OGC Opinion No. 07-07-14

The Office of General Counsel has issued the following opinion on July 19, 2007, representing the position of the New York State Insurance Department.

RE: Public Adjuster Loaning Money to Client

Question Presented:

May a public adjuster loan funds to a client that will be used to advance a lawsuit against an insurer?


It depends on the facts of each case.


The inquirer notes that in Fahrenholz v. Security Mutual Insurance Company, 13 A.D. 3d 1085 (4th Dept., 2004), the New York Appellate Division, held that a loan by a public adjuster to an insured, in exchange for the assignment of potential proceeds from a legal action up to the amount of the loan, did not violate the relevant anti-champerty statute (New York Judiciary Law § 489 (McKinney 2006)). The inquirer asks whether there is “any law or provision” that precludes adjusters from engaging in such conduct.


Champerty is an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports the claim. Black’s Law Dictionary 246 (8th ed. 2004). Judiciary Law § 489 codifies the doctrine against champerty and is relevant to your inquiry. It provides, in pertinent part, as follows:

No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims…shall solicit, buy or take an assignment of…any claim…with the intent and for the purpose of bringing an action.

Whether a particular loan made by a public adjuster to a client violates this provision will depend on the facts of the situation and an analysis of the particular circumstances.

In Fahrenholz v. Security Mutual Insurance Company, an insurance adjuster loaned funds to an insured client that he represented in exchange for assignment of potential proceeds from a breach of contract action against a fire insurer. The court held that the loans made to the plaintiff by the public adjuster did not violate Judiciary Law § 489. The court rested its decision on a number of factors, including the fact that the “loans were made after the action was commenced and pending, and thus were not made with the intent and for the purpose of bringing an action.” 13 A.D. 3d at 1086.

In addition, the Department requires adjusters to be trustworthy with respect to the actions they undertake on behalf of a client. Insurance Law § 2108(c)(1) pertains to the licensing of adjusters, and it reads as follows:

(c) (1) The superintendent may issue an independent adjuster's license or a public adjuster's license to any person, firm, association or corporation, hereinafter designated as licensee, who, or which, is trustworthy and competent to act as an adjuster in such manner as to safeguard the interests of the people of this state….(Emphasis added.)

Moreover, Insurance Law § 2110(a)(4)(C) permits the superintendent to revoke, refuse to renew, or suspend the license of an adjuster who has “demonstrated untrustworthiness.”

Accordingly, there may well be situations where a loan by a public adjuster to his or her client is permissible. That determination must be made on a case-by-case basis, in view of the facts at hand.

For further information you may contact, Principal Attorney Paul Zuckerman at the New York City Office.