A stake in the claim
When Fred Fishel returned to his Malibu neighborhood after the devastating fires of November 1993, all that remained of his beautiful ocean-view home was a charred foundation and a fine powdery ash. “It was a total loss,” he recalled recently. Rather than deal with his insurance company directly, Fishel hired the Greenspan Co., a claims adjusting firm -- commonly called a “public adjuster” -- to represent him in all dealings with Allstate Insurance Co., his insurer.
Fishel, a computer consultant, is glad he did. He estimates that the “seven-figure” settlement was 15% to 20% higher than what Allstate offered, and that was after Fishel paid 10% of the claim as a fee to the adjuster.
“Your insurance company is the other team,” said Fishel, who now leases out the rebuilt house. “They’d like to spend as little as possible and deny whatever they can.”
In his case, Allstate’s adjuster didn’t believe the home needed a replacement for the foundation, which suffered heat damage in the fire. Fisher’s adjuster, however, fought for a new foundation, for which Allstate eventually agreed to pay. By hiring his own adjuster, Fishel believes he “leveled the field” and received a just settlement.
Not surprisingly, the insurance industry is cool to the idea of homeowners hiring public adjusters to assess their loss after a fire, earthquake, flood or other disaster. These adjusters invariably come up with a larger damage estimate than insurance company adjusters, according to a public-adjusting primer on the website for Policyholders of America, a nonprofit consumer group that advises homeowners on insurance matters. Adjusters typically earn 5% to 15% of homeowner settlements.
The term “public adjuster” is a bit of a misnomer, since such adjusters aren’t government workers but rather self-employed businesspeople who often drum up work by rushing to disaster scenes such as October’s fires to sign up distraught homeowners. The 268 PAs licensed in the state are different from “independent adjusters,” who are hired by insurance companies to work on a specific claim.
Insurance settlements were especially contentious after the 1994 Northridge earthquake, which caused more than $20 billion in damages. Public adjusters were used in about 5% of the claims after the earthquake, estimated Keith Charleston, a Dublin-based insurance industry adjuster with 35 years of experience, including one year as a public adjuster. “The majority of PAs did a very good job in Northridge, especially in the larger commercial and apartment losses,” Charleston said. “They were very, very good at that.”
“They’re a measure of last resort when you’re at loggerheads with your insurer,” said Candysse Miller, executive director of the industry’s Insurance Information Network of California. “Your [claim estimates] have to be worlds apart before you can justify the 10% -- and we’ve heard, anecdotally, up to 25% -- commission.”
Many PAs, who must be licensed in California, are former insurance company adjusters or general contractors, and the majority of PA firms are small mom-and-pop shops with one or two employees. A self-employed adjuster can “probably make $200,000 a year,” said Stuart Breslow, a public adjuster with Metropolitan Adjustment Bureau in Encino.
The larger firms may have up to 50 employees, according to Bill Rake, president of the Greenspan Co. in Encino, one of the larger PA outfits in Southern California.
Depending on whom you ask, public adjusters are either modern-day Robin Hoods fighting the tactics of the insurance industry or ambulance chasers who prey on unsuspecting homeowners. Reality, naturally, falls somewhere in between.
“Public adjusters can be helpful in claims where the dollar loss exceeds $50,000,” said Amy Bach, executive director of United Policyholders, a San Francisco-based nonprofit that educates consumers on insurance issues. Homeowners who are underinsured -- whose damage estimate exceeds the policy maximum -- should avoid PAs, Bach added.
She also warns, however, that an inexperienced or dishonest PA can cause more harm than good. “A lot of public adjusters live a gypsy-ish life,” she said. “They go from disaster to disaster, take on too many claims, and don’t respond as quickly as they should to their customers.”
Molly Kurzbard of Placentia hired a public adjuster to assist with a mold claim after a 2001 plumbing accident flooded her house. He wanted 15% of her claim and “wrote a letter to the insurance company, stating he was representing us and that all checks should be made out to him,” Kurzbard said. Consumer groups and lawyers warn against assigning a claim to a PA.
Adjusters also are limited in what they can do on behalf of homeowners, as Kurzbard found out. After her PA was able to recover “cost-of-living expenses but not much else,” Kurzbard said she brought in an attorney and received a $20,000 settlement from her insurer.
