protect the profession and a way of protecting the public.”

A major scandal involving Mitchell Adjusting International in Texas — which is accused of stealing $7.9 million from policyholders that include several churches — brought negative publicity for public adjusters.

“Lawyers go bad sometimes, or doctors,” Goodman said. “You can’t root out every possible bad actor just by having licensing in place.”

There is no indication that elected officials have any interest in abolishing the public adjuster trade. In fact, the Texas Senate on Wednesday unanimously approved House Bill 1706, a measure that would prohibit insurers from writing polices that bar the use of public adjusters. The bill now goes to Gov. Greg Abbott for final approval.

The Louisiana state Senate passed a similar bill on May 2. Senate Bill 156 awaits a vote in the state House of Representatives.

Goodman said his organization has been pushing for many years to impose licensing requirements and professional standards for public adjusters. He said in 2005 his group supported the National Association of Insurance Commissioners when it adopted the Public Adjuster Licensing Model Act.

Back then, Goodman said, only 33 or 34 states required public adjusters to be licensed. Now, only Alabama, Alaska, Arkansas and South Dakota have no licensing requirement.

State legislatures in Florida, Georgia, Kentucky, Illinois, and Indiana passed bills this year establishing more controls on public adjusters.

Florida’s House Bill 1185 prohibits public adjusters from contracting with anyone other than the named insured without the insured’s written consent. If the public adjuster does contract with a third party, the third party must pay the fee and not the insured. The bill also allows policyholders to cancel a public adjuster contract within 30 days of the loss if the loss was caused by a declared emergency, or within 10 days of signing the contract. The Florida House of Representatives gave final approval to the bill on May 4, but it has not yet been signed into law by Gov. Ron DeSantis.

Georgia’s House Bill 222 requires that public adjuster contracts be in writing and contain a statement that the adjuster will not have an interest in any firm that performs any work as a result of the loss. Gov. Brian Kemp signed the bill into law on May 3.

Illinois’ Senate Bill 1495 caps public adjuster fees for residential properties to 10% of the loss, mirroring the requirement for commercial properties. The bill also requires public adjusters to give insureds a copy of the contract. The Illinois House of Representatives voted 113-0 to give final approval for the bill on Thursday. It has not yet been signed into law.

Indiana’s HB 1329 requires public adjusters to disclose any financial interest they have in parties that are involved in a property claim and prohibits public adjusters from acting as a restoration contractor on the same claim. The bill also prohibits public adjusters from charging percentage-based fees if an insurer pays a claim within five days of receiving notice of a loss. Gov. Eric Holcomb signed the bill into law on May 4.

Kentucky’s House Bill 232 prohibits public adjusters from owning any interest in salvage companies that obtain business from a claim. The bill also requires adjusters to use specific contract forms approved by the Department of Insurance and increases the required surety bond to $50,000 from $20,000. Gov. Andy Beshear signed the bill into law on March 23.

The American Property and Casualty Insurance Association applauded passage of the public adjuster legislation.

“This year APCIA has continued its work with lawmakers to protect consumers from being re-victimized by bad actors who sometimes target storm victims in the aftermath of disasters,” Ron Jackson, vice president for state government relations in the Southeast region, said in a statement. “Insurers strongly support legislation that helps ensure consumers are aware of their protections under the law and are provided the necessary tools to help spot potential fraud.”

Insurance defense attorney Steven Badger, a partner with the Zelle law firm, said he also supports adoption of professional standards for public adjusters and also supports the Texas bill that would prohibit insurance policies that bar policyholders from hiring them.

He said a May 2 decision by the 7th Circuit Court of Appeals illustrates what can go wrong. Thirteen Investment Co. sued Foremost Insurance Co. after the public adjuster it hired, Paramount Restoration Group, pocketed a $150,601.33 settlement check. Paramount had acted as both the adjuster and the public adjuster. That violates a central tenet of the model public adjuster act adopted by NAIC.

A District Court judge said it appeared that Paramount forged endorsement signatures on Thirteen’s check in order to deposit the money into its own account. Even so, Thirteen had no recourse against the insurer because its contract with Paramount allowed Paramount to receive the settlement check. Foremost had paid what was owned.

The 7th Circuit affirmed the decision.

“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,” the panel’s opinion says. “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.”