The Office of General Counsel issued the following opinion on December 22, 2003, representing the position of the New York State Insurance Department.

Re: Public Adjuster Retainer Agreements and Regulation 10.

Questions Presented:

1. Do the retainer agreements violate N.Y. Comp. Codes R. & Regs. tit. 11, §§ 25.1-25.13 (Regulation 10)?

2. If so, do these violations have the effect of rendering the agreements null and void?

3. Is there a private right of action under N.Y. Comp. Codes R. & Regs. tit. 11, §§ 25.1-25.13 (Regulation 10)?

Conclusions:

1. Yes, the retainer agreements violate N.Y. Comp. Codes R. & Regs. tit. 11, §§ 25.1-25.13 (Regulation 10).

2. The question of whether the retainer agreements are valid and enforceable, notwithstanding the violations of Regulation 10, is a question that would be more appropriately addressed by a court of competent jurisdiction.

3. While there may be no private right of action under Regulation 10, there is nothing in the New York Insurance Law that would prevent an individual from bringing an action under the retainer agreements themselves.

Facts:

The inquirer stated in his inquiry that his parents Mr. and Mrs. I owned premises located in Brooklyn, New York, which sustained a fire on December 25, 2000. Mr. PA, a New York State licensed public adjuster, entered into a retainer agreement with Mr. and Mrs. I to adjust certain claims relative to the property damage. Although Mrs. I is named in the retainer agreement, she did not sign the agreement. The agreement was signed solely by Mr. I. Pursuant to this retainer agreement, Mr. PA filed a claim with an insurer in regard to the fire loss. Mr. PA later made a separate claim for water damage, in case the insurer considered such damage separate and distinct from the fire. As per Mr. PA’s request, Mr. I entered into another retainer agreement with Mr. PA in regard to the second claim. Mr. I subsequently submitted a claim for loss of rent without the assistance of Mr. PA.

In response to the claims, the insurer agreed to pay approximately half of the amounts submitted by Mr. PA. Many months passed and nothing was being done to settle the claims. Thereafter, in or around February 2002, after several calls from Mr. I and the inquirer, the insurer agreed to make partial payment on the policy for the undisputed amount of $112,012.04, of which $6,720.72 was paid to Mr. PA.

Mr. I did not believe that Mr. PA fully procured the settlement of the undisputed amount without the intervention of Mr. I and was thus not entitled to full compensation. Nor was he entitled to compensation on the loss of rent claim. Since the insurer would not provide payment any other way, Mr. I was required to request two separate checks. One check consisted of a 6% compensation to Mr. PA payable to Mr. and Mrs. I and Mr. PA. The second check was payable only to Mr. and Mrs. I for the balance of the claim.

In conjunction with the payment of the undisputed amount, the insurer demanded an appraisal of the property and refused to pay any additional amount on the claim until after the appraisal was completed. Problems occurred at the appraisal level in part because of Mr. PA’s selection of an appraiser. Mr. I attempted to resolve the open issues without the help of Mr. PA. Many months passed with no action on either side.

In or around January 2003, Mr. I independently retained an attorney to file suit and settle the matter with the insurer. The attorney successfully obtained a settlement of the remainder of the claim, in the amount of $53,500. Since Mr. PA is or was a client of the same law firm, he learned of the retention of counsel and submitted a letter asserting a lien on 6% of the proceeds obtained by the attorney. Like the insurer, the law firm refused to release the full amount of the funds to Mr. and Mrs. I unless a percentage of the proceeds was paid to Mr. PA. The inquirer provided a letter, with his inquiry, that was written by Mr. I which authorized the attorney to pay Mr. PA $2,220, but noting that such payment was being made under protest.

Analysis:

Question No. 1

Section 25.9(b) of Regulation 10 provides that, "at the time the insured signs the compensation agreement, a completed form, in duplicate, captioned "Notice of Cancellation" shall be attached to the compensation agreement and easily detachable." This form must consist of, in not less than10-point boldface type, substantively the information and statements contained in Form 2 contained in section 25.13(b) of Regulation 10.

Section 25.13(b) Form 2 provides, in pertinent part, as follows:

A review of the subject retainer agreements reveals that the public adjuster omitted the language required in Section 25.13(b) of Regulation 10 regarding the return of any payments made by the insured upon cancellation of the retainer agreement. In contrast, the retainer agreements provide that if the insured exercises his or her right to cancel the agreement within three business days of signing the agreement, the insured will be liable for expenses incurred during the three-day period. This language violates Section 25.10 of Regulation 10, which clearly states that the public adjuster shall not be entitled to any compensation for any services performed pursuant to a compensation agreement prior to its cancellation in accordance with Section 25.8 of the Regulation. Moreover, the agreement does not comply with the express requirement that the information on the Notice of Cancellation form appear in 10-point boldface type.

The inquirer should also be aware that Section 25.6(a) of Regulation 10 provides, in relevant part, as follows:

Thus, a public adjuster may be compensated only in accordance with the terms of a retainer agreement that substantively contains the same information and statements as Form 1 of Section 25.13(a) of the Regulation. The subject retainer agreements include a statement assigning and authorizing direct payment of the 6% fee to the public adjuster. This language violates Section 25.13 of Regulation 10, which does not provide for the inclusion of such an assignment and authorization in the retainer agreement.

Section 25.12 of Regulation 10 provides as follows:

In accordance with this provision, upon the request of the insured, the insurer’s check may be made payable to both the public adjuster and the insured or solely to the public adjuster. This provision was intended to give the insured the right to refuse to authorize payment of the adjuster’s fee. Whether the insurer pressured Mr. I to authorize payment to the public adjuster and therefore acted inappropriately is a question of fact that can not be resolved in this opinion.

Question No. 2

While it is clear that the retainer agreements violate Regulation 10, the materiality of these violations and the question of whether the agreements remain valid and enforceable notwithstanding these violations, is a separate question that would be more appropriately addressed by a court of competent jurisdiction.

Question No. 3

The inquirer stated in his inquiry that, although he could not locate any case law that states whether there is a private right of action under Regulation 10, courts have held that there is no private right of action for consumer protection regulations. For example, courts have consistently held that there is no private right of action under N.Y. Ins. Law § 2601 (McKinney 2003), which deals with unfair claims settlement practices.

Typically, courts do not construe the Insurance Law as providing for a private right of action, in the absence of express language authorizing such enforcement. McKinnon v. International Fidelity Ins. Co., 182 Misc. 2d 517, 704 N.Y.S.2d 774 (Sup. Ct. New York County 1999); See, eg. Rocanova v. Equitable Life Assur. Society, 83 N.Y.2d 603, 634 N.E.2d 940, 612 N.Y.S.2d 339 (1994). There is nothing in Regulation 10 or the statutes enabling its promulgation that indicates that individuals have a private right of action to sue thereunder. However, the New York Insurance Law does not prevent an individual from bringing an action under a contract on the ground that it was illegally made.

Lastly, the inquiry and this opinion were referred to our Consumer Services Bureau for further investigation regarding the conduct of the insurer and public adjuster in this matter. The inquirer was directed to independently seek guidance from the appropriate licensing authorities regarding the conduct of the attorney.

For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.