Hired Guns

By ROBERTA WELLS - Press BusinessWriter
from the Asbury Park Press, Sunday, January 31, 1993

Thanks to last month's nor'easter, more people are giving more thought to what is covered by their homeowners and business insurance.
But few people go so far as to read their policies - which are actually contracts - and even fewer fully comprehend them.

Enter the public insurance adjuster.

You say you've never heard of a public adjuster? Then you are among the fortunate who have never suffered fire, flood, riot or wind-storm loss.
It's been estimated that about $3 billion in insurance claims are filed each year in New Jersey with the help of public adjusters. Many people swear by them, while others swear at them.

Unlike insurance company adjuster, whose primary allegiance is naturally, with their firm, public adjusters work exclusively for the insured who have suffered losses. In exchange, public adjusters receive an average of 10 percent of the settlements they negotiate.

At their best, public adjusters are insurance professionals working to get their clients every penny they are legitimately entitled to following a loss. At their worst, they are opportunistic scam artists who descend on potential victims at their most vulnerable, misrepresenting their expertise, or perpetrating insurance fraud.
Following last month's nor'easter, the Federal Emergency Management Agency warned storm victims to make sure they knew exactly how much a public adjuster would charge before signing a contract. FEMA issued the advisory after receiving complaints that some adjusters were not making it clear how much their fees would be or how they would be collected. Fees can run as high as 15 to 20 percent of the settlement claim, officials said, noting that FEMA's National Flood Insurance Program provides adjusters at no fee to inspect sites and help victims file claims.
Consumers who hire public adjusters do so at their own risk. That's because New Jersey is on of only four states in the country that doesn't regulate public adjusters. "Every state (except New Jersey) east of the Mississippi has a statute," said Michael F. Chazkel, an East Brunswick Township lawyer who represents the New Jersey Association of Public Insurance Adjusters.

"It doesn't make sense not to. When there is catastrophe like we just had, we have adjusters coming in from other states, even some known felons who have lost their licenses."

Although there is state legislation pending to regulate the industry, consumers are on their own for now.

Public adjusters maintain that their services will not only get a claim resolved faster, but that the settlement will be larger by at least the amount of their fee.
Public insurance adjuster Leslie L. Knox, president of Andrew K. Knox & Co., Toms River, said consumers can also benefit because adjusters understand insurance law and the complexities and nuances of insurance policies.

"With insurance law, the burden of proof is on you," he said. "They (insurance companies) are not simply going to say, 'Sorry, here's a check for $100,000.'
So, what, exactly, do public adjusters do?

Knox explains that every loss has three aspects: building damage, personal or business property loss, and loss of use.

"We prove item by item, stick by stick, stud by stud, what was lost, down to the last pair of socks and stuffed animal," he said. "You can get a contractor to give you an estimate, but he will not be familiar with insurance policy forma and endorsements. I've seen those estimates: 'Repair fire damages house, $30,000.'

"After a building and property inventory of damage is completed, Knox uses a computer software program designed to prepare claim reports. Every item of property and its replacement value are listed, along with a breakdown by trade: plumbing, electrical, framing, etc. This helps minimize the amount of depreciation deducted from the claim by the insurance company, he explained.

As part of its fee, Knox's firm will also review contracting bids and testify in court as an expert witness should it come to that unlikely end.

"I take a huge risk," Knox said. "I invest my time and money without knowing if I will get paid. If the insurance company denies the claim, I don't get my fee."
As an example, he cites an ongoing claim from the recent nor'easter:

According to Knox, a tenant in a Point Pleasant Beach boardwalk pizza stand named Pizza Plus had his business devastated when the roof blew off, flipped over and landed 10 feet away. Then the front wall fell in, crushing the equipment, including expensive ovens.

The claim for property loss was denied by the out-of-state insurance firm. The company contends the damage was caused not by wind but by flood, which is not covered under the owner's policy.
It's a blatant error on the company's part," insisted Knox. "A flood did not rip the roof off or crush the ovens. It was obviously a funnel of wind that came down the boardwalk."

While preparing his client for the possibility of litigation, Knox said he's trying to settle the claim before it goes to court.
The relationship between public adjusters and the insurance industry is not always a smooth one.

"Obviously, the insurance companies don't like the public adjusters because they get the insured a lot more on their claim," said Paul L. Cordish, a lawyer for the 700-member National Association of Public Insurance Adjusters. "The less they pay on claims, the more they profit. But company adjusters often prefer to deal with public adjusters because they know what they're doing."
But for the record, at least, insurance industry representatives acknowledge the legitimacy of public adjusters.

"Public adjusters are a need group," said Loretta L. Worters, a spokeswoman for the Insurance Information Institute, an organization that provides information to the media on behalf of the insurance industry.

