Public Adjusters and the Unauthorized Practice of Law

Justifiably concerned about the inundation of public adjusters in Louisiana following Hurricanes Katrina and Rita in 2005, the Louisiana legislature enacted 'The Louisiana Public Adjuster Act' ('Public Adjuster Act'), codified at Louisiana Revised Statutes '22:1210.91, et seq., by Acts 2006, No. 806, '1. The Public Adjuster Act was enacted to establish a regulatory framework for the field of public adjusting by setting standards for qualifications and licensing of public adjusters and establishing standards of conduct.

The Public Adjuster Act defines 'public adjusting' as either of the following:

(a) Investigating, appraising, or evaluating and reporting to an insured in relation to a first-party claim for which coverage is provided by an insurance contract that insures the property of the insured. Public adjusting does not include acting in any manner in relation to claims for damages to or arising out of the operation of a motor vehicle. Public adjusting does not include any activities which may constitute the unauthorized practice of law. Nothing in this Part shall be considered as permitting the unauthorized practice of law.

(b) Advertising for employment as a public adjuster of insurance claims or soliciting business or representing himself to the public as a public adjuster of first-party insurance claims for losses or damages arising out of policies of insurance that insure real or personal property. LSA-RS 22:1210.92.

According to information on the National Association of Public Insurance Adjusters' ('NAPIA') Web site, 'public adjusters are experts on property loss adjustment who are retained by policyholders to assist in preparing, filing and adjusting insurance claims.' The NAPIA has developed Rules of Professional Conduct and Ethics, and a specific provision requires that 'members shall not engage in the unauthorized practice of law.' See http://www.napia.com/.

The Public Adjuster Act also includes a provision prohibiting public adjusters from engaging in the unauthorized practice of law. The practice of law is defined in Louisiana Revised Statutes '37:212 and, in pertinent part, includes,

(1) In a representative capacity, the appearance as an advocate, or the drawing of papers, pleadings or documents, or the performance of any act in connection with pending or prospective proceedings before any court of record in this state; or

(2) For a consideration, reward, or pecuniary benefit, present or anticipated, direct or indirect:

(a) The advising or counseling of another as to secular law;

(b) In behalf of another, the drawing or procuring, or the assisting in the drawing or procuring of a paper, document, or instrument affecting or relating to secular rights;

(c) The doing of any act, in behalf of another, tending to obtain or secure for the other the prevention or the redress of a wrong of the enforcement or establishment of a right; or

(d) Certifying or giving opinions as to title to immovable property or any interest therein or as to the rank or priority or validity of a lien, privilege or mortgage as well as the preparation of acts of sale, mortgages, credit sales or any acts or other documents passing titles to or encumbering immovable property.

The unauthorized practice of law is defined in '37:213, which, in relevant part, provides,

A. No natural person, who has not first been duly and regularly licensed and admitted to practice law by the supreme court of this state, no corporation or voluntary association except a professional law corporation organized pursuant to Chapter 8 of Title 12 of the Revised Statutes, and no partnership or limited liability company except one formed for the practice of law and composed of such natural persons, corporations, voluntary associations, or limited liability companies, all of whom are duly and regularly licensed and admitted to the practice of law, shall:

(1) Practice law.

(2) Furnish attorneys or counsel or an attorney and counsel to render legal services.

(3) Hold himself or itself out to the public as being entitled to practice law.

(4) Render or furnish legal services or advice.

(5) Assume to be an attorney at law or counselor at law.

(6) Assume, use, or advertise the title of lawyer, attorney, counselor, advocate or equivalent terms in any language, or any phrase containing any of these titles in such manner as to convey the impression that he is a practitioner of law.

Section 213 of Title 37 also provides for imprisonment not to exceed two years, or a fine not to exceed $1,000, or both, for a person who violates this section.

Often, especially after disasters such as Hurricane Katrina and the recent wildfires in California, policyholders are eager to sign up with public adjusters for a variety of reasons, not the least of which is the belief that public adjusters will recover more for them under their policy than they would by dealing directly with their insurance carrier on their own. As a result, public adjusters may, inadvertently or otherwise, give advice or act in a manner that can be construed as engaging in the practice of law.

Some states, such as Louisiana, South Carolina, and California, due to their geography, are more vulnerable to natural disasters and the potential for exploitation by public adjusters. Prior to Hurricanes Katrina and Rita, Louisiana recognized the existence of public adjusters; however, it did not regulate them. As early as 1985, Louisiana courts acknowledged the potential for overreaching by non-lawyers who perform services pursuant to contingency fee agreements when those services constitute the practice of law. In Duncan v. Gordon, the Louisiana Second Circuit Court of Appeal held that a non-lawyer who negotiated a settlement pursuant to a contingency fee contract with the plaintiff engaged in the practice of law. Duncan v. Gordon, 476 So.2d 896, 899 (La.App. 2 Cir. 1985).

