If you experience property damage that’s covered by insurance, hiring a restoration contractor has its advantages. Most notably, they are familiar with dealing with insurance company claims. However, this familiarity can sometimes go too far. In Iowa, a restoration company lost their assignment of benefit rights in three separate cases. The court decided that they overstepped their responsibilities when they started acting as unlicensed public adjusters.
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Assignment of Benefits agreements
When making an insurance claim for damage to your property, there’s a lot to consider. And because the insurance company is trying to pay as little as possible, dealing with them can be a hassle. That’s why many choose to use an assignment of benefits agreement to let someone else handle the claim for them.
An assignment of benefits (AOB) is an agreement that allows a third party to step into an insured property owner’s shoes. The third-party deals directly with the insurance company, and receives the benefits or payments on behalf of the property owner.
The role of the public adjuster
Property owners can be skeptical of assigning benefits to contractors. Rather than assign benefits to the contractor, they may look instead to a public adjuster. A public adjuster is an independent party hired by the policyholder who pursues claims on their behalf. They work on behalf of the property owner – not the insurance company. They typically handle all communication with the insurance company. Most states, including Iowa, require a public adjuster to be licensed. A license ensures that the adjusters are knowledgeable, credible, and impartial.
Contractor with Assignment of Benefits crossed “public adjuster” line
In an interesting set of cases out of Iowa, a contractor working under an AOB agreement was attempting to negotiate better estimates and terms with homeowner’s insurance companies. The company overstepped their bounds crossing into the public-adjuster territory, and their assignment of benefits on three different jobs was invalidated.
The case in question is 33 Carpenters Construction, Inc. v. Cincinnati Insurance Company
- Owner: Gregg Whigham (Whigham)
- Restoration contractor: 33 Carpenters Construction, Inc. (33 Carpenters)
- Insurance company: Cincinnati Insurance, Co. (Cincinnati)
In March of 2016, a hail and wind storm ripped through Bettendorf, IA, causing roof damage for numerous residential properties. Whigham, whose house was insured by Cincinnati. 33 Carpenters entered into a repair agreement, in exchange for any proceeds paid by Cincinnati. Shortly thereafter, a formal Assignment of Benefits (AOB) was executed between Whigham and 33 Carpenters. Cincinnati paid Whigham based on their estimate.
Contractor began negotiating on behalf of the owner
Cincinnati assigned an adjuster to review the claim and prepare an estimate for the damage. (While not critical for the case, it’s important to note that the insurance company’s adjuster is different from a public adjuster.) Cincinnati paid Whigham based on the estimate.
33 Carpenters later requested an additional estimate for further repairs. Cincinnati said they would only address further issues with Whigham directly.
Undeterred, 33 Carpenters then repeatedly contacted Whigham to urge them to request a new estimate. They also offered suggestions and comparison photos on how to proceed with Cincinnati.
Contractor filed a breach of contract against insurer
Ultimately, 33 Carpenters filed a breach of contract claim against Cincinnati for failure to pay “all benefits due and owing” under the insurance policy for the additional exterior remodeling. Cincinnati responded by stating that the AOB should be unenforceable because 33 Carpenters acted as a public adjuster without a license.
The court agreed with Cincinnati. 33 Carpenters appealed.
Iowa Supreme Court rejects assignment of benefits
The decision that 33 Carpenters were acting as an unlicensed public adjuster is based on Iowa Code §522C.2(7) which defines a public adjuster as anyone who is, among other things:
Acting for or aiding an insured in negotiating for or effecting the settlement of a first-party claim for loss or damage to real or personal property of the insured.
The court found that 33 Carpenters “attempted to aid Whigham in negotiations with Cincinnati…,” effectively putting them into public adjuster territory.
Of course, it didn’t help their case that the website for 33 Carpenters “outlined its six-step process that described the work of a public adjuster.” Essentially, they were advertising – and performing – the services of a public adjuster without a license.
In their defense, 33 Carpenters argued that once the AOB had been executed, they were no longer “acting for or aiding an insured,” but rather they were pursuing their own claim. The court rejected this claim by stating it was a “form-over-substance” argument.
Sure, 33 Carpenters benefited from the assignment to make a profit, but it was fundamentally a benefit to Whigham to be able to repair their home. 33 Carpenters were acting as unlicensed public adjusters, and therefore the assignment of benefits was invalidated.
Restoration contractors need to be cautious
Anytime you’re dealing with a client or doing contract work under an insurance policy, you need to be careful. Advocating for your client’s interests (or yours, if under an AOB agreement) is one thing. But pressing those interests too far can open up the potential risks of unlicensed public adjuster work.
This can be a fine line to toe, but contractors should take precautions ahead of time to ensure you don’t lose rights that were otherwise validly assigned to you.