Protecting Public Adjusters and Insureds

Every once in a while, a bill is proposed that will reverberate through an entire industry like a targeted drone strike that would be felt by all in an industry for decades to come. I appreciate that this sounds like hyperbole, but the proposed bill in Kentucky is just such a bill. As I have become more involved in this industry as a whole, I’ve had an opportunity to step out of the courtroom and onto the legislative floor. And while I have been home based in Pennsylvania and New Jersey, I have had great opportunities to protect policyholders in states all over our country. I no longer see this industry of insurance as a local issue, but rather a national issue. So lets start with a review of why every state should care what happens in Kentucky.

What happens in Kentucky, Does Not Stay in Kentucky.

This isn’t Las Vegas. This is a legislative bill that will be reviewed by every state’s Insurance Department, Senate, and House. If there is one thing I know from being in this industry as long as I have, states are not wholly autonomous. From the legislature to the courtroom to the tactics, there are nearly infinite interstate communications that effect the daily lives of insureds, carriers, public adjusters, IA’s, you name it. We have seen carriers test new policy language in one state only to expand it to their national offerings. We have seen first hand state legislatures review other state laws and data to determine what should be done in their state. So when you hear about this bill, the question is not whether or not it will effect you in Kentucky, the question is, what will happen if this is passed in my state?

The Kentucky Public Adjuster Licensing Bill Biggest Problem

So what does this bill propose anyway? There is a lot to fully unpack in this proposal, and I will be happy to discuss them with you individually if you’d like, but I want to focus on what I see as the biggest attack on policyholders contained in this bill. This bill proposes three fee caps:

1. 2.5% fee cap on the first $25,000 of a claim;
2. 10% fee cap on all amounts over $25,000;
3. 10% fee cap on for catastrophe claims

These caps are a direct attack on policyholders and would give insurance carriers a nearly free pass on over 90% of all claims. That means, for over 90% of all claims, the insurance carrier conduct would go unchecked and uncontested by any professional able to represent the insured. Let me explain.

The Important Data

1. 87% of all claims nationwide are valued at between $2,494 and $7,163, between 2008 and 2012. (Insurance Information Institute 2010, 2015 Insurance Fact Book)
2. $13,814 was the average payout on a claim between 2014-2018. (2021 Insurance Fact Book)

What It All Means

Given the proposed fee caps and the current data we have, over 90% of all claims would fall under the $25,000 threshold for the 2.5% fee cap. There is no secret as to the effect this will have. No public adjuster could handle a claim under $25,000. Period. In fact, I would venture to guess most claims under $50,000 would not have a public adjuster because the net fee would equate to 6.25%. Even with a loss at $100,000, the net fee would be 8.125%.

As a result, those insureds, who make up the vast majority of all claims being handled by insurance companies, are left without a single resource to protect them. This is an unacceptable outcome. Every insured, whether it be a homeowner, small business owner, landlord, tenant, or multibillion dollar corporation deserves the choice of representation. This bill will functionally eliminate that choice. This bill will allow insurance companies to run unchecked and unchallenged on over 90% of the claims they handle.

So I only have one question for anyone, whether individual or organization, who supports this bill; Why does the little guy not deserve protection and help on a claim?

The Choice of Assistance is Not the Only Choice Lost

In a free market society like we have in the United States, the individual has the option of choices within a marketplace. Someone can choose to buy the Honda or the Mercedes, the Casio or the Rolex, the sterling silver or the platinum jewelry. The daily choices we make on products and services are essential to our society. Lets be clear, not all products and services are made the same. This is just as true for public adjusters as it is for cars, watches, contractors, and any other product or industry out there.

As a result of this bill, the homeowner with the $10,000 loss will have no choice in a public adjuster at all, let alone a choice between multiple. Lets looks at a simple example. Lets say a person has a water claim that will actually cost $20,000 to repair. The insurance company limits the scope of damage and lowballs an estimate that only totals $2,300. There is a $1,000 deductible so they are netting $1,300. The homeowner goes in search of help. Without this bill, they call and find 3 adjusters able to help who will charge anywhere between 20% – 30% to handle the loss. They then choose between them based on reviews, recommendations, gut feeling, etc. on who to go with. Perhaps the best reviews and results come from the person charging 27.5%, so they go with them. Great. The market has worked as intended.

Now lets flip to the exact same situation, but now the Kentucky Public Adjuster Bill is in place. As soon as that homeowner starts calling around, they will have no one to help. No public adjuster can possibly justify coming in on a claim with $17,700 in dispute being capped at 2.5%. The amount of work needed to inspect, estimate, present the loss, letter writing, phone calls, and negotiations could never justify the best case scenario of $442.50.

There are many things we can do to help this industry. We can grow, learn, work together to make things better. We can educate the public as well as the public adjusters. But we need boots on the ground to be a check and balance on carriers. And for the record, the carriers need to be the checks and balance on public adjusters too. They are both the first line of defense to bad actors. But the only way we have those mutual checks and balances is to not have a bill like this in place. This proposed Bill in Kentucky will be a free pass granted to carries that we simply cannot agree to.

What can you do?

There are a few things you can do today to help, so let me make them clear:

1. Join an association that will lobby and contest this bill to expose it for what is is (AAPIA – American Association of Public Insurance Adjusters).
2. Reach out to Holly Soffer or me, Anthony DiUlio to ask how you can help
3. Contact the Kentucky Governor’s Office to voice your objection (Contact Here)
4. Contact Robert Duvall, the Legislator responsible for this bill (Contact Here)

We need to make sure everyone is aware of this. It doesn’t just effect Kentucky, it effects everyone in this industry. Let us make sure our voices are heard.

