Most policyholders do not have in-house capability to investigate, evaluate, and negotiate significant property insurance losses. These aspects of dealing with the insurance company to resolve a property insurance loss require expertise in understanding the scope of coverage provided by the applicable property insurance policy, scientific, or other specialized background in determining the cause of a specific loss, and the ability to determine the cost to repair or replace the damaged property and the amount of a time element loss.
While some losses, such as a small fire loss requiring only minor repairs, may be dealt with easily, others, which involve more complex damages and different potential causes of loss, are much harder.
Public insurance adjusters are experts on property loss adjustment who represent only policyholders and assist in preparing, filing, and adjusting insurance claims. They handle every detail of the claim, working closely with the policyholder to obtain a reasonable and, hopefully, prompt settlement. A public adjuster and his team will usually inspect the loss site as soon as they are retained, analyze damages, assemble the necessary support for the claim, review the coverage to determine the portions of the loss which are covered, assess the value of the loss, and negotiate with the insurance company to reach the end result.
Most states license and regulate public insurance adjusters. Their contracts are subject to approval by the insurance departments in the states in which they operate. Most public insurance adjusters are paid on a contingent fee basis, usually a percentage of the recovery. The public adjuster contract usually is technically an assignment of policy proceeds due the policyholder from the insurer. The validity and enforceability of this assignment as against an insurer raises two potential issues.
Are post-loss assignments valid at all?
If the insured attempts to revoke its contract with the public adjuster, must the insurer honor the assignment and name the public adjuster on any checks issued to pay policy proceeds?
Both of these concepts were recently addressed by the Pennsylvania Supreme Court.
Egger v. Gulf Ins.
The validity of a post-loss assignment in the first instance was addressed by the Pennsylvania Supreme Court in Egger v. Gulf Ins., 2006 WL 2431744 (Pa. Aug. 23, 2006). While Egger was not a property insurance case, its holding allowing post-loss assignments is clear and should be applicable to all types of insurance policies. In Egger, the plaintiff died because of negligence on the part of Foulke Associates' personnel.
Foulke had a $1 million primary policy and a $10 million excess policy, the latter issued by Gulf Insurance. The Gulf policy, as do most policies of all types, contained a non-assignment clause prohibiting assignment of the insured's rights without the insurer's prior written consent. The underlying personal injury accident proceeded and, shortly before a jury verdict in favor of plaintiff, Gulf denied coverage under its excess policy. Immediately thereafter, and still prior to the verdict, Foulke and the plaintiff entered into an agreement where the plaintiff accepted a sum certain from the primary insurer and an assignment of Foulke's rights against Gulf.
There was a verdict in favor the plaintiff in the amount of $3.5 million which, after addition of pre-judgment interest, increased to $3,837,965.75. Plaintiff thereafter filed suit against Gulf on the assignment, and Gulf defended, in part, by arguing that the assignment was invalid. The case wound its way to the Pennsylvania Supreme Court, which had no difficulty in affirming the validity of the assignment.
The court looked to a 1946 precedent involving assignment of a life insurance policy, rejected several contrary opinions by the Pennsylvania Superior Court, a mid-level appellate court, and reaffirmed the concept that post-loss assignments are valid and enforceable. The court noted that Pennsylvania law allows a post-loss assignment because a post-loss assignment does not increase the risk undertaken by the insurer.
Insurance Adjustment Bureau v. Allstate Ins.
That same day, the Pennsylvania Supreme Court also decided Insurance Adjustment Bureau v. Allstate Ins., 2006 WL 2431634 (Pa. Aug. 23, 2006). In that case, the policyholders' house suffered a serious fire loss and the policyholders' retained IAB as their public adjuster. The contract called for a fee to IAB of 10 percent of any recovery, plus expenses. The key language was as follows:
The insured agrees to pay the Public Adjuster for such services a fee of 10% … of the amount paid or agreed to be paid by the insurance companies in settlement of the loss, and reasonable expenses, hereby assigning to the Public Adjuster all monies due or to become due from the insurance companies.
The contract was signed on June 7, 2002. The insureds purported to terminate it on August 2002, after IAB investigated the fire, prepared inventories, secured estimates, and negotiated with Allstate. On September 27, 2002, Allstate agreed to provide coverage, but refused to name IAB on the settlement draft in light of the policyholders' purported termination of the contract.
IAB sued Allstate. IAB did not sue the policyholders because they had spent all the money and were essentially judgment proof. Allstate moved to dismiss the complaint for failure to state a cause of action, arguing that the assignment was invalid because Allstate did not consent. Allstate also argued that the assignment was revocable and, therefore, IAB's sole cause of action was against the policyholders. In light of the fact that the court was evaluating the sufficiency of a motion to dismiss, and was bound by the allegations of IAB's complaint, the court held that the IAB contract could be interpreted as creating either type of assignment.
The Pennsylvania Supreme Court reversed holdings in favor of Allstate by both the trial court and the superior court. The court held that the issue was not whether there was an assignment, but what type of assignment the parties intended. If the parties intended an assignment for purposes of collection, it created a revocable agency relationship. If, on the other hand, it was an assignment for purposes of security, the assignment was irrevocable once the contract was partially performed. The court, therefore, reversed and remanded so that the intent of the parties could be determined.
Allstate also argued that, since the form public adjuster contract approved by the Pennsylvania Insurance Department did not contain any assignment language, the IAB contract was invalid because it deviated from the approved form. The supreme court rejected that argument, holding that the approved form set only minimum standards, and did not prohibit an assignment. The court referenced Egger in rejecting the concept that it was an invalid assignment because the assignment to IAB took place after the loss.
Pennsylvania is not alone in enforcing post-loss assignments. What is most interesting about the IAB case, however, is that the court found the assignment clause ambiguous and remanded for discovery to determine the intent of the parties. It is virtually certain that the policyholders had no idea to what type of assignment they had agreed. Any unexpressed unilateral intent of IAB that its contract created an irrevocable assignment may not be admissible evidence of the intent of the parties. Because the contract was drafted by IAB, if there is no admissible evidence as to the intent to the parties, the ambiguous contract (for it was so held by the Pennsylvania Supreme Court), would be construed against IAB. Thus, despite having taken the case all the way up to the Pennsylvania Supreme Court, IAB might still end up without a fee for its services.
The lesson for all parties to a public adjuster contract is that, while post-loss assignments may be valid, they should be clearly expressed to eliminate any ambiguity about the extent and nature of the interest assigned.
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