Unlicensed Assistant, Inflated Proof of Loss, and the EUO
Luis owns a 60-seat restaurant in Davenport. After a kitchen fire on February 2, he signed a public adjuster contract with Northstar Claims Group. The contract was presented by Kayla, who is not licensed as a public adjuster and is paid a commission; she told Luis she "works under" the licensed adjuster, Mark, who was on vacation. The fee is 10% of "all money paid by any insurer." Kayla helped Luis complete a sworn proof of loss listing $185,000 of contents, including a walk-in cooler that Luis had sold two months earlier and a $12,000 "lost income" figure with no records. Mark reviewed and submitted it without checking the cooler invoice. The insurer's special investigator requests an examination under oath. Luis calls Mark, panicking.
1. What licensing problems exist with Kayla's conduct and Mark's supervision?
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Kayla's conduct is unlicensed public adjusting. Meeting with the insured, presenting the contract, helping prepare a proof of loss, and discussing the claim are not clerical tasks. Iowa licenses individuals, and Mark's license does not cover Kayla's activities. Paying her a commission on the contract compounds the problem because it rewards unlicensed solicitation.
Mark cannot cure the violation by saying Kayla "works under" him. Supervision is not a substitute for licensure. The contract may be rescindable, and the Northstar fee arrangement may be unenforceable as to Kayla's work. The Insurance Division can impose penalties on Mark and Kayla and can pursue unlicensed activity separately.
Mark must immediately stop Kayla from any client contact or claim work, document what she did, and determine whether the contract must be re-presented by a licensed adjuster. He should also review all files Kayla touched.
2. What must Mark do about the proof of loss, and what are the consequences of leaving it uncorrected?
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Mark must not allow a false proof of loss to stand. The cooler was sold before the fire, so including it is a material misrepresentation. The lost income figure lacks support. Submitting an inflated sworn proof of loss can constitute insurance fraud and violates the adjuster's duty of honesty and good faith.
Mark should immediately notify the insurer in writing that the proof of loss is withdrawn and will be replaced, return or credit the cooler amount, and obtain documentation for lost income. He should prepare a corrected inventory with Luis, signed and sworn by Luis, and preserve the records showing the correction. He should not advise Luis to conceal the error.
If Mark leaves the proof uncorrected, he risks license revocation, civil penalties, a fraud referral, and personal liability. The insurer may also rescind the contract or deny the claim. Correcting promptly mitigates the damage but does not erase the original submission.
3. How should Mark prepare Luis for the examination under oath without crossing ethical lines?
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Mark may attend the EUO as the insured's representative and may help organize documents, but he cannot testify for Luis, coach false answers, or treat the EUO as an adversarial contest. He should explain that Luis must testify truthfully, that the transcript can be used later, and that "I don't know" or "I need to check" is better than guessing.
Preparation should focus on the facts: the fire's origin, the business records, the inventory, the cooler sale, and the lost income calculation. Mark should have Luis produce the cooler bill of sale, tax returns, payroll records, and any documentation supporting lost income. If the lost income claim cannot be supported, Mark should advise withdrawing it before the EUO.
Mark should also tell Luis that he cannot provide legal advice and that Luis may want his own attorney. Before the EUO, Mark should send the insurer the corrected proof of loss and a written explanation of the errors. That sequence shows good faith and reduces the risk of a fraud referral.