Restaurant Fire: Policy Limits, Referral Fee, and a Cousin Contractor
A restaurant owner suffers a grease fire that damages the kitchen hood, ceiling, and inventory. The policy shows a building limit of $250,000, business-income limit of $50,000, and $40,000 for personal property. The owner believes the building is insured for $500,000 and tells the public adjuster, 'Push for $500,000; that's what I've been paying premiums on.' The public adjuster's initial estimate is $310,000 in building damage, $35,000 inventory, and six months of lost income at $9,000 per month. A restoration contractor offers the adjuster a 10% 'consulting fee' for each job referred. The adjuster's cousin owns that restoration company. The owner asks whether the adjuster can get the full $500,000 by including code upgrades and 'future lost customers.' The adjuster has not yet given the owner a written contract or a copy of the policy.
1. What are the adjuster's fiduciary and disclosure duties regarding the $250,000 building limit?
Read the worked answer
The adjuster owes a fiduciary duty of honesty and full disclosure. The policy limit is $250,000 for the building, not $500,000; premiums do not create coverage. The adjuster must promptly give the owner a copy of the declarations page, explain the limits and any coinsurance or sublimits, and correct the misunderstanding in writing. The adjuster must not submit a $500,000 building estimate or imply that the insurer owes that amount. If the owner insists on a false number, the adjuster should document the instruction and explain that presenting it would be misrepresentation. The adjuster can still pursue the full covered amount up to the limit, plus business income and personal property.
2. How should the adjuster respond to the contractor's 10% referral fee and the cousin's ownership?
Read the worked answer
The 10% referral fee is a prohibited conflict and likely an illegal inducement. A public adjuster cannot accept compensation from a contractor for steering work; the adjuster's fee must come from the insured under the representation agreement. The cousin's ownership also creates a conflict because the adjuster may be tempted to inflate the scope or steer the job. The adjuster should decline the referral fee in writing, disclose the cousin relationship to the owner, and obtain informed consent or recommend an independent bidding process. If the owner objects, the adjuster should not use the cousin's company.
3. The owner demands $500,000 including code upgrades and future lost customers. How should the adjuster handle the demand while preserving the claim?
Read the worked answer
The adjuster should separate covered from uncovered items. Code upgrades are payable only if the policy includes ordinance-or-law coverage or the upgrade is required to complete a covered repair and the policy language allows it. 'Future lost customers' is speculative and not covered business income; business income covers actual lost earnings during the period of restoration, not indefinite lost customers. The adjuster should present a documented claim up to the $250,000 building limit, $35,000 inventory, and six months of lost income at $9,000 per month, subject to the $50,000 business-income limit. The adjuster should explain the gap to the owner and refuse to include unsupported amounts.