Louisiana Law

More recently, in Louisiana Claims Adjustment Bureau, Inc. v. State Farm Insurance Company, the plaintiff, a public adjusting company, filed suit against State Farm for defamation and intentional interference with business relations after State Farm alleged that the plaintiff was committing the unauthorized practice of law by representing individuals and refusing to discuss settlement of their claims. The plaintiff appealed the trial court's granting of summary judgment in State Farm's favor. The appellate court affirmed the trial court's ruling, finding that the plaintiff's actions, including entering into contingency contracts to negotiate claims for 25% of the recovery, evaluating their clients' claims, researching the law, explaining what they believed the injury to be worth, and sending a demand letter with an evaluation of liability and special and general damages, amounted to the unauthorized practice of law. Louisiana Claims Adjustment Bureau, Inc. v. State Farm Insurance Company, 877 So.2d 294, 298-299 (La.App. 2 Cir. 2001).

As early as 2003, and prior to Louisiana's enactment of the Public Adjuster Act, the NAPIA expressed alarm about state legislation that threatened to prevent public adjusters from working on a contingency fee basis. In the fall 2003 issue of the NAPIA Bulletin, the Counsel's Report stated, '(t)he State of Louisiana passed a bill making it illegal for a percentage fee. This is a very dangerous piece of legislation. Not only is it contrary to the great majority of our profession's regular practice, but if this statute or one like it were to be enacted in even one more state, the results could be devastating for NAPIA' (emphasis supplied). (NAPIA Bulletin, fall 2003)

Despite the NAPIA's scare tactics and hyperbole about how 'dangerous' and 'devastating' this legislation would be, Louisiana policyholders have actually benefited from the restrictions that prohibit any person, except a licensed attorney at law, from receiving contingent fees for public adjusting services. In Richard's Realty Company, L.L.C. v. Paramount Disaster Recovery, the plaintiffs owned apartment complexes in Slidell, LA, which sustained extensive damage as a result of Hurricane Katrina. Richard's Realty Company, L.L.C. v. Paramount Disaster Recovery, 476 F.Supp.2d 618 (E.D. La. 2007). Plaintiffs' principal retained the services of defendant Paramount Disaster Recovery ('Paramount') as its public adjuster. The parties entered into a contract in which Paramount would receive a 20% contingency fee from any insurance proceeds paid to the plaintiffs. The plaintiffs' properties were insured under a flood policy that State Farm Fire and Casualty Company issued. State Farm tendered its full policy limits of $250,000, of which amount $50,000 was paid directly to Paramount pursuant to its contingency fee agreement with the plaintiffs. When the plaintiffs learned that Paramount received a percentage of the flood insurance proceeds, they terminated their contract with Paramount because they believed Paramount had contributed essentially nothing toward having State Farm pay its limits.

Plaintiffs filed suit against Para-mount seeking to nullify its contract and recoup the $50,000 flood proceeds because the contract was contingent upon or based on a percentage of the amount of the claim. The court held that the Paramount contract violated Louisiana's statutory prohibition against contingency fee contracts, observing that Louisiana 'has a history of restricting persons, professional associations, professional corporations, and limited liability companies from encroaching upon the practice of law in representing the interests of another as an advocate.' Id. at 621-622. In this instance, Louisiana's regulation of public adjusters protected the policyholders' interests.

South Carolina Law

South Carolina has also been active in revamping its Insurance Code to regulate public adjusters. See S.C. Code Ann. ”38-48-10 through 38-48-160. South Carolina's revised Insurance Code relating to public adjusters defines 'public adjusting' as 'investigating, appraising or evaluating, and reporting to an insured in relation to a first party claim arising under insurance contracts that insure the real or personal property, or both, of the insured.' S.C. Code Ann. '38-48-10(2). South Carolina's Code mandates that 'public adjusting does not include any activities which may constitute the unauthorized practice of law …(and) a public insurance adjuster shall not engage in any conduct which constitutes the unauthorized practice of law' S.C. Code Ann. ”38-48-10(2), 38-48-70(e).

