NCOIL Advances Public Adjuster Model Law

On Feb. 2, 2024, the Property & Casualty Insurance Committee of the National Council of Insurance Legislators (NCOIL) adopted a new Public Adjuster Professional Standards Reform Model Act (the Act). The Act goes before NCOIL’s Executive Committee for final ratification at the 2024 NCOIL Spring Meeting on April 14. The Act is primarily intended to set forth licensing and other professional standards for public insurance adjusters.

Definition

The Act defines “public insurance adjuster” as

1. A person or entity that, for direct, indirect or any other compensation:
   • Acts on behalf of an insured in the adjusting of a claim or claims for loss or damage under any policy of insurance covering real or personal property, or
   • Acts on behalf of any other public insurance adjuster, investigates, settles or adjusts or advises or assists an insured with a claim or claims for loss or damage under any insurance policy covering real or personal property, or
2. A person or entity that advertises, solicits business or holds himself or herself out to the public as an adjuster of claims for loss or damage under any insurance policy covering real or personal property.

Licensure Requirement

Under the Act, no person or entity may, in the adopting state, act as or hold himself, herself or itself out to be a public adjuster unless licensed by the insurance department as a public adjuster.

Resident License Application for Individuals

An individual applying for a resident public adjuster license must make an application to the insurance commissioner on the appropriate uniform individual application and in a format prescribed by the commissioner. Before approving an application for a license, the commissioner must find that the individual:

1. Is at least 18 years of age
2. Is eligible to designate the applicable state as the individual’s home state
3. Is trustworthy, reliable and of good reputation, evidence of which is to be determined through an investigation by the commissioner
4. Has not committed any act that is a ground for probation, suspension, revocation or refusal of a license
5. Has successfully passed the examination for the adjuster license and the applicable line of authority for which the individual has applied
6. Has paid the fees established by the commissioner
7. Is financially responsible to exercise the license

Bonding Requirement

A person or entity applying for a public adjuster license is required to obtain a bond or irrevocable letter of credit prior to issuance of a license and must maintain the bond or letter of credit for the duration of the license. The bond and letter of credit must meet the following requirements:

1. The surety bond must be executed and issued by an insurer authorized to issue surety bonds in the applicable state. The bond must:
   • Be in the minimum amount of $50,000
   • Be in favor of the state
   • Specifically authorize recovery by any person in the state who sustained damages as a result of the public adjuster’s acts, omissions, fraud or unfair trade practices
   • Not be terminated unless written notice is given to the licensee at least 30 days prior to the termination
     
     
2. The letter of credit must be issued by a qualified financial institution and must:
   • Be in the minimum amount of $50,000
   • Be subject to execution on behalf of any person to whom the public adjuster has been found to be legally liable as a result of the public adjuster’s acts, omissions, fraud or unfair trade practices
   • Not be terminated unless written notice is given to the licensee at least 30 days prior to the termination

The insurance commissioner may ask for evidence of financial responsibility at any time he or she deems relevant. “If the evidence of financial responsibility terminates or becomes impaired,” the public adjuster license automatically terminates and must be surrendered to the insurance commissioner.

License Application for Business Entities

A business entity applying for a resident public adjuster license must apply to the commissioner on the appropriate uniform business entity application and in a format prescribed by the commissioner.

Before approving an application of a business entity, the commissioner must find that the business entity:

1. Is eligible to designate the applicable state as its home state
2. Has designated a licensed independent or public adjuster responsible for the business entity’s compliance with the insurance laws and regulations of the applicable state
3. Has not committed an act that is a ground for probation, suspension, revocation or refusal of a public adjuster’s license
4. Has paid the required fees

Additional Information, Qualification for License 

The insurance commissioner may require additional information or submissions from applicants and may obtain any documents or information reasonably necessary to verify the information contained in an application.

Unless denied a license pursuant to specified provisions, a person or entity that has met the application, bonding and additional information requirements described above will be issued a public adjuster license.

Lines of Authority

A public adjuster may qualify for a license in either property and casualty or crop insurance.

Exemptions

A public adjuster’s license is not required in the case of the following:

1. An attorney licensed to practice law in the applicable state, when acting in his or her professional capacity as an attorney
2. A person who negotiates or settles claims arising under a life or health insurance policy or an annuity contract
3. A person employed only for the purpose of obtaining facts surrounding a loss or furnishing technical assistance to a licensed public adjuster, including photographers, estimators, private investigators, engineers and handwriting experts
4. A licensed health care provider or its employee who prepares or files a health claim form on behalf of a patient, or
5. An employee or agent of an insurer adjusting claims relating to food spoilage with respect to residential property insurance in which the amount of coverage for the applicable type of loss is contractually limited to $1,000 or less

Where used above, “home state” means any state or territory of the United States or the District of Columbia in which a public adjuster:

1. Maintains his, her or its principal place of residence or business, and
2. Is licensed to act as a resident public adjuster

However, as used below, “home state” has the same meaning as above, except that the term includes any state or territory of the United States or the District of Columbia in which an applicant is licensed to act as a resident public adjuster if the state or territory of the applicant’s principal place of residence does not issue a public adjuster license.

