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Public adjusters, like personal injury lawyers, work on a contingency fee. For a percentage of the recovery, they present claims on behalf of insureds to insurance companies. Like personal injury lawyers, some are honest and some are not. The public adjuster who is the subject of this tale is one of the latter.
This amoral public adjuster profits from the misery and grief of unfortunate people who suffer loss. His car is equipped with a multi-band scanner tuned to all of the fire department frequencies. When he hears of a fire on the radio he drives directly to the scene. He has been known to arrive before the fire department.
In his briefcase he carries glossy brochures explaining what services he provides and how insurers will take advantage of innocent insureds not represented by public adjusters. While the embers of their house cool, he has the homeowners sign a contingency fee contract promising to take care of all their needs.
Because state law requires that the contract have a 72-hour cancellation clause, he does nothing for the first three days, except leave blank inventory forms with the insureds, upon which he has instructed them to write a description of every item of property in their house.
Once the 72 hours have expired and the contract can no longer be cancelled, he calls in contractors and furniture restorers to prepare the estimates for the repair and restoration of the house and its contents.
Each of the contractors knows that they will not be called unless they have already agreed to pay the public adjuster, in cash, fifteen percent of the contract amount. Each of the contractors, therefore, bids his work at a price at least 25 to 30 percent higher than necessary for a reasonable profit so that the insurance company adjuster can adjust the estimate downward and they will still have enough profit left over to pay the public adjuster.
The public adjuster also has a schedule of household goods in his office computer. Whatever claim he adjusts, the same list of household goods is presented to the insurance company adjuster. The list always contains ten cans of Libby’s peas, four cans of Libby’s string beans, five cans of Del-Monte tomato sauce, and 20 cans of Campbell’s pea soup.
Every program is equipped with a 13-inch Sony Trinitron color T.V. with remote control. The living room will always contain a complete entertainment center with a 24-inch television, a stereo, a CD player, etc. The public adjuster does not even attempt to determine what was actually in the insured’s house.
Invariably, because of the extent of the list of personal property, the insured’s claim is greater than their policy limit. The public adjuster is happiest when the loss exceeds the policy limit. This gives the adjuster for the insurance company the opportunity to negotiate depreciation off the total value of the claimed lost property without ever reaching a number less than the policy limits.
The public adjuster relies on the fact that the company’s adjuster is overworked, underpaid and undertrained. The company adjuster does not have the time to thoroughly investigate each fire loss. He must rely on the honesty of the insured and the contractors bidding on the repair work. If the adjuster doesn’t go out and look, there is no way for the adjuster to know that there was no television in the insureds’ second bedroom, that the insureds had never purchased Libby’s products in their life, nor that the house was not large enough to hold all of the personal property claimed destroyed in the fire. Since the company adjuster had 200 fire claims pending and a supervisor who insisted that he close no less than 50 claims a month, the adjuster had no choice but to believe the presentation made by the public adjuster. He depreciated the personal property, eliminated duplications on a construction estimate, and prepared a well-written report establishing that the loss exceeded policy limits. Authority was immediately provided to him to pay the client. the public adjuster collected 10 percent of the total amount of the loss from the insured and an additional 15 percent from the contractors. The adjuster was able to close one more file and please his supervisor.
Auditors reviewed the file and found it well documented with two reconstruction estimates, an investigation report prepared by the adjuster, and photographs of the dwelling. On paper the adjustment was excellent. The statement of loss was prepared in the proper format, the drafts were drawn properly, all codes were entered, appropriate reserves were submitted, and there was no need for the expensive service of independent adjusters, surveyors, construction consultants, engineers or attorneys. As a result of similar good work, the adjuster was promoted to claims supervisor.
If the adjuster only had 50 fire claims pending and, therefore, had the time to make a complete and full investigation of the fire scene, he would have learned the following:
More than 40 percent of the personal property claimed destroyed in the fire was not in the residence.
The general contractor’s estimate to repair the building added 18 inches to every dimension of every room. This additional square footage inflated the fire repair estimate by 25 percent.
If he had inspected the premises closely and done a complete scope of loss, he would have noted that the hardwood floors throughout the dwelling were actually plywood sub-flooring covered with carpet.
He would also have learned that there was no service porch as called for in the repair estimates, nor was there any vinyl wall covering.
Had he inspected carefully, he would have noted that a kitchen larder was bare and the refrigerator contained only a quart of milk, two eggs and half a package of bacon.
If his company had authorized the purchase of overalls rather than requiring him to wear a business suit on all calls, he would have been able to go into the debris to find that the only remains of a TV in the entire house were those of a single 13-inch J.C. Penney black-and-white television.
If the adjuster had any training in fire cause investigation, he would have noted the flammable liquid trails on the carpet in the living room, dining room, kitchen and master bath.
If his sinuses weren’t plugged, he would have smelled the still-liquid gasoline in the bathroom carpet.
He didn’t have the time, he didn’t have the training, and he didn’t have the support. He talked to the insured on the telephone, who told him he was away from the house when the fire happened.
The adjuster had a contractor he knew prepare an estimate which he used as the basis of his adjustment. The contractor was introduced to the adjuster by the public adjuster.
The adjuster never saw the dwelling. He trusted his contractor and the public adjuster to do his work for him. The insureds got their house fixed and more money that they were entitled to receive. The public adjuster collected 25 percent of the total payment for a total of five hours of work. The contractor, even after paying 15 percent to the public adjuster, made a profit of 40 percent or more and did only the minimal amount necessary to repair the house rather than the maximum amount specified on the reconstruction estimate.
The fraud was perfect in every way. The perpetrators and the victims alike were satisfied.
If the insurance industry believes it is saving money by under-staffing, underpaying and failing to properly train its adjusters, it is sorely mistaken.
I submit that the most effective means of defeating fraudulent insurance claims would be for the insurance industry to recognize that its staff of adjusters must be highly trained professionals who earn the best wage in the insurance company and who are motivated and rewarded for good work. Adjusters must be compensated and rewarded for the quality of their work, not the quantity.
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