Audit, Compliance and Risk Blog

Insurance Law: Public Adjusters: Proceed with Caution

Posted by Viola Funk on Tue, Feb 11, 2014 filing insurance claims for cases involving extensive damage, consumers sometimes choose to hire a public adjuster (PA) to help them submit the claim to their insurer. The PA handles every detail of the claim, working closely with the policyholder and the insurer to obtain a prompt and reasonable settlement.

Or at least that’s what’s supposed to happen. But there are less than honorable PAs out there who will take advantage of naïve consumers, so it pays to select one carefully, and to closely monitor the details of your contract with him or her.

Especially in light of more frequent extreme weather events, the trade has flourished, and with it instances of chicanery.

In the wake of Hurricane Sandy, according to an ABC News affiliate in Philadelphia, Donna and Ray Taylor engaged a PA through Metro Public Adjustment, Inc. Part of the roof of the Taylors’ house had been ripped off by the storm. The representative promised the couple a bigger, faster settlement from their insurer if they went through him as opposed to filing the claim on their own. They signed a contract with him. It was then he told them that it could take six months before they saw any money.

The Taylors decided to cancel their contract with him, informing him by presenting him with written notice.

The company refused to cancel the contract, and went ahead with representing the claim to the insurer. Upset, the Taylors contacted an ABC Action News Marketplace reporter. When Action News spoke to Metro Public Adjustment, the company spokesperson said that Metro had already notified the Taylors’ insurer that the Taylors had cancelled the contract and that it would no longer be representing them, and passed the complaint off as merely being due to a misunderstanding.

Had Metro remained on the case, it would have garnered 25% of whatever settlement amount the Taylors received.

The local Better Business Bureau cautioned consumers to choose PAs very carefully, and to follow to the letter the provisions in the contract’s Notice to Rescind policy. In Metro’s case, those provisions required clients to deliver notice of cancellation to its Bensalem office. Purportedly, if the Taylors had done that, they could have forestalled the problem they ran into.

It’s also worth knowing that PAs usually charge a contingency fee, which they present to the client as a fait accompli. But this fee is negotiable. Try to lower it as much as possible. For a major loss, more than one PA will arrive at the site seeking a contract. A fee quoted by one can be reduced by seeking lower fees from the others. Rates can be negotiated from a low of 3% to a high of 40%, although the average charge is 10% to 15%. When considering a PA, take into account the fact that even if the insurer pays the full amount of the loss, the cost of the adjuster’s fee may not leave enough funds to fully repair the damaged structure.

STP has recently published an update to its publication Insurance Claims: A Comprehensive Guide and also publishes the following related guides:

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Tags: Corporate Governance, Business & Legal, Insurance, Insurance Claims