“Public adjusters are not attorneys; they can’t file a lawsuit and force documents from the insurance company,” said Carl Schiff, executive director of the Consumer Recovery and Education Project, a Northridge nonprofit group that specializes in homeowner disaster recovery. But while attorneys have the legal muscle to pressure an insurer, their fees are significantly higher than PA fees. Kurzbard’s attorney, for instance, received 40% of her settlement.
“You’re going to pay more for a lawyer, but you’re also going to get a larger bang for your buck,” said Robert Hunter, director of insurance for the advocacy group Consumer Federation of America in Washington, D.C.
Both the California Department of Insurance, which licenses public adjusters in the state, and consumer groups tell homeowners to be wary of public adjusters who have limited experience in the insurance and construction industries, fail to supply references and use high-pressure tactics to get the homeowner to sign up on the spot.
“There’s no question that a public adjuster who has been through the ropes can help you,” Hunter said. Specifically, an experienced PA can obtain a larger settlement by scrupulously itemizing the homeowner’s losses and by knowing the ins and outs of the insured’s policy.
“Claimants are significantly disadvantaged throughout the process,” Rake said. “They don’t know their policy or their entitlements, and that doesn’t create a level playing field.”
“If the homeowner feels they know as much about insurance as the in-house insurance company adjuster, that’s great,” PA Breslow said. “But the odds ... are slim to none.”
Homeowners often forget to itemize small items lost in a disaster -- a mistake that can cost them thousands of dollars. “People try to remember everything they had in their kitchen,” Breslow said. “Did they remember their measuring cups? Wooden stirring spoons? Shish kabobs skewers? If you take 500 items at $5 apiece, that’s $2,500.”
Kathy Baker, whose custom-built Upland home was destroyed Oct. 25 in the Grand Prix fire, said an “inventory specialist” in her public adjuster’s firm is working with her to document every personal item lost in the blaze. The task is daunting.
“I had surgery three days after the fire, and then I was in rehab,” Baker said. “So I sat down with a little notebook and started making lists of things, room by room. You have to figure out how many pairs of socks you had. How would I know?”
In addition to helping the policyholder itemize losses, a skilled PA can recover expenses the homeowner may not know are reimbursable. “A lot of insureds aren’t aware their policies have enhancements,” said Michael Rubin, a partner in the Encino-based public adjusting firm Rubin, Palache & Associates. “Policies today pay additional amounts for debris removal, for added child care, car mileage and medical expenses.”
For homeowners, statistics showing the financial benefits of public adjusters are hard to find. The California Department of Insurance doesn’t track such data. Neither does the National Assn. of Public Adjusters, an industry trade group. And insurer trade groups such as the Insurance Information Institute and the Insurance Information Network of California are also unable to provide PA-related data.
“It’s an uncapturable number,” Rake said. “Insurance companies would be in a position to calculate such a statistic, but I’ve never heard them publicize it.”
Despite the distrust surrounding their profession, public adjusters are convinced they provide a valuable public service.
“An insurance loss is nothing more than a negotiation,” Breslow said. “Do you take your check stubs, send them to the IRS and ask how much you owe? No, you go to a CPA, who can deduct, manipulate and play with the numbers.”
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Tips for selecting a public adjuster
* Don’t choose one immediately following a disaster. Give yourself a few days to cope with the tragedy.
* Policyholders of America, a nonprofit consumer group, has a primer on public adjusters at its website at www.policyholdersofamerica.org.
* Interview several licensed adjusters before selecting one. Ask for references of previous customers, not contractors or other professionals.
* Verify licenses with the California Department of Insurance at (800) 927-HELP (4357) or at www.insurance.ca.gov.
* If your claim is less than $50,000, you don’t need a public adjuster.
* If you’re underinsured, you don’t need one.
* Most public adjusters will request a fee of 10% of the settlement. Ask if they’ll work for less.
* Study the adjuster’s contract carefully.
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Before signing a contract, read this
Consumers should study contracts with public adjusters carefully before signing them. Be wary of agreements that “assign” the homeowner’s claim to the PA, warned Fountain Valley attorney Dale Washington, who specializes in insurance law.
A contract should be tied to performance. “The ‘assign’ term makes the adjuster your permanent partner for the claim, regardless of whether a new adjuster or attorney is hired,” Washington explained.
Homeowners also need to know the adjuster’s “standard” fee isn’t set in stone.
“Ask if they can reduce their fee, and ask if they will put in their contract that they’ll get paid for the fruits of their work, not for someone else’s,” said Beverly Hills attorney Mike Alder, a board member of the Consumer Attorneys of Los Angeles.
