Does the Insurance Carrier Pay the Public Adjuster Fee?

This blog post is the result of Steve Badger writing a LinkedIn post, where he highlighted a public adjusting firm advertising that public adjusters can claim the cost of their fees in a first-party case. This advertisement is wrong and misleading. I am aware of zero public adjusting firms advertising this or claiming their fees get paid by the insurance company, except for the advertisement Steve Badger found and published.

I wrote a comment to his post stating:

Property insurance policies typically have minimal coverage for the costs associated with preparing a claim. I know of no first-party property contract sold in the United States that currently pays for public adjuster fees. There is Claim Preparation Coverage which does pay for fees but the current forms unfortunately do not pay for public adjuster or attorneys fees under that coverage. Sometimes, courts may allow a public adjuster to charge a non-contingent fee as an expert in litigated cases. Sometimes, courts may award public adjusters fees as a compensatory damage in a bad faith case. I know of no authority allowing for public adjusters to suggest or claim their fees as part of the covered claim with the exceptions noted in this case…

I then cited a blog post involving a policy that had Claim Preparation Cost Coverage, Claim Preparation Expenses: The Cost May Be Covered Under the Policy. The case ¹ discussed a clause that is different than modern forms because it allowed for attorney fees to be paid:

Claim Preparation Expenses

Expenses incurred by the Insured or by the Insured’s representative including Auditors, Accountants, Appraisers, Lawyers, Consultants, Architects, Engineers or other such professionals in order to arrive at the loss payable under this policy in the event of a claim. This provision does not cover expenses incurred for the services of any public adjuster.

In a 2009 IRMI article, Claim Preparation and Adjustment Expense: Courts Might Not Get It, claim preparation expenses are discussed:  

In any sizeable property insurance claim, the policyholder incurs significant costs in developing the claim, in presenting the claim to the insurer, in gathering information requested by the insurer in response to the claim, and in negotiating the claim.

This frequently requires retention of various consultants, including construction consultants for building damage, accountants for time element coverages, and specialists when the claim involves complex or unique equipment or industry-specific requirements such as clean areas for computer or pharmaceutical manufacturers. Policyholders frequently hire public adjusters to oversee the claim preparation, presentation, and negotiation process, and the public adjusters frequently hire the necessary consultants. In other situations, a sophisticated policyholder will manage the claim process itself and directly retain consultants. The claim process is frequently referred to in the industry as the ‘adjustment’ process, with both policyholder and insurer working toward an ‘amicable adjustment’ of the claim.

Sophisticated policyholders frequently have coverage for claim preparation expenses in their policies, although most insurers specifically exclude public adjuster fees from that coverage. In a complicated claim, this additional coverage can be worth tens of thousands of dollars….

As is typical in most policy provisions that provide for the insurer to pay claim preparation expense, public adjuster fees are specifically excluded.

…

If the policy provides coverage for claim preparation expenses, but excludes public adjuster fees, the insured should consider directly retaining the public adjuster’s sub-consultants so that the insured can present those expenses and have them reimbursed, as opposed to having them be part of the public adjuster’s fees. This should also allow the policyholder to negotiate a reduced fee from the public adjuster….

The rule is that policyholders pay for the cost of their own public adjusters. I will follow up with a more detailed discussion of Claim Preparation Expense Coverage, as it is important.

Thought For The Day

“The consumer isn’t a moron; she is your wife. You insult her intelligence if you mislead her.”
—David Ogilvy

¹ Fountain Powerboat Industries, Inc. v. Reliance Ins. Co., 119 F.Supp.2d 552 (E.D. N.C. 2000).