The terms of most property policies provide, inter alia, that in the event of loss, the insured must see that the following duties are performed:
b. submit to [the insurer], within 60 days after the loss, a signed, sworn proof of loss which sets forth, to the best of your knowledge and belief:
(b) an inventory of damaged or stolen personal property;
While most insureds require little if any assistance in compiling the required information, many insureds seek the assistance of a public adjustor. Generally, the public adjustor's role is to represent the insured in the adjustment of a property damage loss claim with their insurer, and in the way of compensation, the public adjustor is "assigned" a percentage of the insured's claim (typically 10%).
In Illinois, public adjustor's are required to be licensed and are regulated in accordance with the provisions of the Illinois Revised Statutes. Public Insurance Adjusters and Registered Firms, 215 ILCS 5/512.51-64 (1984). Moreover, certain guidelines are established respecting the manner in which they are allowed to solicit business from prospective insureds.
Typically, a contract between the public adjustor and the insured is entered into within a short time after a loss occurs, and a copy of the contract is generally forwarded to the insurer as notice of the public adjustor's representation of the insured. As a matter of custom and practice, most insurers will, upon receipt of such notice, recognize the public adjustor as a legal representative of the insured; and, upon settlement of the claim, include the public adjustor as an additional payee on the settlement drafts.
Periodically, disputes arise between the insured and the public adjustor and, oftentimes, resulting in a breach of their contract. In such instances, there is often disagreement by each party as to the character of the relationship that exists between the insurer and the public adjustor, and respecting any duties which may be owed by the insurer to the public adjustor. These disagreements have led to recent suits against the insurer by the public adjustor, alleging that, as an "assignee" of the insured, they have a right to recover damages against the insurer for vexatious delay or denial of their portion of the insurance proceeds.
LAW AND ARGUMENTIt is generally held that an assignee of the insured succeeds to the same position as the insured, and the assignee's right to payment should be permitted the full panoply of statutory and common law recourse, Loyola U. Med. Center v. Med Care HMO, 535 N.E.2d 1125 (Ill.App. 1 Dist. 1989). Furthermore, where a policy-assignee succeeds to the same position as the insured, the assignee is not a true third party, and therefore, has standing to bring an action against the insurer for alleged vexatious and unreasonable failure to settle the assignee's claim.
Needless to say, contractual terms agreed upon between a public adjustors and an insured vary from case to case. However, in a typical public adjustor's contract, language of the following type is used to effectuate an agreement with the insured, and to effectuate an "assignment" of a portion of the policy's proceeds:
Public adjustor contracts are governed by statute and, generally, no additional documents are executed by the insured nor tendered to the insurer respecting the public adjustor's "assignment".
(b) The written contract required by paragraph (a) shall constitute the entire agreement between the Public Insurance Adjuster and the insured. A copy of the contract shall be given to the insured when the contract is executed. Such contract forms may not include any hold harmless agreement which provides indemnification to the Public Insurance Adjuster by the insured for liability from the Public Insurance Adjuster's negligence, nor any power-of-attorney by which the Public Adjuster can act in the place and instead of the insured. 215 ILCS 5/512.58 (emphasis added).
Arguably, a public adjustor, by right of a valid assignment, steps into the shoes of the insured with regard to rights assertable under the policy of insurance. Collins Co., Ltd. v. Carboline Co., 125 Ill.2d 498, 127 Ill.Dec. 5, 532 N.E.2d 834 (Ill. 1988). Accordingly, a public adjustor's standing to bring an action against an insurer for vexatious delay or denial of their claim will, in large part, be determined by first assessing whether, by right of contract or assignment, the public adjustor succeeded to the same position as the insured.
Unlike the "assignment" language in the typical public adjustor's contract, which merely assigns over a portion of the claim's proceeds, it is interesting to note that the assignment language at issue in Loyola was significantly broader in scope, and provided in pertinent part as follows:
It is well settled that words which reflect an intent to transfer an actionable right to reimbursement for valuable consideration are sufficient to create an assignment. However, questions persist as to whether contracts typically used by public adjustors, where there is merely a request for an "assignment" of 10% of the settled claim, reflect an expressed intent by the insured to assign the benefits of their policy, or conversely, merely reflect an attempted lien upon the insurance proceeds by the public adjustor.
The terms of a typical property policy provides in part as follows:
Arguably, upon the insured's execution of the public adjustor's contract, the public adjustor becomes "legally entitled", as a mere loss payee, to a portion of the adjusted claim amount. As a general rule, a loss payable clause is considered an appointment of a person to receive the proceeds in case of loss, rather than an assignment of the policy, or, in other words, a transfer of the right to the proceeds rather than a transfer of the contract. Appleman, Insurance Law and Practice, 5A §3451 (1970).
As a loss payee, contractual rights and/or obligations would not inure to the favor of the public adjustor. Furthermore, as a mere loss payee, any claimed duty owed to the public adjustor by the insurer is potentially outweighed by a greater duty owed by the insurer to protect the interests of its insured.
Thus, a distinction must be made concerning an insurer's duty to its insured in a third-party context as opposed to its duty in a first-party context. In a third-party context, it is well settled that no fiduciary duty exists. In a first-party context, however, an insurer stands in a fiduciary relationship with its insured. Cernocky v. Indemnity Ins. Co., 69 Ill.App.2d 196, 202-03, 216 N.E.2d 198, 205-05 (2d Dist. 1966); Adduci v. Vigilant Ins. Co., 98 Ill.App.3d 472, 475, 424 N.E.2d 645, 648 (1st Dist. 1981).
This type of relationship obligates the insurer to use its business judgment, opinion, and discretion to inform and comply with its insureds in any situation which would adversely impact on the fair and expeditious resolution of claims filed under their contract of insurance. Cernocky v. Indemnity Insurance Co. of North America, 69 Ill.App.2d 196, 216 N.E.2d 198 (2d Dist. 1966); Adduci v. Vigilant Insurance Co., 98 Ill.App.3d 472, 424 N.E.2d 645 (1st Dist. 1981). Accordingly, an insurer's duty to protect the interest of its insured may outweigh any claimed duty owed to the public adjustor, particularly, in cases where a breach of contract or a dispute arises between the public adjustor and the insured.
Moreover, in HPI Health Care, 131 Ill.2d at 157, 545 N.E.2d 672 (Ill. 1989), the Illinois Supreme Court held that the existence of a privilege may also be applicable in contract actions, and that a Court must look to whether a defendant was acting to protect an interest which the law considers to be of equal or greater value than plaintiff's contractual rights. Id. at 157, 545 N.E.2d at 677.
Therefore, concomitant with an insurer's fiduciary duty to its insured, a corresponding privilege may be applicable which allows them to act to protect an interest of the insured which the law considers to be of equal or greater value than a public adjustor's contractual rights, and outweighed by any duty owed by the insurer to the public adjustor.
CONCLUSIONNeedless to say, there are numerous considerations which must be made in order to determine those duties which may have been owed by an insurer to a public adjustor and/or to its insured. Moreover, there are several alternative measures which an insurer may employ (such as an action in interpleader) where there is a dispute concerning a party's entitlement to claim proceeds.
While each case and contract between a public adjustor and an insured will vary, it is important to initially clarify the character of the relationship that existed between the insurer and the public adjustor, closely assess any duties which may have been owed by the insurer to the public adjustor, and determine whether such duties were outweighed by any duties owing to the insured.