The following are some points relating to the role of public insurance adjusters and their legal status within the insurance regulatory system of Massachusetts. Independent agents may wish to keep these points in mind in case they have questions from their insureds relating to hiring a public insurance adjuster and their rights in dealing with a public insurance adjuster.
Trusted advice on choosing a public insurance adjuster
In a Consumer Alert on Public Insurance Adjusters the Division of Insurance, under the section heading “Choosing a Public Insurance Adjuster,” advises, “The best way to choose a public insurance adjuster is to ask people you trust if they can recommend a reputable licensee.”
In many cases, the person an insured may most trust to recommend a public insurance adjuster is his or her insurance agent. This article hopefully may assist agents, if asked by an insured, with some useful information on the Massachusetts law relating to licensed public insurance adjusters
Public insurance adjusters go back a long way in Massachusetts
Public insurance adjusters have been around for a long time. In the 1880s, Massachusetts was the first state in the country to license public insurance adjusters. A number of states quickly followed suit. However even today some states have no licensing requirements for public insurance adjusters.
In Massachusetts, public insurance adjusters are regulated by the commissioner of insurance under two sections of the General Laws, c. 175, §§ 162 and 172. Section 162 defines who is a public insurance adjuster and § 172 detail the licensing and contractual requirements for public insurance adjusters. Under §172, like insurance producers, public insurance adjuster must meet certain educational and professional requirements. For public insurance adjusters these requirements include two years performing services in connection with adjusting of property losses demonstrated by:
- Experience working for a public insurance adjuster, a company adjuster, or an independent insurance adjuster performing services in connection with adjusting of property loss claims;
- Experience working in building construction, construction estimating, building rehabilitation, or building restoration in connection with property loss claims;
- Experience working with insurance claims including claim negotiation, claim appraisal, claim estimating, or property damage assessment involving the settlement or adjustment of property loss claims on behalf of an insurance company.
A public insurance adjuster must pass the adjuster licensing examination and will onl receive a license if the applicant demonstrates to the satisfaction of the commissioner, adequate “knowledge of building construction techniques and materials, claims adjusting, as well as knowledge of relevant insurance principles and coverage.”
Statutory specifications of a public insurance adjuster’ s representation of an insured
Under Massachusetts law, public insurance adjusters may represent insureds in the:
- assessment of damages;
- appraisal; or
of a loss occurring in the commonwealth arising under:
- a fire insurance policy;
- a homeowner insurance policy;
- a commercial multiperil policy;
- a business interruption insurance policy;
- a fidelity bond or crime insurance policy;
- an inland or ocean marine insurance policy; or
- any other property damage insurance coverage of any sort.
Before a public insurance adjuster may legally represent an insured by providing the above services, there are certain legal requirements that must be met.
Signed written contract approved by the Commissioner of Insurance required
A public insurance adjuster must have a written contract with the insured on a form approved by the commissioner of insurance. If the public insurance adjuster’s contract has not been approved the contract is void and in a dispute with the insured over fees the public insurance adjuster would have no recourse to collect.
The contract must be signed by the “Named Insured or an agent of the insured.” If someone other than an authorized agent of the insured signed, the contract it is not valid.
Right of three-day rescission
The contract must state that the insured has the right to cancel a contract without recourse by the insured sending a certified letter within three days of the receipt by the insured of the contract to the adjuster public insurance adjuster.
Even if the insured exercises his or her right to cancel, they are still liable to the public insurance adjuster for “any reasonable and necessary emergency out-of-pocket expenses or services which were paid for or incurred by the public insurance adjuster during the three-day period to protect the interests of the insured.”
Right to revoke contract after three-day rescission period expires
While the statute allows the insured to cancel without obligation during the three-day cancellation period, the insured still has the right to cancel a contract at any time after the three-day rescission clause has expired. However, that cancellation is subject to the public insurance adjuster having the right to assert a lien for “his agreed percentage fee upon insurance proceeds offered or secured through his efforts as the insured’s representative.”
Fees of public insurance adjusters
The public insurance adjuster statute does not provide a cap on the fees a public insurance adjuster may charge. However, the Division of Insurance’s consumer alert on public insurance adjusters mentions a public insurance adjuster’s fee as, “not to exceed 10% of the claim payment.” Also, the model contracts on the Division of Insurance website show a provision where the public insurance adjusters fees referenced as “not in excess of 10%.” However, a public record request by Agency Checklists to the Division of Insurance r found the Division had no documentation as to the basis of this fee cap statement.
Public insurance adjusters are agents of the insured for good or ill
Public insurance adjusters can greatly assist and aid insureds by assuming the substantial burden of presenting a large or complex claim to an insurer. But, it is important to remember that under Massachusetts law the public insurance adjuster is an agent of the insured and not an independent contractor.
Massachusetts was the first state in the country to license public insurance adjusters
In the Supreme Judicial Court case first holding a public insurance adjuster was an agent of the insured, an insured argued he had “left everything up to the adjuster” and never reviewed the adjuster’s loss submissions to his insurance company. Unfortunately for the insured, the public insurance adjuster had submitted fraudulent documents to boost his contingent fee. The court found that the insured was bound by the acts of his agent, the public insurance adjuster, and therefore could not collect on his claim because of the public insurance adjuster’s fraud.
An insured should be advised to, at least, review any submissions to the insurance company by the public insurance adjuster for accuracy and completeness.
Finally, remember public insurance adjuster fees are negotiable
Public insurance adjusters generally work on a contingent fee basis. Although, as stated above, the statute regulating public insurance adjusters does not specify a maximum fee. However, the references by the Division of Insurance in the model contract for public insurance adjusters of a fee not to exceed 10% provides a practical ceiling. Agents advising insureds should point out that the public insurance adjuster business is extremely competitive. Anyone who has ever been involved in a major fire loss can probably attest to that fact by the number of solicitations to handle the insurance claim they received from different public insurance adjusters before the fire has even been put out by the fire department. This competitiveness means that if the claim is an appropriate one to be handled by a public insurance adjuster the insured can request and probably receive a substantial discount from the asking price of 10%.
Resources for hiring a public insurance adjuster
Two resources for hiring a public insurance adjuster is the Division of Insurance list of licensed insurance adjusters and the Massachusetts Association of Public Insurance Adjusters. The Division of Insurance’s lists which are regularly updated can be found, for individuals, at: public insurance adjusters in Massachusetts, and for corporations or LLCs at: public insurance adjuster agencies..
The website for the Massachusetts Association of Public Insurance Adjusters can be found at: MAPIA.
Also, the Consumer Alert on Public Insurance Adjusters may be found here: Consumer Alert.