The Contractor Cousin and the Padded Inventory
Diane is a Michigan public adjuster representing a homeowner after a dishwasher supply line failed. The policy has a $1,000 deductible and a $250,000 dwelling limit. Diane's cousin owns a water-mitigation company. Diane tells the insured that the cousin's company is the only vendor that will work with the claim, and she accepts a $1,200 gift card after the referral. She also drafts a contents list for the insured that includes a flat-screen TV that was not damaged and advises, The insurer never checks; everyone does this. Finally, she has the insured sign a direction-to-pay form naming Diane as payee for the entire dwelling payment, saying it will speed things up. The insurer issues a $28,000 dwelling check and a $6,500 contents check. The insured calls Diane to ask why the contents check is lower than the list.
1. Identify Diane's ethical and prohibited-practice issues, explaining the duty breached by each.
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As a licensed public adjuster, Diane owes the insured undivided loyalty and a fiduciary duty. Recommending her cousin's company as the only vendor is an undisclosed conflict; accepting a $1,200 gift card is a kickback and an inducement, not a lawful fee. Advising the insured to include an undamaged TV is misrepresentation and attempted fraud. It also exposes the insured to claim denial or rescission. Taking a direction to pay for the entire dwelling payment goes beyond her fee and creates commingling and control risk; the insured should control claim proceeds. These are not etiquette issues. Each undermines the adjuster's duty of good faith and can support DIFS discipline and civil liability. The gift card is especially damaging because it shows a personal financial interest in the referral, not just poor judgment.
2. What should Diane do now that the insurer issued a lower contents check?
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Diane must correct the record, not pressure the insurer to pay the false item. She should tell the insured in writing that the TV was not damaged and must be removed, prepare a revised inventory based on actual damage, and explain the difference between replacement cost and actual cash value if the policy is ACV. She should return the gift card or disclose and disgorge it. She should terminate the cousin referral unless the insured independently chooses the vendor after written disclosure and a realistic alternative. She should also unwind the direction to pay so the insured receives funds and pays her only the agreed fee. If she already received funds, she must account for them promptly. Concealing the error would compound the misrepresentation and turn a correctable mistake into a disciplinary case.
3. What are the likely consequences if the insurer or DIFS learns of the gift card and the inflated inventory?
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The insurer can deny or rescind coverage for intentional misrepresentation, refer the matter for a fraud investigation, and require a revised proof of loss. DIFS can investigate the gift card as an illegal inducement and the inflated inventory as a prohibited practice. Penalties can include fines, suspension, or revocation. The insured may face claim denial or rescission, which is why the adjuster's advice is so damaging. Diane's best mitigation is prompt self-correction, written disclosure, and cooperation. The judgment point is that an adjuster cannot help a client by padding a claim; doing so shifts risk to the client and converts advocacy into fraud. The professional duty runs to the insured's legitimate recovery, not to the largest possible number.