The Office of General Counsel issued the following opinion on September 8, 2005, representing the position of the New York State Insurance Department.
Re: Public Adjusters & Mortgagee Rights
1) Does N.Y. Comp. Codes R. & Regs. tit. 11, Part 25 (2005) (Regulation 10) supersede the mortgagee clause of a fire policy in that the regulation does not refer to the mortgage when specifying how the claim payment check or checks are to be made payable?
2) Where multiple insureds sign a compensation agreement, may a public adjuster collect payment for services performed if one of the insured parties cancels the compensation agreement?
1) There is no conflict between Regulation 10 and a mortgage clause of a fire policy.
2) Yes. Cancellation within three days by one insured will not cancel the entire agreement except if the insured has authority to cancel, and does so, on behalf of the other insureds, and therefore, a public adjuster may still collect payment from the remaining insureds for services performed.
Since this was a general inquiry, no additional facts were furnished.
N.Y. Comp. Codes R. & Regs. tit. 11, Part 25.12 (Payment of Losses) (2005) (Regulation 10), in pertinent part, states:
When a claim is settled where the insured is represented by a public adjuster, upon the request of the insured, the insurer's check may be made payable to both the public adjuster and the insured or to the public adjuster named as a payee, but not in excess of the amount of the public adjuster's fee, as indicated in the written compensation agreement signed by the insured and filed with the insurer. The balance of the proceeds shall be made payable to the insured or loss payee, or both, whichever is appropriate.
In accordance with this provision, upon the request of the insured, the insurer's check may be made payable to the public adjuster as the payee to the extent of the public adjuster's fee. A public adjuster may not be shown as a payee on a check for an amount more than the adjuster's fee. The fee must be specified in the written compensation agreement signed by the insured and filed with the insurer. A second check containing the balance of the proceeds shall then be made to the insured, the loss payee, or both, whichever is appropriate.
A mortgagee clause protects a mortgagee's interest in the insured property and gives rise to certain independent rights of the mortgagee. An insurer, before paying a claim, should ascertain whether it owes any obligation to the mortgagee. Regulation 10 only regulates public adjusters fees and fee agreements and does not purport to regulate or affect the relationship between the insured and a mortgagee or loss payee. If the insurer does not distribute the proceeds properly, it may have to pay duplicative amounts to the other party.
In Addition, § 25.8 of Regulation 10 (Insured's right to cancel) in pertinent part, states:
(a) The insured may cancel any compensation agreement until midnight of the third business day after the date on which the insured has signed the compensation agreement.
Further, § 25.10 of Regulation 10 (Right to compensation) in pertinent part, states:
(a) 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 this part.
(b) If a public adjuster performs no valuable services, and another public adjuster . . . subsequently successfully adjusts such loss, then the first public adjuster shall not be entitled to any compensation whatsoever.
Regulation 10 allows an insured to cancel a compensation agreement until midnight of the third business day after the date on which the insured signs the agreement. In a situation where multiple insured are involved, the cancellation of the compensation agreement in accordance with §§ 25.8 & 25.9 by one insured will not cancel the compensation agreement as it relates to the remaining insured, except if the insured has authority to cancel on behalf of the other insureds. The signature of an insured on a compensation agreement will bind that insured, and therefore, a public adjuster may collect payment from that insured. However, the other insureds would doubtlessly preclude the insurer from paying the adjuster directly in such a case. It may be prudent for the adjuster to ascertain whether the insureds are in agreement regarding its services before engaging in adjusting the claim.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.