Nonresident Licenses

A nonresident person or entity will receive a nonresident public adjuster license if:

1. The person or entity is currently licensed in good standing as a public adjuster in his, her or its home state
2. The person or entity has submitted the proper request for licensure and has paid the required fees
3. The person or entity has submitted, in a form or format prescribed by the insurance commissioner, the uniform individual application
4. The person’s or entity’s designated home state issues nonresident public adjuster licenses to persons of the applicable state on the same basis

The commissioner may:

1. Verify an applicant’s licensing status through any appropriate database, including the database maintained by the National Association of Insurance Commissioners or its affiliates or subsidiaries, or
2. Request certification of an applicant’s good standing

As a condition to the continuation of a nonresident adjuster license, the licensee must maintain a resident adjuster license in his, her or its home state. If the licensee’s resident adjuster license terminates for any reason, the nonresident adjuster license terminates and must be surrendered immediately to the commissioner, unless:

1. The termination is due to the licensee’s being issued a new resident public adjuster license in his, her or its new home state, and
2. The new resident state or territory has reciprocity with the adopting state

Contract Requirements

A public adjuster may not provide services to an insured until a written contract with the insured has been executed on a form that has been pre-filed with and approved by the insurance commissioner. A nonconforming contract between a public adjuster and an insured is not enforceable in the state.

A form pre-filed with the commissioner by a public adjuster is subject to disapproval by the commissioner at any time if the form is found to:

1. Violate any provision of “this chapter”
2. Contain or incorporate by reference any inconsistent, ambiguous or misleading clauses, or
3. Contain any title, heading or other indication of its provisions that is misleading or printed in a size of typeface or manner of reproduction so as to be substantially illegible

A contract between a public adjuster and an insured that was executed on a form that was pre-filed with and approved by the commissioner prior to a disapproval of the form is enforceable to the extent allowed by:

1. Ordinary principles of contract
2. Any applicable state or federal laws implicated by the contract

A public adjuster must ensure that all contracts between the public adjuster and the insured for services are in writing and contain the following terms:

1. The legible full name of the adjuster signing the contract, as specified in the department’s licensing records
2. The adjuster’s permanent home state business address and phone number
3. The license number issued to the adjuster by the department
4. A title of “Public Adjuster Contract”
5. The insured’s full name, street address, insurer name and policy number, if known or upon notification
6. A description of the loss or damage and its location, if applicable
7. A description of services to be provided to the insured
8. The signatures of the adjuster and the insured
9. The date the contract was signed by the parties
10. Attestation language stating that the adjuster has a letter of credit or a surety bond as required above
11. The full salary, fee, commission, compensation or other consideration the adjuster is to receive for services, including but not limited to:
    • If the compensation is based on a percentage of the insurance settlement, the exact percentage
    • The initial expenses to be reimbursed to the adjuster from the proceeds of the claim payment, specified by type, with dollar estimates
    • Any additional expenses, if first approved by the insured
12. A statement that the public adjuster may not render services or perform acts that constitute the practice of law
13. A statement that the adjuster may not act on behalf of or aid any person in negotiating or settling a claim relating to bodily injury, death or noneconomic damages
14. The process for rescinding the contract, including the date by which rescission of the contract by the adjuster or the insured may occur
15. A statement that clearly states in substance the following: “Complaints regarding this contract or regarding the public adjuster may be filed with the consumer protection division of the [State] Department of Insurance”

Compensation Provisions

Compensation provisions in a contract between a public adjuster and an insured may not be redacted in any copy of the contract provided to the insurance commissioner. A contract between a public adjuster and an insured may not contain any contract term that:

1. Allows the adjuster’s percentage fee to be collected when money is due from an insurer, but not paid
2. Allows the adjuster to collect the entire fee from the first check issued by an insurer, rather than as a percentage of each check issued by an insurer
3. Requires an insured to authorize an insurer to issue a check only in the name of the adjuster
4. Imposes collection costs or late fees
5. Allows the adjuster’s rate of compensation to be increased based on the fact that a claim is litigated, or
6. Precludes the adjuster from pursuing civil remedies

