This month a Texas Court of Appeals upheld an important ruling against a contractor who was involved in the Unauthorized Practice of Public Adjusting (UPPA).
Lon Smith Roofing & Construction entered in to a contract with Gerald and Beatriz Reyelts. In their contract the roofer asserted that Lon Smith was being retained “to pursue homeowners’” best interest for all repairs, at a price agreeable to the insurance company” and to work out “the final price agreed between the insurance company” and Lon Smith. And that “the homeowner is responsible for paying the deductible and for any upgrades. “The final price agreed to between the insurance company and LSRC shall be the final contract.”
The company replaced the roof without notifying the insurance company and then sent a bill to the insurance company for payment. The insurance company denied the claim citing policy language which required the homeowner to allow the insurance company to inspect the damages.
Lon Smith Roofing then billed the homeowner multiple times demanding payment for their services. The homeowners asserted that based on the contract it was the roofing company’s responsibility to notify the insurance company. The judge eventually ruled in the homeowners’ favor. Additionally, under Texas law (as is in other states) a person who negotiates and adjusts an insurance contract for the insured homeowner must be a public adjuster or attorney. It is a crime for a person other the homeowner to adjust a claim when they are not licensed. That fact alone was enough for the judge to state the contract that the homeowners had with the contractor was invalid. At the time that the original contract was signed that was the only law broken but as of today the law is that a contractor cannot also be public adjuster. This is done in order to eliminate a conflict of interest on the claim (so even if he was licensed to negotiate and adjust ha claim a contractor could not legally be the client’s roofer).
Lon Smith Roofing appealed the verdict and two public adjuster associations stepped in to help with the appeal process. They worked with the client’s attorney in drafting and filing the brief that the appeals court reviewed in making their decision. The ruling markedly referenced a brief that was written by Brian Goodman, on behalf of a National Association which uses membership dues and donations to offset the expense of legislative and legal proceedings that could potentially impact consumers.
So how does this affect the consumer, the contractor and the public adjuster?
By upholding this ruling the court has chosen to protect the consumer. The consumer should not have to worry about their claim being in unlicensed hands. An unlicensed person can not review an insurance policy and cannot prioritize the consumer’s best interest when that person is acting illegally. This will directly and positively impact consumers by ensuring that they are using a licensed and potentially bonded adjuster who is knowledgeable and by making sure the insurance proceeds are in control by the consumer not the person practicing the unauthorized practice of public adjusting.
The contractor can focus on what the contractor does best: repair, restore, and build.
The public adjuster can work in tandem with a contractor instead of in competition. The public adjuster can focus on negotiating adjusting, submitting insurance forms and reviewing the policy without the concern of contractor’s improperly representing the insured and jeopardizing a valid claim.
The insurance industry benefits by not having to increase premiums because of fraud or incompetence perpetuated by those who are illegally operating as a public adjuster.
As an adjuster, I don’t talk to judges but I do “measure and document” the valuation of insurance claims and present those claims to insurers. I was recently asked by an ttorney to present a claim that demanded coverage be applied outside of the policy.
We see demands all the time to “reform” the policy and sometimes we see insurers rolling over as well and paying those claims as well; although, this is not something that is common.
Sometimes insurers pay “reasonable expectation” claims that literally amaze me. After the Chediski Rodeo fire, I talked with many individuals who were under-insured and two asked me if I could get their policies “reformed.” Of these two, both were insured by State Farm. I declined, referring them to attorneys who might help them if their agent had “failed to place the proper coverage”, which would be an extra-contractual claim. Both insureds declined and pursued their claims on their own. One was paid. The other was not. It amused me that the one that was paid was a destroyed second home of a famous football player. The one that was not paid was the claim of a “commoner”.
Why some insurers so easily pay celebrity claims is beyond me but these insurers must want to take care of the famous or politically connected. You may recall that State Farm paid money to Paula Jones that laid her claim against Bill Clinton to rest. State Farm paid that claim under Bill Clinton’s Umbrella Policy despite State Farm’s own practice of denying claims where “a law may have been broken.”
Let’s face it, reasonable expectations can differ from individual-to-individual depending on that person’s sense of entitlement. However, some non-politically or famous insureds do have a causal base to pursue such “reasonable expectations” claims based upon many factors which include (1) the agents’ responsibility to place proper coverage (See Southwest Autobody v. Binson), (2) notices to the insured in policy renewal billings, (3) advertising brochures and other reasons which may create reasonable expectations.
