• Something Wicked This Way Comes
  • December 14, 2009 | Author: Jeffrey G. Rapattoni
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Cherry Hill Office
  • Given the state of the mortgage crisis, coupled with a slowed economy, fraudulent claim reporting is on the rise. This trend appears to be especially prevalent with homeowner and property claims. As a result, the insurance industry must adjust to the fact that more claims contain some element of exaggeration or falsity. Not surprising, given the climate, insureds are turning to public adjusters to aid them with their loss. New Jersey, for example, has seen a dramatic rise of public adjuster activity in the last twelve to eighteen months. Interestingly, the public adjuster and the insured have a contractual relationship not unlike that of the carrier and insured. In order to handle these changes, without running afoul of bad faith, carriers must be able to identify the difference between innocent human error and public adjuster fraud. To better understand the scope and range of the public adjuster/insured relationship, it is first helpful to understand their limitations under the law.

    Public adjusters are governed in New Jersey under N.J.S.A. and N.J.A.C. Together they include a statutory definition and establish boundaries by which they are permitted to operate. According to N.J.A.C 11:1-37:2, a public adjuster is defined as:

    Any individual, firm, association or corporation who, or which, for money, commission or any other thing of value, acts or aids in any manner on behalf of an insured in negotiating for, effecting, the settlement of claims for a loss of damage caused by or resulting from any accident, incident, or occurrence covered under a property insurance policy, including but not limited to, a flood, transit, inland marina or ocean marine policy; or who, or which, advertises for, or solicits employment as an adjuster of those claims.

    See Title 11, Department of Banking and Insurance, Division of Insurance, Sub-Chapter 37, Licensing of Public Adjusters.

    As a pre-requisite, New Jersey requires a written application and examination as set forth in N.J.S.A. 17:22b-6. The New Jersey Department of Banking and Insurance administers the licensing and exam which tests several topics including basic legal doctrines, accounting, finance, and property valuation. In addition to passing the written examination, each public adjuster must apply for a bond in the amount of $10,000. The bond is made payable to the State of New Jersey for the use and benefit of any person injured by any willful, malicious, or wrongful act of a public adjuster. Pursuant to N.J.S.A. 17:22b-6(b)(2), the state will not issue a license to any person who was convicted of an indictable offense or any crime or offense involving fraud or dishonesty. Interestingly, there are no formal educational requirements. One need not have a bachelor's degree or necessarily a high school degree to become a public adjuster. The statute fails to indicate what, if any, limitations there are other than posting bond and passing a written examination.

    New Jersey sets forth explicit guidelines as to what will be construed as a prohibited practice. N.J.S.A. 17:22b-13 states that:

    No individual, firm, association or corporation licensed under this act shall:

    (a) enter into any agreement, oral or written, with an insured to negotiate or settle claims for loss or damage occurring in this State between the hours of six p.m. and eight a.m. during the first 24 hours after the loss has occurred;

    (b) have any right to compensation from any insured for or on account of services rendered to an insured as a public adjuster unless the right to compensation is based upon a written memorandum, signed by the party to be charged and by the adjuster, and specifying or clearly defining the services to be rendered and the amount or extent of the compensation on a form and with such language as the commissioner may prescribe;

    (c) induce cancellation of a duly executed written memorandum between an insured and a public adjuster;

    (d) make any misrepresentation of facts or advise any person on questions of law in connection with the transaction of business as an adjuster; or

    (e) receive, accept or hold any moneys towards the settlement of a claim for loss or damage on behalf of an insured unless the public adjuster deposits the moneys in an interest bearing escrow account.... with interest accumulated thereon shall be the property of the insured until disbursement thereof pursuant to a written memorandum, signed by the insured and by the adjuster, specifying or clearly defining the services rendered and the amount of any compensation to be paid there from.

    N.J.S.A. 17:22b-13 is only one set of guidelines. More detailed regulations are set forth in N.J.A.C. 11:1-37.14(a) which goes into greater detail as to how a public adjuster should conduct himself. The wording of the code is broad enough to include most fraudulent or dishonest acts and exists as a secondary layer to protect the public and insurance industry alike.

    Given these laws, it appears that New Jersey has attempted to regulate public adjusters and keep fraud and abuse out of the claims process. As such, civil penalties were contemplated by the Legislature and codified at N.J.S.A. 17:22b-17. These penalties are identical in administrative code and set forth at N.J.A.C. 11:1-37.14(b)-(c). Read together, any person violating any provision of the act shall be liable of no more than $2,500 for the first offense and no more than $5,000 for the second and each additional offense. Each statutory violation shall constitute a separate offense which effectively stacks the penalties on top of each other without a ceiling. Also, in lieu of an administrative proceeding or in an action in the Superior Court, the Commissioner of Insurance may bring an action for the collection or enforcement of civil penalties for the violation of any provision of this act. In addition, N.J.S.A. 17:28b-14 provides for the revocation or suspension of a public adjuster's license upon a breach of any statutory regulation. Interestingly, any person aggrieved may file with the Commissioner of Banking and Insurance a verified complaint setting forth facts showing sufficient grounds for the suspension or revocation of any public adjusters license. Of course, this application must be made in good faith and not based solely on subjective intent.

    The use of a public adjuster may strain the relationship between carrier and insured. As an example, a public adjuster may not allow a carrier to speak with its insured during the claims process. It is important to remember that a public adjuster's representation will not affect the duties owed from an insured to an insurer. Thus, the insured is still charged with acting in accordance with the terms and conditions of the policy. A public adjuster who interferes with such a relationship is likely acting outside of his scope of practice. Depending on the facts of the case, this may give the carrier a private action against the public adjuster for contractual interference.

    Along the same lines, the carrier should not interfere with the public adjuster's representation of an insured. Instead, it is advisable to conduct oneself in accordance with the protocols and procedures outlined in the policy. Strict policy compliance and an earnest effort are important when avoiding the appearance of bad faith. While working with the public adjuster may be difficult, it is critical so as to not alienate the insured.

    Read together, the N.J.S.A. and N.J.A.C. regulations concerning public adjusters are significant. They do not allow for false or fraudulent and/or misleading conduct and are designed to protect the public at large. While it is important to remember that the insured has a contractual responsibility to comply with its carrier, we should remember to not disrupt the relationship between the insured and their public adjuster. With the instances of fraudulent activity rising within the state, it is advisable to be aware of the rules regulating the assistance of insureds by public adjusters in the claims handling process.