What gives your humble correspondent the audacity to advise such an august body of professionals as Arizona Bar members of the perils of negotiating with contractors? Simply put, when contractors adjust insurance claims and/or act as advocates for the people with whom they have been retained to use their hammer and saw, it is a problem for all of us. Almost half of the cases in which I served as an expert witness in the past year involved contractors representing homeowners or business owners and adjusting claims without a license. One case even involved a lawsuit against a contractor for participating in the unauthorized practice of law. Obviously I work with many attorneys including some who work for insurers and some who do not. Many have told me contractors have been involved in cases they are defending or prosecuting.
Contractors are not often members of the bar (a prominent remediation contractor in the Valley is) and certainly very few contractors are licensed as adjusters. Inasmuch as the Arizona State Bar Committee on the Rules of Professional Conduct has taken the position that attorneys must not assist non-lawyers in the unauthorized practice of law, there is a professional reason not to negotiate with contractors. Rule 5.5 (b) of the American Bar Association tells us emphatically that an attorney shall not assist a person who is not a member of the bar in the performance or activity that constitutes the unauthorized practice of law. Negotiating with a contractor involves negotiating with someone who is not licensed to represent a claimant. While it is “appropriate and even necessary for an attorney to negotiate with adjusters” (ADOI Circular Letter 2000-11), there is no authority for an attorney to negotiate with contractors. Indeed, the Arizona Department of Insurance has clearly presented this message:
It is not unusual for a property owner’s contractor to discuss the details of building damage with the insurance company’s adjuster, particularly when there is extensive or complex damage. Often the contractor’s expertise is essential to identify precisely what was damaged, the extent of the damage, and the cost to repair it; however, contractors cannot “negotiate” the settlement of the insurance claim with the insurance company representatives on behalf of the property owner, unless they have an adjuster’s license.
Contractors who do obtain an adjusters license represent the single most divisive issue in the regional and national trade associations of public adjusters throughout the country. Serving as president of the Rocky Mountain Association of Public Insurance Adjusters and on the board of the National Association of Public Insurance Adjusters, I can address this issue first hand. Both associations have taken the position that contractor adjusters represent too great a conflict of interest to be a member of either association.
Everyone needs to discover what they want to do when they grow up. If someone wants to be a contractor that is a laudable career. So is being an adjuster. So is being an attorney. It is just too great a conflict to be a contractor and to be allowed to negotiate for his or her client in the role of adjuster or attorney. The contractor can negotiate for himself but it is inappropriate for the contractor to negotiate for others. As adjusters and attorneys, we should not encourage this practice.