AAPIA Litigation Director Anthony “Tony” DiUlio settled a major class Action Suit against Travelers regarding Traveler’s denial of Rot claims, bringing not just monetary damages to the class members, but also a change in future claims handling. The terms of the settlement, and instructions from the Court, complete with deadlines, can be found here.

The suit involved a situation where the claimant noticed a stain on the ceiling and, upon examination by a plumber, found Rot above the ceiling. Rot Remediation Coverage was included in the policy, up to a limit of five thousand dollars. Travelers denied the claim anyway, arguing that the damage was as a result out of long-term seepage, even though such Rot was hidden and unknown to the insureds until the stain formed on the ceiling.

Tony DiUlio investigated further and found that Travelers was routinely denying these claims, even though such coverage was included and paid for with premium dollars. Such claims were mostly limited to $5,000.00, and Travelers had not been challenged legally. Tony saw an injustice and formed a class action lawsuit in order to compensate those whose claims had been wrongfully denied. Even better, Tony has effected real change, and helped future victims of damage by forcing Travelers to change its claims handling practices going forward—a tremendous result!

The settlement will award damages to class members, according to a chart, and those details, as well as the details of the future claims handling can be found here. Tony DiUlio was not available for comment on the settlement, but if you have questions about how this affects closed claims, or future claims, please contact him at adiulio@wdblegal.com. Notice will be sent by Travelers’, via email to affected parties.

By Holly K. Soffer, Esq. AAPIA General Counsel

Much has changed in the world since my blog on March 24^th. Not only are there new phrases in our lexicon such as “zoom happy hour”, but also the legislative response to the COVID-19 Business Interruption claims has taken a new tone.  At first, a few states offered similar bills to the Jersey one [ MA, OH, NY, PA, LA] but then, as Chip has commented, the insurance industry has made its views known, as we knew they would.

Whether in response to or in anticipation of the industry’s obviously strong opposition to adding COVID-19 coverage to policies retroactively, a few states have begun to offer forms of government grants for this newly created coverage. Both Pennsylvania- PA H 2386- and South Carolina-SC S 1188-have introduced bills that create limited coverage, with claims to be paid in some form by the state, although South Carolina’s bill includes an assessment to insurers built into its bill.

The PA bill provides a mechanism for “adversely impacted” businesses to make claims for Business Interruption coverage, then when those claims are denied, for the Commonwealth to pay those claims as a grant. The grant is contingent upon:   i) the business remaining open (it seems counter intuitive to keep the business open but make a claim based upon the suspension of business, but perhaps that is just semantics)  and, ii) not laying off employees, otherwise there is a repayment penalty of 10%.  There are many questions surrounding how this will work, who will be disbursing the funds, and whether third parties advising the businesses will be compensated.  The bill states in part:

PA H 2386:

(a) Establishment.--The COVID-19 Disaster Emergency Business Interruption Grant Program is established within the department to provide funding for the continuing operation of businesses during and after the COVID-19 disaster emergency. The department shall award, to the extent that money is appropriated to the department for the purpose, grants to eligible businesses as provided under this section.

(b) Eligibility.--A business shall be eligible for a grant under this section if:

(1) The business has submitted an insurance claim under a business interruption insurance policy and the insurance claim was denied prior to applying for a grant.

(2) The business demonstrates in its application that the business has been adversely impacted by the COVID-19 disaster emergency.

(c) Grant amount.--A grant may not exceed the amount of the insurance claim submitted by the business under subsection (b)(1).

(d) Application.--A business may apply for a grant for the duration of the COVID-19 disaster emergency and for 60 days after the COVID-19 disaster emergency is terminated by executive order, proclamation or operation of law. The application shall be in a form and manner determined by the department.

(e) Conditions.--If a business receives a grant, the business must remain open and not lay off any employees for the duration of the COVID-19 disaster emergency. If a business that receives a grant does not comply with this subsection, the business shall repay the amount of the grant plus 10%.

The South Carolina bill is even more complex and provides retroactive Business Interruption coverage, mandating that insurers pay the claims for businesses comprising less than 150 employees.  The bill then provides a mechanism for the carriers to apply to the state for relief, however the relief is all but certain. Down the road, the Department of Insurance will be able to assess all licensed insurers to recover these costs.

SC 1188 (in part):

(C) An insurer that is required to provide coverage to an insured that has filed a claim pursuant to this section may apply to the department for relief and reimbursement from funds collected and made available for such purpose as provided in this section.

(D) The department shall establish procedures for the submission and qualification of claims by insurers that are eligible for reimbursement pursuant to this section. In addition, the department shall establish procedures and standards to protect against fraudulent claims for reimbursement and appropriate safeguards for insurers to use in the review and payment of such claims by their insureds.

(E) The department is authorized to make one or more assessments in each fiscal year against licensed insurers in the State as may be necessary to recover the amounts paid or estimated to be paid pursuant to this section. Any assessment shall be made at a rate and shall be determined and certified by the department as sufficient to recover the amounts paid to insurers pursuant to this section. The amount to be assessed shall be made against all licensed domestic companies and foreign companies in proportion to their net premiums written and annuity considerations in the State as shown in the annual report of each of said insurers filed with the department. The assessment shall reimburse the State for funds appropriated for such reimbursement. Assessments under this section shall be charged to the normal operating cost of each company."

SECTION 2. This act takes effect upon approval by the Governor and shall only apply to policies that are issued to insureds with one hundred fifty or fewer full-time equivalent employees in the State, and that are in force on the effective date of this act or become effective prior to the date on which the Governor's state of emergency declaration expires.

The bottom line is that we have stepped through the rabbit hole, and we must continue to be informed, so that we can be prepared to be effective advocates on the path forward.