(Note: This guest post is by Steven Badger, a Partner at Zelle, LLP, where he represents the commercial property insurance industry in emerging and significant risk exposures. In addition to representing his clients in litigated disputes, Steve spends considerable time working with the insurance industry and other interested stakeholders in finding solutions to the abuses and outright fraud prevalent in these matters. This includes development of policy form changes and legislative solutions to address common issues, as well as the identification and pursuit of actions against fraudulent actors involved in these matters.)
Imagine that a group of insurance company executives, fed up with all the claim abuses they are dealing with involving public adjusters, are sitting in a conference room with some state legislators, coming up with a “wish list” of ways to curtail the use of public adjusters in their state.
That “wish list” is going to look a lot like Kentucky House Bill 568, which was passed by the Kentucky Legislature this week and is off to the governor for signature. A few key components of the new law:
- no new PA licenses issued for at least the next two years
- a complete prohibition against public adjusters negotiating with an insurer on behalf of an insured in the adjustment or settlement of a claim
- 10% cap on commissions and prohibition against “unreasonable” fees
- protections for insurers when PAs fail to cooperate in the claim process
- expanded right of rescission for consumers
- limitations on PA receipt of claim proceeds
- bond, letter of credit, and proof of financial responsibility requirements
- lengthy disclosure requirements in all PA contracts
I acknowledge it is a pretty draconian piece of legislation, clearly intended to curtail the use of PAs in Kentucky insurance claims. I have publicly stated that I oppose the legislation. Just like I opposed other efforts to curtail the role of the public adjuster in the claims process. I have always supported the role of the professional public adjuster.
But….
It is undeniable that there are real problems with the PA profession. It is too easy to get a PA license. There are too many unqualified newbie PAs. Bad PAs are ripping off consumers (two new reports in the news last week). And abusive conduct in the claim process by PAs (some, not all) is becoming increasingly common.
It’s undeniable. I have dozens and dozens of matters in my office involving out of control PA conduct…
- Insured submits a roof replacement bid from its chosen contractor for $2m; PA gets involved and submits a $4.4m Xactimate estimate for the very same roof.
- Insured states in his examination under oath that he has no idea where the PA came up with what he called “an obviously far too high estimate”.
- PA argues perimeter flashing damage equals total roof replacement under “the principle of indemnity”.
- PA won’t allow the insurer engineer to inspect the roof without his signing agreement allowing recording and public use of the inspection video.
- Insured admits in deposition that PA told him not to worry about the fact that a claim for the same damage was previously submitted.
- Wind damage to three tiles on ridge requires $175k roof replacement, since new exact match tiles are not available.
I could go on. And on. And on. And on. So could every insurer in Texas.
Here’s my point…
These abuses are real. They are frequent. And they are getting worse. So, I can’t blame that room full of insurance executives for wanting to take action to curtail the use of PAs in the claims process.
Does that mean we should just ban the use of PAs altogether?
I don’t believe so. I’d rather an insured give 10% to a PA than 40% to a lawyer.
But I’m just one voice. Other much louder and more influential voices – voices heard at state legislatures – believe we should ban all PAs. And a fellow vocal defense attorney just posted: “It’s time to end the PA experiment.”
So, what’s the answer?
I know what isn’t the answer – doing nothing. The reputable component of the PA profession cannot continue to deny there is a problem. They cannot simply respond with the tired “yeah, but insurance company adjusters are poorly trained also” refrain. They cannot continue to ignore the problem.
Instead, it’s time for the PA profession to get in front of the issue. Acknowledge that there is a problem. Acknowledge that it’s too damn easy to get a PA license and that there are too many bad PAs doing bad things. Acknowledge that stronger regulation of the profession is needed. And then do something about it. Draft stronger licensing requirements. Draft increased ethical rules. Draft stringent enforcement guidelines to punish bad conduct. Show those executives sitting around in a room thinking about ways to end your profession that you acknowledge their concerns and want to be part of the solution.
For over two years now, both Chip Merlin and I have offered to spend a day in a conference room with the PA professional leadership drafting proposed revisions to Chapter 4102 of the Texas Insurance Code (the Texas Public Insurance Adjuster Licensing Act) that would fix many of these problems, and then help gain insurance industry and legislative support to get the revisions passed into law.
But as of today, no one has scheduled such a meeting.
A little proactiveness could go a long way in avoiding what just happened in Kentucky.
And perhaps saving the profession.