South Carolina's Supreme Court was tested on the interpretation of the new legislation shortly after enactment of the state's restrictions on public adjusters in L.W. Linder v. Insurance Claims Consultants, Inc., 348 S.C. 477, 560 S.E.2d 612 (S.C. 2002). The plaintiffs' home was damaged by fire, and they became concerned about how repairs were being handled while their claim was being adjusted. The plaintiffs met with the principals of Insurance Claims Consultants, Inc. ('ICC'), a public adjusting company. During their meeting, ICC advised plaintiffs that their gun collection claim, which their insurer rejected, should have been covered under the policy. The plaintiffs entered into a contract with ICC, and the terms of the contract with ICC included a 10% share of the total amount adjusted or otherwise recovered. In addition, the plaintiffs executed a 'notice' to their insurance carrier, which indicated that ICC had been hired to prepare the plaintiffs' claim and that ICC should be contacted for 'any further information and negotiations' concerning the plaintiffs' claim. After executing the contract with ICC, the plaintiffs discharged the attorney they had retained shortly before contacting ICC.

The majority of communications between ICC and the insurance company's adjuster concerned cost-related issues and discussions on the amount and extent of repairs. Ultimately, the plaintiffs approved the claim that ICC submitted, but payment of the claim was delayed and ICC recommended that plaintiffs retain an attorney. When the plaintiffs received payment on their claim, they did not pay ICC the contractually agreed upon 10% fee, and ICC filed suit to recover its fee. The plaintiffs filed an answer, and when they attempted to amend their answer to have a class certified to obtain relief for ICC's alleged unauthorized practice of law, the trial court denied their request and stayed the action to allow them to seek declaratory relief in the South Carolina Supreme Court.

The plaintiffs filed a Complaint for Declaratory Judgment and alleged, among other things, that ICC engaged in the unauthorized practice of law. As of 2002, the date L.W. Linder was decided, the issue of whether insurance adjusters engage in the unauthorized practice of law was novel in South Carolina, so the L.W. Linder court relied upon decisions from other jurisdictions, including Rhode Island, Pennsylvania, and Texas, for guidance on this issue. Id. at 488. The Supreme Court held that ICC engaged in the unauthorized practice of law based on its 'acts of (1) interpreting and advising the clients on the insurance policy, and (2) negotiating with the insurer on coverage disputes … ' Id. at 495. Specifically, the court concluded that ICC engaged in prohibited conduct when it advised plaintiffs on the extent of coverage for their gun collection and then subsequently discussed it with the insurance adjuster. The court reasoned that the act of advising plaintiffs of their rights under the insurance policy and becoming involved in a known coverage dispute required legal knowledge and skill, which is prohibited conduct by non-attorneys. Id. at 495.

In an attempt to provide guidance as to what does and does not constitute the unauthorized practice of law, the court provided a list of accepted and unacceptable activities and noted, 'because the activities of public insurance adjusters may bring them close to the line between permissible business conduct by non-attorneys and the unauthorized practice of law, we must clarify what is and is not appropriate conduct by public adjusters.' Id. at 492. The court held that the following activities were prohibited conduct by public adjusters:

A. Advising clients of their rights, duties, or privileges under an insurance policy regarding matters requiring legal skill or knowledge, i.e., interpreting the policy for clients.

B. Advising clients on whether to accept a settlement offer from an insurance company.

C. Becoming involved, in any way, with a coverage dispute between the client and the insurance company.

D. Utilizing advertising that would lead clients to believe that public adjusters provide services which require legal skill. Id. at 493.

The court declared that the following public adjusting practices are permissible and not the unauthorized practice of law:

A. Providing an estimate of property damage and repair costs, i.e., any purely appraisal-oriented activities by the public adjuster.

B. Preparing the contents inventory and/or sworn statements on proof of loss.

C. Presenting the claim to the insurance company, i.e., delivering the necessary paperwork and data to the insurer.

D. Negotiating with the insurance company, as long as the discussions only involve competing property-damage valuations. Id. at 492-493.

Perhaps aware that the L.W. Linder decision left the court open to criticism based on the recurring argument that the phrase 'engaging in the unauthorized practice of law' is a way for the legal profession to create a monopoly for lawyers or for economic protectionism, the court observed that it is the court's duty to 'protect the public from the potentially severe economic and emotional consequences which may flow from the erroneous preparation of legal documents or the inaccurate legal advice given by persons untrained in the law.' Id. at 486-487. The court made it clear that the protection of the public was not left to individuals or companies with the word 'public' as a designation of their profession. Instead, the L.W. Linder court correctly concluded that this duty fell upon its shoulders.

