A Contingency Fee, a Signed Release, and a Carrier's Undervaluation
A public adjuster meets a homeowner two days after a hail storm at her door. The roof is 18 years old and the carrier's adjuster has already inspected and offered $9,400 for a full roof replacement, asserting the roof is repairable. The homeowner has a $5,000 deductible and a $60,000 claim is plausible if the roof and siding are replaced. The adjuster presents a contract at the kitchen table: a 20% contingency fee on "all sums recovered," a three-year irrevocable term, an assignment of claim proceeds, and a clause making the fee due even if the insured settles directly with the carrier. The homeowner is 78, on a fixed income, and has not read her policy. She signs. Three weeks later the carrier raises its offer to $28,000, and the adjuster demands 20% of $28,000. The homeowner's son calls, angry, and asks whether the contract is enforceable and what the fee should be.
1. Evaluate the contract terms against Arizona public adjuster standards and identify which terms are problematic.
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Arizona licenses and regulates public adjusters, and the standards focus on written contracts, clear fee disclosure, and prohibitions on unfair or deceptive practices. The problematic terms here include: (1) a three-year irrevocable term - an unreasonably long lock-in that limits the insured's ability to change representation and raises unconscionability concerns; (2) an assignment of claim proceeds - many states restrict or prohibit assignments of claim proceeds by public adjusters, and it undercuts the insured's control; (3) a fee on sums the insured recovers directly without the adjuster's involvement, which may be unenforceable where the adjuster did not procure the recovery; (4) solicitation at the door two days after a storm, which raises door-to-door and high-pressure concerns; and (5) signing without the policy present or a cooling-off period.
The fee percentage itself is not automatically improper, but 20% of the gross recovery, including money attributable to the deductible or to undisputed amounts the carrier had already offered, is aggressive. The adjuster should have disclosed the fee base, the right to cancel, and the fact that the insured could negotiate directly. The son should request a copy of the signed contract, the adjuster's license number, and a written fee calculation. If the terms violate Arizona's public adjuster statutes or rules, the contract may be voidable or the fee reduced.
2. Assuming the contract is enforceable as written, compute a defensible fee and explain the difference between a fee on the increase versus a fee on all sums.
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As written, 20% of $28,000 is $5,600. But the carrier had already offered $9,400 before the adjuster did any work. A defensible fee should be tied to the benefit the adjuster actually produced. The increase attributable to the adjuster's efforts is $28,000 − $9,400 = $18,600; 20% of that is $3,720. If the adjuster later obtains additional funds - for example, recoverable depreciation or a supplement - the fee can apply to those increments as they are recovered.
Charging 20% of the pre-existing $9,400 would compensate the adjuster for work it did not perform and would reduce the homeowner's net recovery below what she would have received by accepting the original offer. That is the kind of term that invites a fee dispute and a licensing complaint. The adjuster should also confirm whether the deductible is included in the fee base; it should not be, because the insured never receives that money.
The son should ask for a written accounting showing the original offer, the final settlement, and the fee computation. If the adjuster refuses to negotiate, the homeowner may file a complaint with the Arizona Department of Insurance and Financial Institutions and consult an attorney about cancellation and restitution. The adjuster should be reminded that the fiduciary duty runs to the insured, not to the fee.