The Basement the Client Wants to Add
Marcus is a licensed Indiana public adjuster retained by the Hendersons after a kitchen fire in their owner-occupied home. The policy has a $350,000 dwelling limit. The insurer's building estimate is $62,000; Marcus's detailed estimate is $88,000. While reviewing photos, Marcus sees old water staining and soft drywall in the finished basement ceiling. The homeowner says, "My cousin had a pipe leak last winter; we never filed. Add the basement to the fire claim-the adjuster will never know. I'll pay your fee out of the extra." The insurer later issues a $70,000 settlement check payable to the Hendersons and their mortgagee. Mr. Henderson asks Marcus to deposit the check in his business account, take his 10% fee, and forward the rest.
1. How should Marcus respond to the request to include the basement water damage in the fire claim?
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Marcus must refuse. A public adjuster may advocate aggressively for coverage that is fairly debatable, but may not present known unrelated or pre-existing damage as part of the fire loss. Including the basement would be a material misrepresentation to the insurer and could constitute insurance fraud; it also breaches Marcus's fiduciary duty and his duty of good faith. Marcus should explain in writing that the loss must be causally related to the fire, document the pre-existing staining with photos and notes, and advise the homeowner that the prior pipe leak may be a separate claim if timely and covered. If the homeowner insists on presenting the false claim, Marcus should decline to include it and consider withdrawing from the engagement after written notice. He should not threaten to expose the client; he should simply not participate. His fee is earned only on the amount actually recovered, not on the inflated demand.
2. May Marcus deposit the $70,000 settlement check into his business account, take his fee, and forward the balance? Explain.
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No. The check is payable to the Hendersons and the mortgagee, so it cannot be negotiated without proper endorsements. A public adjuster's fee is contractual and capped at 10%; it should be computed on the funds actually collected and only after the check clears and any lender requirements are addressed. Marcus should not commingle client funds with his business funds. If he is authorized to handle the funds, he should use a trust or escrow account, obtain the insured's written authorization, and keep a ledger. Many mortgage clauses require the lender's endorsement or escrow of the insurance proceeds for repairs. Marcus should explain that the lender may control disbursement, provide a written fee statement, and forward the balance promptly. If he is not authorized to handle the check, he should return it for endorsement. Depositing it into a business account and deducting a fee unilaterally would create a fiduciary breach and potential conversion claim.
3. What documentation and client communications should Marcus create for this file?
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He should keep a complete claim file: the signed contract and cancellation notice, fee disclosure, photos of the fire damage and the pre-existing basement staining, estimate line items, insurer correspondence, the settlement breakdown, check copies, endorsements, escrow ledger, and a written fee invoice. He should send the client a letter confirming that the unrelated basement damage was excluded and why, and a separate letter explaining the check-handling process, mortgagee rights, and fee calculation. Any oral advice should be confirmed in writing. If the client insists on fraud, the file should document the refusal and the withdrawal. These records protect the insured, show good faith, and give the adjuster a defensible record if the insurer, lender, or Department of Insurance later questions the claim.