California Law

California addressed these issues some time ago, having enacted statutes in the 1980s to govern the activities of public adjusters. The Public Insurance Adjusters Act (the 'PIAA'), codified in Division 5, Chapter 2, '15000 et seq. of the California Insurance Code, was added by Statutes 1985, c. 1202, '1. Like the laws in Louisiana and South Carolina that prohibit public adjusters from engaging in the unauthorized practice of law, '15002 of the PIAA provides, '(n)othing in this chapter shall be construed as entitling any person to practice law in this state, unless he or she is an active member of the State Bar of California.' The PIAA defines public adjusting as follows:

A public adjuster within the meaning of this chapter is a person who, for compensation, acts on behalf of or aids in any manner, an insured in negotiating for or effecting the settlement of a claim or claims for loss or damage under any policy of insurance covering real or personal property or any person who advertises, solicits business, or holds himself or herself out to the public as an adjuster of those claims and any person who, for compensation, investigates, settles, adjusts, advises, or assists an insured with reference to claims for those losses on behalf of any public adjuster. Cal. Insurance Code, Div. 5, Chap. 2, '15007.

California's use of the term 'advises' broadens the definition of public adjusting as compared with laws in Louisiana and South Carolina, but nevertheless there are no reported cases in that state concerning public adjusters who may have engaged in the unauthorized practice of law, whether through advising a policyholder of his rights or by interpreting policy provisions.

Final Observations

Like Hurricanes Katrina and Rita in 2005, the recent wildfires in California highlight the need for additional scrutiny and regulation of public adjusters. Legislation regulating public adjusters plays a vital role in protecting policyholders. California's Second District Court of Appeal keenly recognized the need for such protection and observed, '(t)his history demonstrates that the Legislature recognized that insureds would often be susceptible to exploitation in the wake of earthquakes, fires, floods, and similar catastrophes and that consumers of public adjusting services needed protection.' Building Permit Consultants, Inc. v. Mazur, 122 Cal.App.4^th 1400, 1412 (2004).

As the South Carolina Supreme Court articulated, '(t)he practice of law is not confined to litigation but extends to activities in other fields which entail specialized legal knowledge and ability. Often, the line between such activities and permissible business conduct by non-attorneys is unclear.' State v. Buyers Service Co., Inc., 292 S.C. 426, 431; 357 S.E.2d 15, 18 (1987). In order to bring needed clarity to the potentially blurred distinctions between the rendering of legal advice and permissible business conduct, the regulation of public adjusters by state legislatures is a vital tool in truly protecting the interest of the general public. These regulations are not intended to burden the profession of public adjusting. Rather, they are designed to protect the public from the inherent dangers of non-attorneys engaging in the unauthorized practice of law.

Reed S. Minkin is an attorney with the New Orleans firm of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard. He practices primarily in the areas of insurance coverage, insurance defense, and trial and appellate litigation. His professional background also includes experience with construction litigation, construction liens, and title insurance litigation.

Justifiably concerned about the inundation of public adjusters in Louisiana following Hurricanes Katrina and Rita in 2005, the Louisiana legislature enacted 'The Louisiana Public Adjuster Act' ('Public Adjuster Act'), codified at Louisiana Revised Statutes '22:1210.91, et seq., by Acts 2006, No. 806, '1. The Public Adjuster Act was enacted to establish a regulatory framework for the field of public adjusting by setting standards for qualifications and licensing of public adjusters and establishing standards of conduct.

The Public Adjuster Act defines 'public adjusting' as either of the following:

(a) Investigating, appraising, or evaluating and reporting to an insured in relation to a first-party claim for which coverage is provided by an insurance contract that insures the property of the insured. Public adjusting does not include acting in any manner in relation to claims for damages to or arising out of the operation of a motor vehicle. Public adjusting does not include any activities which may constitute the unauthorized practice of law. Nothing in this Part shall be considered as permitting the unauthorized practice of law.

(b) Advertising for employment as a public adjuster of insurance claims or soliciting business or representing himself to the public as a public adjuster of first-party insurance claims for losses or damages arising out of policies of insurance that insure real or personal property. LSA-RS 22:1210.92.

According to information on the National Association of Public Insurance Adjusters' ('NAPIA') Web site, 'public adjusters are experts on property loss adjustment who are retained by policyholders to assist in preparing, filing and adjusting insurance claims.' The NAPIA has developed Rules of Professional Conduct and Ethics, and a specific provision requires that 'members shall not engage in the unauthorized practice of law.' See http://www.napia.com/.

