Don't Become an Accidental Adjuster: Staying Within the Lines of the Restoration Contractor

Disclaimer: The following information has been developed to help restoration contractors better understand how to avoid accidentally stepping into the role of a public adjuster. This information is not intended as legal advice. Legal questions should be presented to an attorney who is licensed to practice law in the jurisdiction where the events occurred. All users of this information are encouraged to refer to applicable federal, state/provincial, and local authorities having jurisdiction over the subjects addressed within this document. The RIA makes no representation or warranty as to, and is not responsible for, the accuracy, or validity of the information, or its application by any recipient of this document.

 

The Restoration Industry Association (RIA) recently hosted a webinar led by Ed Cross, RIA’s Restoration Advocate, on a crucial topic for restoration professionals: avoiding the pitfalls of acting as an "accidental adjuster." Public adjusting is a regulated profession with strict boundaries that restoration contractors must respect to stay compliant with the law. Let’s explore what public adjusting entails, why contractors should steer clear, and tips to safeguard your business.

What Is Public Adjusting?

Public adjusters work exclusively for policyholders, advocating for their interests in the insurance claim process. Their role includes preparing claims, analyzing policies, interpreting coverage, and negotiating settlements with insurance companies. They are licensed professionals, often required to pass examinations and undergo background checks to ensure they act in the policyholder's best interest. Contractors hired to repair damage have a vested interest in the scope and cost of repairs, whereas a public adjuster is responsible for advocating for the policyholder’s interests.

The Unauthorized Practice of Public Adjusting (UPPA)

The unauthorized practice of public adjusting occurs when a contractor or other unlicensed individual performs activities reserved for licensed public adjusters. Laws vary by state, but these activities may include:

• negotiating with insurers on behalf of a policyholder;
• negotiating for or effecting settlement of a claim;
• investigating, settling, or adjusting a claim on behalf of a public adjuster;
• advising or assisting the insured with a claim;
• interpreting insurance policy provisions;
• representing policyholders in disputes; or
• advertising or holding oneself out as a PA.

Well-intentioned actions, like promising to “handle everything with the insurer,” can cross the line into UPPA.

Why Contractors Should Avoid Acting as Public Adjusters

While contractors may want to assist overwhelmed clients navigate insurance claims, accidentally stepping into the role of a public adjuster poses significant risks:

1. Legal Consequences: UPPA is a crime in many states, potentially leading to claims of fraud, fines, lawsuits, disciplinary action against the contractor’s license, or even criminal prosecution.
    
2. Void Contracts: Courts can rescind or invalidate contracts that include unauthorized public adjusting activities, forcing contractors to refund payments for completed work, face potential civil penalties, and pay for the customer’s attorney’s fees and court costs.
    
3. Conflict of Interest: Acting as both contractor and adjuster on the same claim creates a conflict of interest, undermining credibility.

Court Cases Highlighting the Risks

1. Building Permit Consultants v. Mazur (California): A consulting company was accused of public adjusting after a policyholder signed an agreement for the consultant to support the policyholder’s attorney in efforts to negotiate with an insurance company by providing estimators and experts. The consulting company argued that it was not public adjusting because it was not engaged to negotiate directly with the insurance company and were not involved in settlement negotiations. The court was not persuaded. It ruled against the consulting company because it was aiding in the settlement of the claim, finding that the definition of “public adjuster” is broad and includes all persons who impact the resolution of the insurance claim. 
    
2. Texas Department of Insurance v. Stonewater Roofing (Texas): A roofing contractor advertised a “system which helps…customers settle insurance claims, quickly and painlessly.” The roofing contract authorized the contractor to “negotiate” with the insurance company on the customer’s behalf. The contractor sued to invalidate the requirement for a PA license on grounds it was vague and violated free speech protections. The court ruled against the contractor, noting that contractors cannot serve in a dual role as PAs in Texas.
    
3. 33 Carpenters v. State Farm (Iowa): A contractor’s website stated they would meet personally with customers' insurance adjuster as an advocate on behalf of the policyholder and work directly with the insurance company to ensure that all damaged areas of the home would be included. The contractor instructed a policyholder to file an insurance claim and agreed to perform repairs in exchange for insurance proceeds. The contractor submitted an estimate to State Farm before the policyholder assigned the claim to the contractor. The court ruled that the contractor acted on behalf of the policyholder, in violation of Iowa law.

Tips to Avoid Becoming an Accidental Adjuster

 

1. Understand Local Laws

Nearly every state has a public adjuster licensing requirement and a statutory definition of public adjusting. You must be familiar with the definition for each state in which you work, and the nuances. Research your state’s definition by searching for “[State] public adjuster definition” and consult legal counsel to ensure compliance. Be sure to review the actual law which is found specifically in the statutes (rather than proposed bills which may or may not have passed). Consult with a local attorney to assist with understanding the law.

2. Avoid Misleading Language

Do not include references to negotiating or settling insurance claims in your contracts, marketing materials, or other communications. Avoid using contract language authorizing you to negotiate with insurance companies on the customer’s behalf. Do not provide or advertise settlement assistance. Phrases such as “we’ll handle your insurance claim,” “the leader in insurance claim approval,” or “highly experienced with insurance claims” could be construed as public adjusting.

3. Focus on Your Expertise

When communicating with insurers and policyholders, limit the subject of communications to the extent of property damage, the scope of work, services necessary to restore the property, and reasonable cost of repair or replacement and supplements to estimates of repairs. You are representing your company, not the policyholder. Do not tell the adjuster or policyholder that you are representing the policyholder.

4. Use Assignments Wisely

Obtaining an Assignment of Benefits (AOB) of Assignment of Insurance Rights (AOR) does not automatically make you a PA, but the assignment must be narrowly tailored to avoid the appearance of public adjusting. There are states that enforce anti-assignment provisions or prohibit assignments entirely. If you want assignments, work with legal counsel to draft enforceable and appropriate assignment clauses where allowable by law.

5. Add a Severability Clause

Seek professional legal advice on your contracting strategy and consider including a severability clause in your contracts to protect your business if a court finds part of your contract unenforceable. This allows the rest of the agreement to remain valid.

6. Avoid Percentage-Based Payments

Try to avoid contracts that base your compensation on a percentage of insurance proceeds. Courts may view this as an indicator of public adjusting.

7. Educate Your Team

Train your staff to understand the boundaries of public adjusting and to communicate clearly with clients and insurers. Make it clear that you are there to restore properties, not negotiate claims.

8. Get Annual Legal Reviews

Have a qualified attorney review your contracts and business practices annually to ensure compliance with evolving laws. In the event you need to file a lawsuit against a customer, have your attorney perform a “landmine check” beforehand to make sure you do not have any contract or marketing language that could be construed as public adjusting.

Final Takeaway

Restoration contractors play an essential role in helping clients recover from losses. However, crossing the line into public adjusting—even unintentionally—can lead to severe legal and financial consequences. By staying informed, focusing on your restoration expertise, and maintaining clear boundaries, you can protect your business while providing valuable support to your clients.

For more information on this topic, check out RIA’s “Don’t Become an Accidental Adjuster” webinar, exclusively available for RIA members. If you aren’t yet a member, join today as a first time contractor member for just $299 to access valuable resources to help you elevate your restoration business.