Tornado Aftermath: Unlicensed Adjuster and a Flawed Contract
On May 19, a tornado damages 400 homes in a Kansas county. A public adjuster licensed in Missouri but not Kansas sets up a table at a community center 10 hours after the storm. A homeowner with $180,000 dwelling coverage signs a contract agreeing to 15% of any settlement, with no right-to-rescind notice and no written disclosure that the adjuster is not licensed in Kansas. The adjuster tells the homeowner, 'I can start immediately; Kansas reciprocity covers me.' The contract also names the adjuster's unlicensed son as a 'claims technician' who will inspect the roof. Two days later, the homeowner's insurer issues a $42,000 advance payment for emergency repairs. The homeowner wants to cancel and asks whether the contract is enforceable and what to do about the advance.
1. Does the adjuster's Missouri public adjuster license permit him to negotiate this Kansas claim? Explain the licensing principle and the risk to the insured.
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No. A public adjuster license is issued by the state where the adjuster acts. Missouri licensure does not authorize negotiating a Kansas claim, and Kansas does not extend automatic reciprocity to public adjusters. The adjuster must hold a Kansas license or a Kansas nonresident license before soliciting, negotiating, or settling a claim in Kansas. Acting without it is unlicensed activity, exposes the adjuster to administrative penalties, and gives the insured grounds to challenge the contract. The insured should verify the license through the Kansas Insurance Department, stop sharing documents, and demand a written accounting. The adjuster's statement that 'reciprocity covers me' is a red flag because it confuses producer reciprocity with public adjuster authority.
2. Identify the contract defects and state whether the homeowner can rescind. What should the adjuster do with the $42,000 advance?
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The contract has at least three defects: it was signed with a person lacking Kansas authority; it omits the statutorily required right-to-rescind notice; and it does not disclose the fee and license status in the required form. An unlicensed contract is generally voidable at the insured's election, and omission of the cancellation notice may extend the rescission period. The 15% fee is not automatically unlawful, but no fee should be collected on a contract that cannot be enforced. The adjuster should provide a written cancellation, refund any fee or deposit, and not claim a lien on the advance. The unlicensed 'claims technician' should not inspect or negotiate.
3. What immediate compliance steps should the adjuster take, and what should the adjuster tell the homeowner about the advance?
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The $42,000 advance belongs to the insured and is intended for emergency repairs. The adjuster should not deposit it, endorse it, or use it to pay the adjuster's fee. The adjuster should tell the homeowner to keep the advance in a separate account, document how it is spent, and provide the insurer with receipts. If the adjuster already received the check, the adjuster must hold it in trust and return it. The adjuster should also notify the insurer in writing that representation is being terminated and that the homeowner is handling the advance directly. Any attempt to tie the advance to the fee should be avoided.