A Closer Look At Public Insurance Adjusting

The March 2010 edition of Servicing Management featured an article titled, ‘Hazard Insurance Recovery: A Regulatory Overview.’ Penned by Ronald R. Reitz, president of San Diego-based Quality Claims Management Inc., the piece delved into licensing requirements for public insurance adjusters, detailing the Public Adjuster Licensing Model Act developed by the National Association of Insurance Commissioners (NAIC) in 2005.

Near the end of the article, Reitz cautioned servicers, ‘In today's environment of keen focus on state regulation with respect to foreclosures, default servicing, condemned properties and even the registration of vacant properties, there is little doubt that proper licensing of public insurance adjusters will be on regulators' radarâ�¦.In order for servicers to be certain their hazard recovery partners are compliant, they should expect their outsource companies to fully understand each state's different licensing statutes and maintain a compliance department to track the ever-changing regulations.’

The article prompted reader feedback, particularly from members of the field-service sector who believed Reitz implied that property preservation companies fell under the "public insurance adjuster" classification. Furthermore, readers suggested the article overstated the purview of the NAIC Model Act.

To provide some clarity on the topic, we asked several insurance experts to weigh in on the article and offer their thoughts on where the article might have caused confusion.
But first, the basics: What's a public insurance adjuster?
According to the National Association of Public Insurance Adjusters (NAPIA), public adjusters are "professionals who are employed exclusively by a policyholder who has sustained an insured loss. They handle every detail of the claim, working closely with the insured to provide the most equitable and prompt settlement possible. A public adjuster inspects the loss site immediately, analyzes the damages, assembles claim support data, reviews the insured's coverage, determines current replacement costs and exclusively serves the client, not the insurance company."
The next logical question, at least in response to field servicers' concerns, is whether a property inspector or manager should be categorized as a public adjuster. According to the experiences of J. Robert Wooley, Louisiana's state insurance commissioner from 2000 to 2006, the answer is no. Now an attorney with New Orleans-based Adams and Reese LLP, Wooley represents several clients in this field.
If a property is in default and vacant, abandoned or in foreclosure, property management companies will alert servicer clients about property damage, allow company adjusters (i.e., insurer representatives) access to properties and provide additional information at the company adjuster's request, Wooley says.
"If, and only if, requested by the [servicer] under these circumstances, [property management companies] will complete the necessary claim forms, file the claims with the insurance company and provide information to the insurance adjuster so the claim can be property adjusted," he wrote in a memo in response to Reitz's article.
The insurance company adjuster will then forward an offer of settlement on the claim, leaving the servicer client – not the property management company – with the decision of whether to accept the claim.
"[T]his is a decision made by the client and not the property management company," Wooley said in a recent follow-up phone call. "For that reason, it doesn't enter into the definition of an actual adjuster.
"An actual adjuster will go out and make an independent adjustment, which means they'll look at the same property as the insurance company adjuster did," he continued. "They'll take notes, take quotes, estimate repair costs and, on behalf of the insured, will negotiate the settlement. And that's not what is done in the case of the property managers that I've seen."
In response to Wooley's memo, Reitz stands firm: "I have first-hand knowledge of what several of the field servicers' processes are, and I do not believe what is written [in the memo] is an accurate representation of what they actually do."
Reitz further noted that his article has been validated by counsel to NAPIA. Brian Goodman, an attorney with Towson, Md.-based Hodes, Pessin & Katz PA and counsel for NAPIA, wrote in regard to the piece, "I have read this article, and it is legally accurate."

Readers also suggested that Reitz's article implied greater adoption of the NAIC Model Act than is actually the case.

"While many states already had their own licensing statutes, other states did not, and those states have adopted the final NAIC Model Licensing Bill as their own," Reitz wrote, adding later in the piece, "[R]equirements for a public insurance adjuster to be licensed vary by state."

According to an October 2009 list of public adjuster licensing statutes (the most recent list available from the NAIC), five states – Arizona, Idaho, Iowa, Kansas and North Carolina – were listed as having adopted the latest version of the NAIC Model Act. Four states – Alabama, South Dakota, Virginia and Wisconsin – were described as having taken no action. All other states had "related activity," ranging from attorney generals' opinions to general statutes.

"Not all the statutes are uniform, by any stretch of the imagination," Wooley added. "Some of them are left to only first-party claims."

Herein lies one of the other main criticisms of Reitz's article. According to Wooley, field servicers usually only act on behalf of a loss payee. The purpose of statutes such as the NAIC Model Act is to protect the interest of an insured party.

Susan T. Stead, a partner with Nelson Levine de Luca & Horst and vice chair of the law firm's insurance regulatory group, helped to develop the NAIC Model Act. Mortgagees might have rights under a homeowner's policy, but they are not the same rights as those for the insured – generally, the homeowner, she said.

"In the insurance world, you don't think of the mortgagee as being insured," Stead explained. "If you read the definition of the public adjuster policy laws, it applies to people who are adjusting or negotiating first-party claims on behalf of an insured under a policy that protects real or personal property.

"The other type of policy that I understand the mortgage servicer may have is the force-placed or collateral protection policy," she added. "There, the mortgagee would be insured, but it's not a policy protecting real or personal property. That is why what the author said isn't necessarily wrong; it's missing some context."

Collateral protection insures the value of the loan, which is not personal property, Stead said.

One further point worth clarifying, according to Wooley, is Reitz's contention that states' insurance departments are stepping up their enforcement of public adjuster licensing. He disagrees with the article's claim that enforcement of such licensing is on the rise.

"In my experience, these enforcement investigations regarding licensure are halted as soon as the [property management companies] represent that the items being investigated do not fall into the purview of "public adjusting,'" he wrote.


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