The Spouse-Owned Restoration Company and the Advance Payment

There are at least four conflicts:

1. The spouse-owned contractor. The adjuster has a direct financial interest in steering work to a company owned by his spouse. The $62,000 bid is 18% above two competing bids, which makes the conflict material, not theoretical. The insured is entitled to know the relationship before choosing a contractor.
2. Undisclosed compensation or benefit. Even if the adjuster receives no direct referral fee, the household benefits from the spouse's contract. That benefit must be disclosed in writing and the insured must be free to choose another contractor.
3. The advance. Lending the insured $8,000 creates a creditor-debtor relationship and gives the adjuster an incentive to settle quickly or to direct proceeds to himself. It can also cloud the adjuster's fiduciary duty to maximize the claim.
4. The assignment. Taking an assignment of $20,000 of dwelling proceeds may conflict with the policy's assignment clause and with the adjuster's duty to hold the insured's interests ahead of his own. It also gives the adjuster control over claim funds beyond his fee.

The adjuster should not treat 'handle everything' as informed consent to these conflicts.

The adjuster should stop and correct the relationships before any further work. On the contractor, he should disclose the spousal ownership in writing, provide the insured with the two competing bids and any others the insured wants, and make clear that the insured may select any licensed contractor. He should not negotiate the spouse's bid on the insured's behalf without the insured's written consent and should not receive any payment from the contractor. On the advance, the safest course is not to lend money to the insured; if the insured needs living expenses, the adjuster should help document a loss-of-use claim and request an advance from the insurer instead. If an advance is made despite that, it must be in a separate written agreement, with clear repayment terms and disclosure that it is not a claim payment. On the assignment, the adjuster should not take an assignment of policy proceeds as security; it creates a conflict and may be unenforceable under the policy. The fee should remain the disclosed 10% of the settlement, documented in the contract.

Before any further payment, the file should contain:

• A written conflict-of-interest disclosure signed by the insured, identifying the spouse's ownership of the restoration company and stating that the insured may choose another contractor.
• Copies of all bids, including the two lower bids, and a written explanation of why the spouse's bid is higher.
• A written confirmation that the adjuster will not receive any referral fee, commission, or other benefit from the contractor.
• A revised contract or addendum that accurately describes the fee, the scope of representation, and the insured's right to cancel.
• Documentation of the insurer's $95,000 advance and how it was applied, with a ledger showing the insured's funds and the adjuster's fee separately.
• If any advance from the adjuster is still contemplated, a separate loan agreement with repayment terms and a disclosure that the adjuster is acting as a creditor, not as a fiduciary, for that transaction.
• A written statement that the insured has been advised to consult independent legal or financial advice before signing an assignment.

The adjuster should also confirm that the insurer has been told about the contractor relationship if the insurer is being asked to pay the bid.