The Contractor Connection
A Louisiana-licensed public adjuster, Marcus, owns 40% of a restoration company. After a kitchen fire at a restaurant, Marcus presents a single package: a public adjuster contract at 10% of the insurer's settlement, plus a restoration contract at 15% overhead and profit through his company. He asks the owner to sign an assignment of benefits directing the insurer to pay the restoration company and to 'handle all communications' with the insurer. Marcus does not disclose his ownership interest. He tells the owner that using another contractor will 'slow the claim' and that the 10% fee is payable even on the deductible and on any amount the insurer refuses to pay. The insurer's adjuster later sees the assignment and questions the arrangement. The owner has not yet signed the restoration contract, but Marcus has already ordered demolition.
1. Identify the ethical and prohibited-conduct issues in Marcus's arrangement.
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Marcus has created a direct conflict of interest. A public adjuster must represent the insured's interests, but Marcus stands to profit from the restoration contract on the same loss. Louisiana prohibits a public adjuster from acting as a contractor on the same loss or receiving compensation from a contractor, and it requires disclosure of any financial interest. Marcus's 40% ownership is material and was not disclosed.
Several other problems stand out. Presenting the adjusting and restoration contracts as a single package improperly steers the insured and undermines the insured's right to choose a contractor. Telling the owner that another contractor will 'slow the claim' is coercive. Charging a 10% fee on the deductible and on amounts the insurer refuses to pay is suspect unless the contract clearly authorizes it and it is consistent with statute; a fee on money the insured never receives creates an improper incentive. Ordering demolition before the restoration contract was signed may also have prejudiced the claim evidence.
Marcus should have disclosed his ownership in writing, offered the adjusting contract separately, encouraged the owner to obtain independent contractor bids, and avoided any compensation from the restoration company.
2. What should the adjuster do about the assignment of benefits and the fee provision?
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The assignment of benefits should not be used to shortcut the public adjuster relationship. An assignment may be limited by the policy and by Louisiana law, and even a valid assignment does not cure the conflict created by Marcus's ownership of the restoration company. The adjuster should withdraw the assignment, explain to the owner that it transfers claim rights to the contractor, and confirm that the owner remains free to communicate with the insurer and choose any licensed contractor.
The fee provision must be rewritten to state exactly what the 10% applies to. If the statute or contract does not authorize a fee on the deductible or on unpaid amounts, Marcus cannot charge it. The owner should receive a written disclosure of the fee calculation, the right to cancel, and the fact that the public adjuster is not the contractor. If Marcus wants to keep the restoration contract, he should not act as the public adjuster on the same loss; another adjuster should handle the claim. The insurer should be notified in writing of the corrected arrangement and the owner's authorization.