The reasonable expectations doctrine applied in Arizona includes the theory that when insurance terms cannot be understood by the reasonably intelligent consumer, the court will interpret those terms in a manner that allows the benefit of those terms to inure to the consumer even when there is no coverage. (Hanks v. American Family Mutual, Gordinier v. Aetna Casualty).
I believe that the doctrine of reasonable expectations will gain momentum. For years, we have been involved in claims that involve “matching” issues only to see insurers hang onto their wallets and not pay such claims. However, things are changing and these claims are getting paid, even though I know that realistically, insurers cannot take the hit for all economic losses that an insured might encounter. As a consequence of this, insurers are responding with pointed language in their policies that no matching losses will be considered. We’ll see where this issue goes from here. But … in the meantime, insureds will continue to make such claims if it makes sense knowing that insurers won’t roll over easy, unless they are making payments to Bill Clinton or football stars.
It is common knowledge that dispute valuations in insurance claims leads to “appraisal.” Appraisal is a somewhat of a buzz word for arbitration where arbitrators (appraisers) determine values. Simply put then, an appraiser is an arbitrator and appraisal is an arbitration. This isn’t totally a fair equation of words. After all, a brown trout is different from a rainbow trout. Arbitration is not an appraisal, but an appraisal can be an arbitration, especially when the courts have decided such a thing.
The appraisal provision in insurance policies was placed in these policies many years ago to prevent or foreclose upon litigation and provide both insureds and insurers a method in which to value a claim outside of a courtroom. A typical insurance policy will have an “appraisal” process which must be undertaken before an action can be brought on a policy.
The parties in the policy, the insured and the insurer, each appoint an appraiser who select a third appraiser as the umpire. The appraisal panel then works like a three judge appellate court where the parties will present their valuation positions before the panel and two of the three appraisers can sign an award that is binding upon all parties.
This week while serving as an appraiser, the insured wanted us to consider input from sources which the insured was vital to his case and subsequently requested a hearing. While the other appraiser was lukewarm over the idea due to his involvement in so many appraisals where there had not been a hearing, I agreed. However, the umpire we had selected would have nothing to do with a hearing. As a matter of fact, he insisted that no hearing could be held. Instead, he said the parties had to allow the appraisers to determine values without input from either. The umpire was wrong. I raised a complaint to that position and the umpire resigned.
In some respects, his resignation was a gift to the parties because by denying a hearing, any award could be challenged, but is a hearing really required?
Arizona revised statutes contemplate that a hearing take place where requested. Nothing in the insurance agreement says that the appraisal will be decided without a hearing. There is nothing in the policy contradicting the right to a hearing. However, we must first look at our Arizona case law. According to Hanson v. Commercial Union Ins. Co., 723 P.2d 101 (Ariz. Ct. App. 1986), arbitrations provisions in our Arizona Statutes apply where not contradicted by the language of the insurance agreement. Specifically, in view of the similarity between arbitration and appraisal enforcement proceedings (Jefferson Ins. Co. v. Superior Court (1970) 3 Cal.3d 398, 401, 90 Cal. Rptr. 608, 475 P.2d 880), the court applied the standard of arbitration set forth in A.R.S. 12-1505 and A.R.S 12-1512 to the appraisal proceeding and created the general standard of review applicable to arbitration. If appraisals are controlled by the arbitration statutes, hearings, if requested, are necessary.
A.R.S. §12-1505 provides various reasons for which an award might be opposed. A.R.S 12-1512, A, 4 stands tall where it clearly sets forth that an appraisal award can be challenged when, “the arbitrators refused to postpone the hearing upon sufficient cause being shown therefore or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 12-1505…”
The court may order an appraisal rehearing before the arbitrators who made the award or their successors appointed in accordance with section 12-1503. The time within which the agreement requires the award to be made is applicable to the rehearing and commences from the date of the order.
Appraisal is a wonderful method to resolve valuation disputes. It is unfortunate that so many people, including the umpire we had selected as our third appraiser, lack knowledge of this simple procedure. The appraisal must commence in an appropriate manner, which includes offering a hearing to the parties. Following proper procedures will prevent the appraisal award from being challenged.