"Take Hurricane Andrew, for example," she said. "There was a huge demand for claims processors…There are good and bad in any group of people, but on the whole, they are beneficial to the industry."

"The average insured who has a fire, flood or wind loss, to him it's a calamity," he said. "It's very emotional. If there ever was someone who needed expert help, it's the insured who suffered a loss. For him to depend on the company adjuster to look out for his interest its foolish."

Julian A. Radossich, president of Allied Insurance Adjusters Inc., Somerville, is also critical of the insurance industry.

"They turn around and treat the insured like criminals because they have public adjusters," he said. "They (the insured) have a right to be represented. It's just like having an attorney represent you in court. You're not equipped to deal with the company adjusters. These people are trained to save their company money' that's what they do."

Apart from the debate over whether public insurance adjusters are needed to settle claims is concern over possible abuse by some public adjusters. Last week, the state Legislature passed the Public Adjuster's Bill (S-908, A-1548) which is in the process of being reviewed by the Florio administration.

Legitimate public adjusters want to be licensed according to Chazkel of the New Jersey Public Insurance Adjusters Association.

"We are in our 17th year of trying to get a licensing bill," he said, "We have gotten to this point two prior occasions under two different administrations, and it was rejected for technical reasons each time.

If the bill becomes law, public adjusters will be under the supervision of the state Department of Insurance. They will have to post a bond, pass a written test, a criminal background check and adhere to a standard of behavior - such as not arriving at a fire scene in the middle of the night and haranguing the owner into signing a contract on the spot. It gives the insurance commissioner the power to levy fines and take other disciplinary action against offenders.

"I have seen some pretty significant problems with builders and electricians professing to be insurance adjusters to get the work and now knowing what they are doing," Chazkel said. "The insured has really been hurt."

Although some states have a set 15 percent fee cap, the proposed bill does not regulate fees, Chazkel said, under the assumption that competition will provide fair fees.

Chazkel claims the measure would generate tax dollars for New Jersey by tax dollars for New Jersey by taxing the work of adjusters from neighboring states who are now taxed only in their home state.

The state Department of Insurance, though, has some reservations about the bill in its present form, said Peter Cammarano, department spokesperson.

"Our main concern is that is lacks adequate consumer protection," he explained. It doesn't provide for a 72-hour period during which the client can revoke the contract, not does it ban referral fees, he explained.

"We are also concerned with some of the administrative aspects," said Cammarano. "We want the commissioner to have the authority to revoke or suspend license for up to five years, instead of one. And the penalties (for first and subsequent offense, respectively) should be $5,000 and $10,000 instead of $2,000 and $5,000."

Without a licensing procedure in place, Cammarano suggests consumers look for other credentials such as membership in the National Association of Public Insurance Adjusters. Members must have experience to join and also pass examinations o three different levels. They also subscribe to a code of ethics.

Tips to deal with public adjusters

To avoid problems, here are some questions to ask before hiring a public adjuster:

  • Are you licensed in another state? At this time New Jersey does not regulate the industry. But many of the top firms are licensed in neighboring states.
  • Are you bonded and insured?
  • How long have you been in business?
  • Where are your offices located and what is the size of your staff: Do you contract out your work? If so, with whom?
  • What is your fee? Average industry fees are 10 percent of a settlement payable when the claim is paid by the insurance company. If a claim is not paid, an adjuster is not paid. Beware of any significantly higher or lower, or anyone asking for money up front.
  • Exactly what services are provided for that fee? Do you charge extra, for example, if you testify for me in court as an expert witness or review my contracting bids?

Some more advice to keep in mind:

To avoid problems, here are some questions to ask before hiring a public adjuster:

  • Take a good look at the business card to see if it clearly shows the National Association of Public Insurance Adjusters seal (NAPIA). If this is illegible, thing again. Unscrupulous adjusters have been known to deliberately smudge phony seals to give the impression they are a member of the organization. To be certified by the national association an adjuster must pass an examination.
  • Do not deal with anyone who asks you to sign any type of "authorization" at the scene for them to: review your policy; board up your house; speak to your insurance agent, etc. If you look closely you will notice these so-called authorizations are really contracts in disguise.
  • Don't be fooled by company names such as, "Allstate Adjusters," or adjusters who appear at the scene announcing: Your agent sent me. Legitimate adjusters have no connection with insurance companies
  • It probably pays to avoid adjusters affiliated with the building industry because of the potential conflict of interest. Although there is some disagreement, it is considered unethical and improper by the NAPIA for an adjuster to be involved in any way with the reconstruction. They believe public adjusters should not even recommend a builder if asked by the insured. Instead, they can provide a list of builders used by previous satisfied clients
  • Never deal with anyone whose address is a post office box.