Catastrophe Backlog, an Unlicensed Adjuster, and a Steering Offer
You are a staff adjuster for an insurer writing homeowners coverage in Kentucky. After an April hail storm you have 60 open claims and a growing backlog. Your manager proposes assigning 25 of them to a retired Tennessee claims examiner with 30 years of experience who holds no Kentucky license and would work as an independent contractor. Separately, a Kentucky-licensed public adjuster contacts you offering to steer four insureds to your company's preferred contractor in exchange for a referral fee, and one of those insureds has already signed a public adjuster contract with him. A claimant's attorney also files a Department of Insurance complaint stating that you received her demand letter 24 days ago and have not responded.
1. Can the Tennessee examiner work these claims? What has to happen before he touches a file?
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Not as things stand. An independent adjuster must hold a Kentucky adjuster license before investigating or settling Kentucky claims. Thirty years of Tennessee experience and an out-of-state reputation do not substitute for licensure.
Three lawful paths:
- He obtains a nonresident Kentucky adjuster license through the standard application and background process (and any reciprocal credit available to him).
- The Commissioner has declared a catastrophe and issued emergency adjuster permits, and he is appointed under that program with its time and supervision limits.
- The work goes to licensed Kentucky adjusters or staff.
Assigning files to him now would violate KRS Chapter 304.9 and taint the product of his work: recorded statements, damage evaluations, and settlements reached by an unlicensed adjuster invite Department action and hand the insured's attorney an argument on every file he touched. The backlog is a staffing problem; solve it with overtime, temporary licensed examiners, or a licensing application filed today - not by breaking the rule.
2. How do you handle the public adjuster's referral-fee offer and communications with the insured who has signed his contract?
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The offer. A public adjuster represents the insured and is paid by the insured. Offering him a fee to steer insureds to a preferred contractor is a conflict of interest and a prohibited inducement, and a contractor-referral pipeline run through a public adjuster cannot be allowed to color the claim. Decline in writing and escalate it internally; do not let a vendor relationship, however informal, create an appearance that the claim was steered.
Communications. Once the insured signs a public adjuster contract, address claim correspondence to the public adjuster and confirm the representation in writing, including a copy of the signed contract. Obtain the insured's written authorization before discussing the claim with the insured directly, and route any direct contact with the insured through that authorization. Verify that the public adjuster is Kentucky-licensed and that his fee agreement complies with Kentucky's public adjuster requirements; if the contract looks defective, report it rather than ignore it. Pay the public adjuster nothing from the insurer's side.
3. What does Kentucky's unfair claims practices law require here, and how do you respond to the Department complaint?
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Kentucky's Unfair Claims Settlement Practices Act (KRS 304.12-230) prohibits failing to acknowledge and act reasonably promptly on communications about a claim, failing to conduct a reasonable investigation, and failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement once liability has become reasonably clear. Twenty-four days with no written response to a demand letter is a documentation problem and potentially a violation, regardless of how meritorious your eventual position is.
What to do now:
- Pull the file and confirm the date the demand was received and logged, and who had it.
- Respond to the attorney in writing today - even if the response is 'received, under investigation, here is what we still need' - and document every contact attempt.
- Audit the file for other prompt-pay exposure. Kentucky's prompt-pay statute requires payment within 30 days of a settlement agreement or final judgment and exposes the insurer to interest and attorney fees where delay is unjustified.
- Answer the Department inquiry factually and on time through the insurer's compliance channel, with the correspondence attached. Do not editorialize; let the file speak.