Mandatory Disclosure

Prior to signing a contract with an insured, a public adjuster must provide the insured with a separate disclosure document regarding the claim process that states the following:

“Property insurance policies obligate the insured to present a claim to his or her insurance company for consideration. Three types of adjusters may be involved in the claim process as follows:

1. 1. ‘Staff adjuster’ means an insurance adjuster who is an employee of an insurance company, who represents the interest of the insurance company, and who is paid by the insurance company. A staff adjuster may not charge a fee to the insured;
   2. ‘Independent adjuster’ means an insurance adjuster who is hired on a contract basis by an insurance company to represent the insurance company’s interest in the settlement of the claims and who is paid by the insurance company. An independent adjuster may not charge a fee to the insured; and
   3. ‘Public adjuster’ means an insurance adjuster who does not work for any insurance company. A public adjuster works for the insured to assist in the preparation, presentation and settlement of the claim, and the insured hires a public adjuster by signing a contract agreeing to pay him or her a fee or commission based on a percentage of the settlement or another method of payment.

The insured is not required to hire a public adjuster to help the insured meet his or her obligations under the policy, but has the right to hire a public adjuster. The insured has the right to initiate direct communications with the insured’s attorney, the insurer, the insurer’s adjuster, the insurer’s attorney and any other person regarding the settlement of the insured’s claim. The public adjuster may not be a representative or employee of the insurer. The salary, fee, commission, or other consideration paid to the public adjuster is the obligation of the insured, not the insurer.”

Required Original

A contract between a public adjuster and an insured must be executed in duplicate to provide an original contract to the public adjuster and to the insured.

Availability for Inspection

A public adjuster’s original contract must be available at all times for inspection by the insurance commissioner without notice.

Required Notification

Within 72 hours of entering into a contract with an insured, a public adjuster must provide to the insurer:

1. A notification letter, signed by the insured, that authorizes the public adjuster to represent the insured’s interest
2. A copy of the contract

Right to Rescind

The insured has the right to rescind a contract with a public adjuster within three business days after the date the contract was signed.

A rescission of a public adjuster contract must be:

1. In writing
2. Mailed or delivered to the public adjuster at the address in the contract
3. Postmarked or received within the three-business-day period

If an insured exercises the right to rescind a contract, anything of value given by the insured under the contract to the public adjuster must be returned to the insured within 15 business days following receipt by the public adjuster of the rescission notice.

Notice of Rights

A public adjuster must give an insured written notice of the insured’s rights under the section described in the next heading (Duties of Public Adjuster) as well as under the definitions section of the Act and under the provisions concerning required contract provisions, required disclosures and ability to rescind, described above.

Duties of Public Adjuster

A public adjuster must prepare each claim for an insured in accordance with the terms and conditions of the insurance policy. A public adjuster is required to ensure that:

1. Prompt notice of a claim is provided to the insurer
2. The property that is subject to a claim is available for inspection of the loss or damage by the insurer
3. The insurer is given the opportunity to interview the insured directly about the loss or damage and the claim

A public adjuster may not restrict or prevent an insurer or its adjuster, or an attorney, investigator or other person acting on behalf of the insurer, from:

1. Having reasonable access, at reasonable times, to the insured or the insured property
2. Obtaining necessary information to investigate and respond to a claim, or
3. Corresponding directly with the insured regarding the claim, except a public adjuster must be copied on any correspondence with the insured relating to the claim

A public adjuster may not obstruct or prevent the insurer or its adjuster from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage. Except as described in the next sentence, a public adjuster representing an insured may be present for the insurer’s inspection. If the unavailability of a public adjuster, after a reasonable request by the insurer, otherwise delays the insurer’s timely inspection of the property, the insured must allow the insurer to have access to the property without the participation or presence of the public adjuster in order to facilitate the insurer’s prompt inspection of the loss or damage.

A public adjuster must provide the insured, the insurer and the commissioner with a written disclosure concerning any direct or indirect financial interest that the adjuster has with any other party who is involved in any aspect of the claim.

