Are home improvement contractors or their agents public adjusters?

Generally, a public adjuster is someone hired by a homeowner who has experienced a home fire or flood to thoroughly review their insurance policy and negotiate with their insurer for the maximum benefit (i.e., insurance proceeds), whose fee is a percentage of the proceeds. If asked how the homeowner first learned about public adjusters, you’ll probably be told a public adjuster approached them during or shortly after their home catastrophe. Indeed, it’s common practice for public adjusters to carry fire department scanners.

Let’s imagine a more common home loss – a severe storm blows through a neighborhood and Homeowner’s roof is damaged. Because not nearly as catastrophic as a fire or flood, public adjusters are not pounding on the door. Instead, Homeowner reports the damage to Insurer, and an “insurance scope” is prepared – i.e., a document describing the damage and the amount of money the insurance company will pay to repair it. Homeowner also contacts a roofing company or a general contractor for a repair estimate. Home Improvement Company or its third-party agent estimates the repair and delivers a proposal for the work, including a price based on time and materials.

At some point the insurance scope and proposal are compared to determine whether the insurance proceeds will cover the work needed. If there is a disparity, Homeowner may shop around for a cheaper contractor, share the proposal with Insurer and request more money, or ask Home Improvement Company to follow up directly with Insurer. The latter is often the case because Homeowner feels overwhelmed or ill-equipped to “talk construction” with Insurer, and Home Improvement Company is willing to step in for free as a value-added service.

Depending on the State, at the moment Home Improvement Contractor does anything more than just look at the insurance scope, it may be considered a public adjuster. For example, if Home Improvement Contractor tells Homeowner the insurance scope omitted certain building codes or manufacturers’ specifications, it may be deemed to have “aided” Homeowner with the insurance claim within the meaning of the State’s public adjuster law. If Home Improvement Contractor contacts Insurer about the issue and suggests a supplement to cover the missing codes, it may be deemed to have “adjusted” or “negotiated” a loss on behalf of Homeowner. In Maryland, having a website that suggests the business helps homeowners with their residential damage claims is enough to be ensnared.

If considered a public adjuster, a person must be licensed. Depending on the State, specific, consumer-protection language must be included in the contract with the homeowner, and there are limitations on compensation. Failure to comply with applicable law could subject the public adjuster to fines and criminal charges among other penalties. For example, New Hampshire permits the commissioner to order a refund of compensation.

Almost all States regulate public adjusters, some defining them more broadly than others. For example, West Virginia law defines a public adjuster as “an independent contractor representing solely the financial interests of the insured named in the policy.” Arizona Department of Insurance describes a public adjuster as “a person hired to adjust, investigate, or negotiate insurance claim settlements on behalf of the insured,” as well as anyone who “holds oneself out” to perform any such services. The bulk of states define a public adjuster similar to the following:

Any person who, for compensation or anything of value, does any of the following:

(1) Acts or aids, solely in relation to first-party claims arising under an insurance policy that insures the real or personal property of the insured, on behalf of an insured in negotiating for, or effecting the settlement of, a claim for loss or damage covered by the insurance policy;
(2) Advertises for employment as a public adjuster or indirectly or directly solicits business or represents oneself to the public as a public adjuster of first-party claims for losses or damages arising out of insurance that insures real or personal property; or
(3) Directly or indirectly solicits business, investigates or adjusts losses, or advises an insured about first-party claims for losses or damages arising out of an insurance policy that insures real or personal property for another person engaged in the business of adjusting losses or damages covered by an insurance policy for the insured.

Attorneys and data-entry personnel are typically exempt, as well as some other narrow exceptions.

How each State’s insurance administration interprets the activities undertaken by home improvement contractors and their third-party servicers varies. Unfortunately, not all home improvement contractors or their agents are aware of the public adjuster laws or to what extent the laws are applicable to their business. To complicate matters, many home improvement contractors and agents work in multiple states.

If you have questions about what laws apply to your business, reach out.