OGC Opinion No. 06-07-17
The Office of General Counsel issued the following opinion on July 26, 2006, representing the position of the New York State Insurance Department.
Re: Public Adjuster Compensation
Would an agreement that provides for the public adjuster to receive a fee equal to fifty percent of the amount by which the settlement is subsequently increased (but in no event to exceed 12.5 percent of the total settlement) be permissible under N.Y. Comp. Codes R. & Regs. Tit. 11 Part 25 (2006) (Regulation 10)?
The public adjuster may not charge any insured a fee in excess of 12.5 percent of the recovery for services rendered by the adjuster. The 12.5 percent maximum must be calculated based upon monies paid to the insured after it has retained the services of the public adjuster. Any monies paid by the insurer to the insured prior to execution of the public adjuster compensation agreement may not be considered in calculating the 12.5 percent maximum.
The inquirer stated that his company wished to be retained as a public adjuster by an insured who is already in the process of negotiating settlement of a loss claim with an insurer. The insured had not previously engaged a public adjuster in the matter. He proposed to utilize a compensation agreement that called for him to receive a fee equal to fifty percent of the amount that the final settlement exceeds the offer pending at the time the insured contracted with him to act as public adjuster (but in no event to exceed 12.5 percent of the total settlement).
The entity identified on the letterhead of the correspondence is not licensed by the New York State Insurance Department. As such it would be illegal for that entity to act as a public adjuster. However, upon review of the Department's records, we determined that the inquirer was the sublicense of a licensed public adjuster that has the same address as the unlicensed entity. The licensed entity is the subject of a complaint in the Department's Consumer Services Bureau. The complaint was filed by an insurer objecting to the use of a compensation agreement that appears to contain provisions similar to the provisions the inquirer proposed to use in the compensation agreement for the unlicensed entity.
In both cases, the compensation agreement calls for the public adjuster to receive a fee equal to fifty percent of the amount that the final settlement exceeds the offer pending at the time the insured engaged the services of the public adjuster, but in no event to exceed a stated maximum percentage of the "total settlement".
N.Y. Comp. Codes R. & Regs. Tit. 11 § 25.7 (2006), regarding "maximum compensation" for public adjusters, states that "No public adjuster shall charge any insured a fee in excess of 12.5 percent of the recovery for services rendered by the adjuster."
N.Y. Comp. Codes R. & Regs. Tit. 11 § 25.13 (2006) sets out a sample "Public Adjuster's Compensation Agreement" which is "...hereby approved for use as specified in this Part:..." The form states that the insured agrees to retain the public adjuster "...to act or aid in the preparation, presentation, adjustment and negotiation of or effecting the settlement of the claim for the loss or damage...and agrees to pay the adjuster for such services a fee of _____ percent of the amount of the loss including salvage when adjusted or otherwise recovered from the insurance companies."
The inquiry raises the issue of how to treat a situation where the insured engages the services of public adjuster after negotiations with the insurer are underway. The insurer may have made an offer or payment to the insured prior to execution of the compensation agreement.
If the insurer has already made a payment to the insured at the time the public adjuster is retained that portion of the settlement cannot be characterized as resulting from the "services rendered by the adjuster". This means any payment made by the insurer prior to execution of the public adjuster compensation agreement cannot be considered in calculating the 12.5% maximum compensation.
However, where the insurer has made an offer to the insured prior to the public adjuster being retained, but the insurer has not paid any monies to the insured, the insurer would be free to withdraw its offer at any time. The public adjuster could receive compensation equal to 12.5 percent of the total settlement, if it results from services rendered by the public adjuster.
A public adjuster compensation agreement providing for payment of a fee equal to fifty percent of the amount by which a pending settlement offer is subsequently increased would not be violative of Regulation 10, so long as the maximum compensation is limited to no more than 12.5% of the recovery for services rendered by the adjuster.
For further information you may contact Supervising Attorney Sam Wachtel at the New York City Office.