The Cousin's Bid and the Deductible
A dwelling claim settles at $45,000 replacement cost. The policy has a $2,000 deductible, so the carrier issues a $43,000 check payable to the insured and to First Lien Mortgage. The public adjuster's contract is 10% of amounts paid. The insured now proposes: bill the carrier for the full $45,000, have the adjuster's cousin's restoration firm do the work for $38,000 (the adjuster owns 30% of that firm), "and everybody wins." The insured also asks the adjuster to "add the back fence - it was already leaning before the storm, but nobody will check," and to hand him his fee in cash out of the check so the mortgage company "doesn't get involved."
1. Analyze the deductible and fence proposals. What are the adjuster's obligations?
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The deductible. It is a contractual obligation of the insured and cannot be waived, absorbed by the adjuster, or absorbed by a contractor through an inflated invoice. Presenting a $45,000 invoice knowing only $38,000 of work will be done is a false statement in support of a claim - insurance fraud exposure under Texas law for both the insured and anyone who assists - and for the adjuster it is also a misrepresentation of the loss in violation of Chapter 541 and a breach of the license standard. There is no version of "everybody wins" here; the loser is the carrier, and the adjuster's license is the collateral.
The fence. The adjuster has actual knowledge that the fence damage pre-existed the loss. Including it is a knowing misrepresentation. It also contaminates the whole file: a carrier that catches one padded item is entitled to view every remaining line with suspicion, and material misrepresentation in a proof of loss can jeopardize coverage for the entire claim.
Obligations. (1) Refuse both requests in writing, with the reasoning, so the refusal is documented. (2) Exclude the fence and document the pre-existing condition with dated photographs. (3) If the insured insists on the false invoice, the adjuster must withdraw from the engagement rather than participate - withdrawal is always cheaper than complicity. (4) Disclose the cousin relationship immediately regardless of how the repair question is resolved.
2. The adjuster owns 30% of the firm he wants to recommend. Assess the conflict and what must happen.
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The conflict. A public adjuster who has an ownership interest in the entity performing the repairs is on both sides of the same transaction: the higher the repair scope in the claim, the larger the settlement, the larger the fee, and the larger the construction revenue - all funded by one carrier on one loss. The insured can never tell whether the scope was built to repair the house or to feed the affiliated company.
Disclosure does not cure it. Telling the insured about the 30% stake and getting a signed consent does not fix an arrangement that is prohibited in substance. An adjuster may not accept compensation from any source other than the insured for the same claim, and may not steer a claimant into an affiliated repair business. Referral fees and ownership interests in remediation firms are classic grounds for license suspension or revocation.
What must happen. (1) The adjuster does not recommend, bid, or negotiate the repair contract. (2) The insured selects a contractor independently and preferably gets three bids. (3) No money flows from the restoration firm to the adjuster in connection with this claim. (4) The relationship is disclosed in writing in the file, and if the adjuster cannot operate cleanly around it, he resigns the engagement.
Test to apply to any arrangement: would the insured, reading a plain description of the arrangement, still be able to trust that the scope of loss reflects the damage and nothing else? If the answer is not an immediate yes, decline it.
3. The insured wants cash for the fee and wants the mortgage company left out. Address the fee computation and the check-handling rules.
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Two-party check. The check is payable to the insured and First Lien Mortgage. Under the mortgage clause, the lender's interest must be protected; the carrier's obligation is discharged only against proper endorsement. The adjuster cannot "leave the mortgage company out." Circumventing a loss payee - by splitting the check, cashing it as an accommodation, or depositing it into the adjuster's own account - is conversion and a direct fiduciary breach.
Proper sequence. Obtain endorsement from both payees; where the lender requires it, submit the contractor's estimate and contract for the lender's approval and let the lender disburse in draws. Escrow the funds in a trust account, never commingled with operating funds, and issue an itemized accounting to the insured.
Fee computation. The settlement is $45,000 and the carrier paid $43,000 after the deductible. Compute the fee on the amount actually paid and received - 10% × $43,000 = $4,300 - and state the basis on the invoice. If the adjuster contends the fee runs on the gross settlement, he must make that argument in writing and reconcile it with the fact that the deductible dollars never reach anyone. What he may not do is take a round-number cash payment with no invoice.
Cash request specifically. Paying the fee in cash to avoid the lender is a request to conceal a transaction. Refuse, invoice properly, and document the refusal. Combined with the false-invoice and fence proposals above, this file has crossed from a difficult client to a client the adjuster should no longer represent.