Three-Day Cancellation and the Nonrefundable Inspection Fee
On May 8 a hailstorm damaged Dana's roof in Jefferson County. On May 10, before Dana had contacted her insurer, a licensed public adjuster, Marcus, knocked on her door and had her sign a two-page contract. The contract gives Marcus 20% of 'all insurance proceeds, including undisputed payments,' states that a $500 inspection fee is 'nonrefundable under any circumstances,' and says the insured 'waives any right to cancel.' It contains no separate notice of cancellation. On May 12 Dana emailed Marcus: 'I cancel. I have not received any settlement and I want to use my own contractor.' Marcus had spent 90 minutes inspecting the roof and had not yet contacted the insurer. The insurer later issued an $18,000 actual cash value payment. Marcus demands the $500 fee and 20% of the $18,000, saying the inspection was valuable and the contract was signed.
1. Evaluate the enforceability of the contract terms under Colorado public adjuster law.
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The contract is defective in at least three respects. Colorado's public adjuster statute and Division rules require a written contract that clearly states compensation and gives the insured a right to rescind within three business days. A clause waiving cancellation and making a $500 inspection fee 'nonrefundable under any circumstances' contradicts that right and is likely void as against public policy. The 20% contingency must be clearly disclosed and cannot be buried; a term covering 'all insurance proceeds, including undisputed payments' may also be scrutinized as misleading if it suggests a fee on money the insurer never disputed. The absence of a separate cancellation notice supports rescission. Marcus cannot rely on the signed page alone; the burden is on the licensee to show compliance.
2. Can Marcus collect the $500 fee or 20% of the $18,000 payment? Explain.
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Timely cancellation ends the agency relationship. The May 12 email is within the three-business-day window; count business days and exclude weekends and holidays. Once canceled, Marcus may not collect the $500 or 20% of the $18,000. The inspection was performed before cancellation, but a public adjuster cannot use a nonrefundable fee to defeat the statutory rescission right. If Colorado law allows a reasonable fee for services actually performed before cancellation, it must be separately disclosed and reasonable; a $500 charge tied to a void 'no cancellation' clause is not supportable. The 20% demand fails because there was no settlement procured under an enforceable contract and the $18,000 was an undisputed ACV payment.
3. What should Marcus do with the contract, fee demand, and claim file after receiving the cancellation?
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Marcus should send written acknowledgment of cancellation, refund any fee collected, stop representing the insured, and notify the insurer in writing that he no longer represents the insured. He must preserve the claim file and provide the insured or successor representative with copies of relevant documents on request, subject to any lawful lien. He should not withhold the file to force payment. He should document the timeline and the cancellation email. If he believes a fee is owed, he should invoice only a separately disclosed reasonable amount and explain the basis, not deduct it from claim proceeds. He should review his contract templates and cancellation notices with counsel and the Division's rules to avoid repeat violations.