Contractors Acting As Public Insurance Adjusters Irk States

Public adjusting activity is not welcome or licensed in all states and even in some where it is, the practice is coming under close scrutiny. In particular, states are cracking down on roofing and other contractors who pass themselves off as claims adjusters for customers.

Forty-four states have some form of licensing for public adjusters. Alabama is not one of them.

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 reminded the public, “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, said the association supports creating licensing requirements in Alabama. “It creates more chaos when you don’t have licensing,” said Goodman.

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

Contractor Role

State insurance departments continue to issue regular warnings to contractors who attempt claim negotiations.

Last year, Arizona was hit by a hailstorm that produced more than 100,000 claims in a single day, resulting in out-of-state restoration contractors flocking to the state. The Arizona Department of Insurance ordered one contractor, True-Built Construction LLC, 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.

Also last 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, said the problem with contractors is not confined to a few states.

“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,” said Veno.

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

Under a newly enacted public adjuster law in Illinois, 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,” according to Veno.

Minnesota has also 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 public adjusters.

New Legislation

In addition to Alabama, three other states reviewed bills addressing public adjusting activities this year.

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.

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.

“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,” Insurance Commissioner Bradford told Claims Journal.

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

Other states are expected to handle public adjuster legislation in the coming months. Veno cited Louisiana as one 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.