One practice that has plagued the insurance industry in recent years has been contractors soliciting homeowners to make insurance claims after a hailstorm, for example, and then obtaining an assignment of rights to the claim and pursuing litigation against the insurer. The Iowa Supreme Court recently ruled that a contractor’s attempt to obtain such an assignment of rights was void because the contractor was acting as an unlicensed public adjuster, in violation of state law. The line of argument made here may be useful to insurers in other jurisdictions faced with abusive practices by contractors.

The Iowa Supreme Court quoted from a report by the Insurance Information Institute explaining that:

In Florida, abuse of [assignment of benefits contracts (AOBs)] has fueled an insurance crisis. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurance companies that deny or dispute the claims. This mini-industry has cost consumers billions of dollars as they are forced to pay higher premiums to cover needless repairs and excessive legal fees. And consumers often do not even know that their claims are driving these cost increases.

The abuse therefore acts somewhat like a hidden tax on consumers, helping to increase what are already some of the highest insurance premiums in the country.

33 Carpenters Constr., Inc. v. State Farm Life & Cas. Co., No. 18-1354, 2020 WL 739074, at *6 (Iowa Feb. 14, 2020) (quoting James Lynch & Lucian McMahon, Ins. Info. Inst., Florida’s Assignment of Benefits Crisis: Runaway Litigation Is Spreading, and Consumers Are Paying the Price 2 (March 2019)).

In this case, the court’s opinion stated that the contractor sought an 81.3 percent increase in the insurer’s first estimate, and then, after the insurer prepared a supplemental estimate and issued a supplemental payment, the contractor sought an additional 90.4 percent increase, then filed suit.

In ruling that the assignment of rights by the insured to the contractor was void, the court applied two Iowa statutes, one of which prohibited a residential contractor from representing a homeowner on certain types of insurance claims, and another statute that required public adjusters to be licensed. The court concluded that the contractor was acting as a public adjuster because he solicited the homeowners uninvited to inspect their roof and to make an insurance claim,  attended inspections of the property with the adjuster, and submitted an estimate to the insurer on behalf of the homeowners. The court noted that, as a general principle of Iowa law, “contracts entered into by parties lacking a required license are void as against public policy.” Id. at *9.

The Iowa court noted that a total of 45 states require licensure of public adjusters, and that courts in New York and Texas had held that contracts entered into by unlicensed public adjusters are void. Insurers thus may be able to take advantage of this decision, or at least the general line of argument made here, in other states.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Wystan Ackerman Wystan Ackerman

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class…

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class actions involving homeowners’ insurance coverage and market conduct/claim-handling practices. He has been prominently involved in high-profile property insurance litigation concerning the September 11th catastrophe and Hurricane Katrina, and Chinese-made drywall. Based in the insurance capital of Hartford, Connecticut, Wystan writes the blog Insurance Class Actions Insider, which was selected by Lexis Nexis as a top insurance blog for 2011.

Wystan grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state. He always had strong interests in history, politics and baseball and his heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox). Wystan says it was his early fascination with Lincoln that drove him to practice law. As a high school senior, he was one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified his interest in law and government. He went on to Bowdoin College, where he wrote for the Bowdoin Orient and majored in government. After Bowdoin, he went on to Columbia Law School. He also interned in the chambers of then-Judge Sonia Sotomayor on the Second Circuit. Wystan graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole.

When Wystan’s not at his desk, flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation he often can be found watching “Dora the Explorer” or reading or playing whiffleball with his young daughter, helping his wife with her business, Option Realty, reading a book about history or politics, or watching the Boston Red Sox.

Read Wystan’s rc.com bio.