When An Insured Fired A Public Adjuster: The Sequel, DD 12/06
Defense Digest
Pennsylvania - Insurance AdjustingWhen An Insured Fired A Public Adjuster: The Sequel
By James H. Cole, Esq.*In the March 2005 edition of this publication, I reported on the then recent Pennsylvania Superior Court opinion in Insurance Adjustment Bureau, Inc. v. Allstate Insurance Company, 86 A.2d 1038 (Pa. Super. 2004). See "When the Insured Fires a Public Adjuster," Defense Digest, Vol. 11, No. 1, March 2005.
In that article I reported the good news that the Pennsylvania Superior Court provided guidance as to an insurance company's obligation to a public adjuster when an insured fires a public adjuster. In Insurance Adjustment Bureau, Inc. ("IAB"), the insured suffered a fire loss on June 5, 2002. On June 7, 2002, the insured retained the services of IAB in exchange for a ten percent contingency fee. The pertinent public adjuster contract language was as follows:
The insured agrees to pay for such services, a fee of ten (10) percent of the amount paid or agreed to be paid by the insurance companies in settlement of the loss, and reasonable expenses, hereby assigning to IAB on monies due or to become due from the insurance companies. The fee shall be due after proof of loss or sworn to and/or first proceeds issued. [IAB] hereby agrees to perform the said services and to receive therefore a consideration described below. This agreement contains the entire agreement between the parties and may not be changed, altered, or amended by a writing signed by all parties hereto, . . . You, the insured may cancel this contract at any time prior to midnight on the 4th calendar day, after the date of this contract.
For whatever reason, on August 7, 2004, the insured terminated IAB's services. After a settlement check was issued payable to the insureds only, the public adjuster sued not the insureds, with whom it had a contract and who terminated its services, but, instead, Allstate Insurance Company for breach of contract, conversion, and breach of assignment. The Superior Court and the trial court determined that the language of the contract did not create an irrevocable assignment but, instead, created a revocable agent/principal agreement. Accordingly, per the trial and the Superior Court, IAB had no viable cause of action against Allstate. IAB appealed to the Pennsylvania Supreme Court, and the Pennsylvania Supreme Court granted allocatur.
In the Supreme Court, IAB argued that the agreement between the insured and IAB created an irrevocable assignment, while Allstate argued that the agreement gave IAB nothing more than a right of insurance proceeds for the purposes of collection.
The Supreme Court did not ultimately decide the scope of the contract, but overruled the Superior Court based on the fact that an issue existed concerning the meaning of the contract and found that dismissing the plaintiff's complaint solely on the allegations was premature. The Supreme Court found that the language of the agreement could be interpreted either as suggested by IAB or by Allstate. They found that, although ambiguities are generally interpreted against the drafter of a document, if a contract is ambiguous, evidence outside the agreement, such as the parties' testimony, may be considered in order to interpret the parties' intentions.
Because the Supreme Court overruled the Superior Court's opinion, but failed to determine whether the provision in question did or did not create irrevocable assignment, the Court muddied the waters as to when an insurance company is obligated to protect the interests of a public adjuster.
After IAB one thing is clear. A public adjuster has a valid cause of action that will survive preliminary objections against an insurance company that issues payment without protecting the public adjuster's interest, regardless of whether the insured terminated the public adjuster's services. The public adjuster must only plead that the language of his or her contract with the insured created an irrevocable assignment.
Specific to the IAB case, a finder of fact could still determine that the agreement was not an assignment of benefits. However, that will only be determined after what could be long and expensive litigation. Also, it is not hard to imagine an insurance company being sued by its insured for including the public adjuster's name on the draft after the public adjuster is fired, arguing that the public adjuster contract did not create an "irrevocable assignment."
Faced with such a "Catch-22," I would suggest that, if an insured advises that he has fired the public adjuster and requests that the public adjuster's name be left off the settlement draft, the public adjuster contract be carefully analyzed. If the agreement clearly creates a revocable agency/principal relationship, then the public adjuster's interest need not be protected. If the agreement clearly creates a irrevocable assignment, the public adjuster's interests must be protected. The problem is how to determine what is created by the third party contract. The Pennsylvania Supreme Court could not make such a determination; so how is an insurance company supposed to do so?
If the language is not clear, the safest position may be to always include the public adjuster's name on any settlement draft. If it seems clear that such an arrangement will result in litigation with the insured, some consideration could be given to paying the proceeds into the court. However, the mortgage company also has an interest and must be a party to any petition filed relative to payment into the court. Of course, while the insured, the public adjuster and the mortgage company litigate how to split up the proceeds of the settlement, the property is not being repaired. Perhaps the public adjuster and the insured would agree that a separate check be issued for the public adjuster's fees and costs so repairs could proceed.
Regardless, given the latest decision by the Pennsylvania Supreme Court, it is imperative that an insurance company consider seeking legal counsel whenever an insured requests the name of the public adjuster be left off of a settlement draft.
* Jim Cole is an associate in our Doylestown, Pennsylvania office. He can be reached at jhcole@mdwcg.com or (267) 880-2026.
