By: Sandy Eloranto, Senior Counsel, Sutton | Booker | P.C.

On August 17, 2018, the Tenth Circuit Court of Appeals confirmed that when an insured retains agents to assist with the claim, the actions of those agents, including a Public Adjuster or “PA”, are imputed to the insured and the jury will be instructed according to general agency principles. Macomber v. American Family, 2018 WL 3957013, — Fed.Appx.— (2018).

The trial court denied the insureds’ request to modify the jury instruction on agency to clarify that the insureds were not responsible for intentional crimes by their public adjuster and/or prior attorney because no evidence was presented at trial to establish the agents’ actions were either intentional wrongdoing or illegal. The 10th Circuit affirmed. Although the decision is not published or binding, it will be helpful in defending bad faith claims brought by insureds who used an inflated public adjuster estimate to overstate the damage and create disparity over the true repair costs so it appears the insurance company undervalued and underpaid the covered damage.

Public adjusters work for a percentage of the insurance proceeds, typically between 10-15%, and require being added as a payee on any check issued by the insurance company for repair costs. Once retained, the PA submits the fee agreement and a signed letter of representation – which designates the PA as the mouthpiece for the insured on the claim – to the insurance company. Communication with the insured from that point on flows through the PA. Because insurance policies include language requiring the insured to cooperate with the insurer’s investigation, the conduct of the PA has become a hot topic in property damage bad faith cases.

Out of state public adjusters have flooded into Colorado since the legislature passed the unreasonable delay/denial statute in 2008. According to a 2012 Denver Post article, “since 2007, the number of licensed public adjusters in Colorado has jumped from 43 to 267, with non-residents fueling almost all the growth.” According to the Post, [w]hile public adjusters describe their work as an important check on insurers looking to pay as little as possible, insurance industry officials and some consumer advocates criticize them as largely unnecessary players who can prolong claims, create acrimony and cut into settlements.” The article was updated in 2016 and notes that the licensing requirements for PAs at that time were minimal; out of state PAs were not required to take the written exam documenting a “minimum level of competence” if they were licensed in their home state and had no pending complaints.

Holding public adjusters accountable for inflated estimates and misrepresentations about prior damage and/or code upgrades often means holding the insured who hired them accountable. This is what happened in Macomber. The Macombers submitted a claim for forest fire damage to their home and retained a public adjuster and an attorney out of Florida to assist them. The Public Adjuster was retained on a contingency, entitling him to 10% of the insurance proceeds. The Public Adjuster submitted a Proof of Loss on the Macombers’ behalf claiming the fire damage totaled $528,000 which raised suspicion by the insurance company who then asked for additional information, referred the claim to its fraud department, notified the homeowners they believed part of the proof of loss may be fraudulent, and asked for EUOs. According to the Tenth Circuit’s Opinion, neither the PA nor the attorney notified the homeowners that the insurance company had raised concerns about possible fraud or requested additional documentation including sworn testimony. The Macombers later terminated their relationship with both the PA and the attorney, retained a new attorney, and sued the insurance company for breach of contract and bad faith. The Macombers also opened a new claim for the fire damage and submitted a new estimate of the damage prepared by a General Contractor which totaled $190,000, more than $300,000 less than the sworn proof of loss submitted by the PA.

At trial, the insurance company argued that the statements by the now fired Public Adjuster, including the $528,000 sworn proof of loss submission, were imputed to the Macombers under general agency principles. The Macombers disputed this, noting that a principle is not responsible for the intentional crimes of an agent, and asked the Court to modify the jury instruction to clarify that only legal and authorized actions of an agent are imputed to the principal. The Court denied this request noting that although there was evidence that the insurance company was suspicious of the PA and attorney’s actions, there was no evidence of intentional wrongdoing or illegality that would warrant the requested modification.

The 10th Circuit Court of Appeals affirmed, noting the insured offered only conclusory assertions, not evidence, to support their theory that the PA and attorney committed fraud or acted illegally. The Court also disregarded the Macombers’ arguments based on post-trial statements by jurors under FRE 606(b)(1).

The opinion is helpful because it confirms that when an insured delegates communication about the claim to a public adjuster or other agent, the statements and representations made by the agent are imputed to the insured. This will be helpful in failure to cooperate and/or misrepresentation defenses under the policy which can void all coverage.