A public adjuster may not:

1. Participate, directly or indirectly, in the reconstruction, repair or restoration of damaged property that is the subject of a claim adjusted by the adjuster
2. Engage in any activities that may be reasonably construed as a conflict of interest, including, directly or indirectly, soliciting or accepting any remuneration of any kind or nature
3. Solicit or attempt to solicit a client for employment during the progress of a loss-producing natural disaster occurrence
4. Have a financial interest in any salvage, repair or other business entity that obtains business in connection with any claim that the public adjuster has a contract to adjust
5. Use claim information obtained in the course of any claim investigation for commercial purposes (generally, marketing or advertising for the benefit of the adjuster)
6. File a complaint with the commissioner on behalf of an insured alleging an unfair claim settlement practice unless the insured has given written consent for the public adjuster to do so
7. Pay, allow or give, or offer to pay, allow or give, directly or indirectly, to a person who is not a licensed adjuster valuable consideration for the referral of an insured to the adjuster for purposes of the insured’s entering into a contract with that adjuster or for any other purpose, or
8. Accept valuable consideration of any nature, regardless of form or amount, in exchange for the referral by a licensed adjuster of an insured to any third-party individual or firm, including an attorney, appraiser, umpire, construction company, contractor or salvage company

Requirements for Funds Received or Held by Public Adjuster

All funds received or held by a public adjuster on behalf of an insured toward the settlement of a claim must be:

1. Handled in a fiduciary capacity
2. Deposited, no later than the close of the second business day from the receipt of the funds, into one or more separate noninterest-bearing fiduciary trust accounts in a financial institution licensed to do business in the state

Such funds must:

1. Be held separately from any personal or nonbusiness funds
2. Not be commingled or combined with other funds
3. Be reasonably ascertainable from the books of accounts and records of the adjuster
4. Be disbursed within 30 calendar days of any invoice received by the adjuster upon approval of the insured or the claimant that the work has been satisfactorily completed

A public adjuster is required to maintain an accurate record and itemization of any funds deposited into a fiduciary trust account.

Fees and Commissions for Public Adjuster

Except as described in the next paragraph, any fee charged to an insured by a public adjuster must be based only on the amount of the insurance settlement proceeds actually received by the insured and collected by the public adjuster after the insured has received the insurance settlement proceeds from the insurer. A public adjuster may receive a commission consisting of an hourly fee, a flat rate, a percentage of the total amount paid by the insurer to resolve a claim or another method of compensation. An adjuster may not charge an unreasonable fee and may charge a reasonable fee that does not exceed, inclusive of all compensation the public adjuster is paid on a claim, (a) for non-catastrophic claims, 15% of the total insurance recovery of the insured and, (b) for catastrophic claims, 10% of the total insurance recovery of the insured.

If an insurer, not later than 72 hours after the date on which a loss or damage is reported to the insurer, either pays or commits in writing to pay the policy limit of the insurance policy to the insured, a public adjuster:

1. May not receive a commission consisting of a percentage of the total amount paid by the insurer to resolve a claim
2. Must inform the insured that the claim settlement amount may not be increased by the insurer
3. Is entitled only to reasonable compensation from the insured for services provided by the adjuster on behalf of the insured, based on the time spent on the claim and expenses incurred by the adjuster prior to when the claim was paid or the insured received a written commitment to pay from the insurer

Penalties and Other Remedies

The insurance commissioner may place on probation, suspend or impose conditions upon the continuance of a license for not more than 24 months; revoke or refuse to issue or renew any license issued under the Act; levy a civil penalty; or take any combination of actions for any one or more of the causes listed in the Act. These include providing incorrect information in a license application, violating insurance laws or attempting to obtain a license through misrepresentation or fraud.

The commissioner may deny, suspend or revoke the adjuster’s license or may impose a fine not to exceed $5,000 per act against the adjuster, or do both, for any of the following causes:

1. Violating any provision of “this chapter”
2. Violating any administrative regulation or order of the commissioner
3. Receiving payment or anything of value as a result of an unfair or deceptive practice
4. Receiving or accepting any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, from anyone other than an insured
5. Entering into a split-fee arrangement with another person who is not a public adjuster, or
6. Being otherwise paid or accepting payment for public adjuster services that have not been performed

The sanctions and penalties described above are in addition to any other remedies, penalties or sanctions available to the commissioner against a public adjuster under law.

A business entity’s adjuster license may be suspended, revoked or refused for any cause relating to an individual designated in or registered under the license if the commissioner finds that:

1. An individual licensee’s violation was known or should have been known by one or more of the partners, officers or managers acting on behalf of the business entity
2. The violation was not reported to the insurance department nor was corrective action taken

The applicant or licensee may make written request for a hearing.

The commissioner retains the authority to enforce the provisions and penalties of “this chapter” against any individual or business entity that is under investigation for or charged with a violation of such chapter, even if the individual’s or business entity’s license has been surrendered or has lapsed by operation of law.

Any contract for services regulated by the Act that is entered into by an insured with a person or entity that is in violation of the public adjuster licensure requirements of the applicable state is voided. If a contract is so voided, the insured is not liable for the payment of any past services rendered, or future services to be rendered, by the violating person under that contract or otherwise.

Regulatory Authority

The Act empowers the insurance commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Act.