The Public Adjuster Act also includes a provision prohibiting public adjusters from engaging in the unauthorized practice of law. The practice of law is defined in Louisiana Revised Statutes '37:212 and, in pertinent part, includes,

(1) In a representative capacity, the appearance as an advocate, or the drawing of papers, pleadings or documents, or the performance of any act in connection with pending or prospective proceedings before any court of record in this state; or

(2) For a consideration, reward, or pecuniary benefit, present or anticipated, direct or indirect:

(a) The advising or counseling of another as to secular law;

(b) In behalf of another, the drawing or procuring, or the assisting in the drawing or procuring of a paper, document, or instrument affecting or relating to secular rights;

(c) The doing of any act, in behalf of another, tending to obtain or secure for the other the prevention or the redress of a wrong of the enforcement or establishment of a right; or

(d) Certifying or giving opinions as to title to immovable property or any interest therein or as to the rank or priority or validity of a lien, privilege or mortgage as well as the preparation of acts of sale, mortgages, credit sales or any acts or other documents passing titles to or encumbering immovable property.

The unauthorized practice of law is defined in '37:213, which, in relevant part, provides,

A. No natural person, who has not first been duly and regularly licensed and admitted to practice law by the supreme court of this state, no corporation or voluntary association except a professional law corporation organized pursuant to Chapter 8 of Title 12 of the Revised Statutes, and no partnership or limited liability company except one formed for the practice of law and composed of such natural persons, corporations, voluntary associations, or limited liability companies, all of whom are duly and regularly licensed and admitted to the practice of law, shall:

(1) Practice law.

(2) Furnish attorneys or counsel or an attorney and counsel to render legal services.

(3) Hold himself or itself out to the public as being entitled to practice law.

(4) Render or furnish legal services or advice.

(5) Assume to be an attorney at law or counselor at law.

(6) Assume, use, or advertise the title of lawyer, attorney, counselor, advocate or equivalent terms in any language, or any phrase containing any of these titles in such manner as to convey the impression that he is a practitioner of law.

Section 213 of Title 37 also provides for imprisonment not to exceed two years, or a fine not to exceed $1,000, or both, for a person who violates this section.

Often, especially after disasters such as Hurricane Katrina and the recent wildfires in California, policyholders are eager to sign up with public adjusters for a variety of reasons, not the least of which is the belief that public adjusters will recover more for them under their policy than they would by dealing directly with their insurance carrier on their own. As a result, public adjusters may, inadvertently or otherwise, give advice or act in a manner that can be construed as engaging in the practice of law.

Some states, such as Louisiana, South Carolina, and California, due to their geography, are more vulnerable to natural disasters and the potential for exploitation by public adjusters. Prior to Hurricanes Katrina and Rita, Louisiana recognized the existence of public adjusters; however, it did not regulate them. As early as 1985, Louisiana courts acknowledged the potential for overreaching by non-lawyers who perform services pursuant to contingency fee agreements when those services constitute the practice of law. In Duncan v. Gordon, the Louisiana Second Circuit Court of Appeal held that a non-lawyer who negotiated a settlement pursuant to a contingency fee contract with the plaintiff engaged in the practice of law. Duncan v. Gordon , 476 So.2d 896, 899 (La.App. 2 Cir. 1985).

Louisiana Law

More recently, in Louisiana Claims Adjustment Bureau, Inc. v. State Farm Insurance Company, the plaintiff, a public adjusting company, filed suit against State Farm for defamation and intentional interference with business relations after State Farm alleged that the plaintiff was committing the unauthorized practice of law by representing individuals and refusing to discuss settlement of their claims. The plaintiff appealed the trial court's granting of summary judgment in State Farm's favor. The appellate court affirmed the trial court's ruling, finding that the plaintiff's actions, including entering into contingency contracts to negotiate claims for 25% of the recovery, evaluating their clients' claims, researching the law, explaining what they believed the injury to be worth, and sending a demand letter with an evaluation of liability and special and general damages, amounted to the unauthorized practice of law. Louisiana Claims Adjustment Bureau, Inc. v. State Farm Insurance Company , 877 So.2d 294, 298-299 (La.App. 2 Cir. 2001).

As early as 2003, and prior to Louisiana's enactment of the Public Adjuster Act, the NAPIA expressed alarm about state legislation that threatened to prevent public adjusters from working on a contingency fee basis. In the fall 2003 issue of the NAPIA Bulletin, the Counsel's Report stated, '(t)he State of Louisiana passed a bill making it illegal for a percentage fee. This is a very dangerous piece of legislation. Not only is it contrary to the great majority of our profession's regular practice, but if this statute or one like it were to be enacted in even one more state, the results could be devastating for NAPIA' (emphasis supplied). (NAPIA Bulletin, fall 2003)

Despite the NAPIA's scare tactics and hyperbole about how 'dangerous' and 'devastating' this legislation would be, Louisiana policyholders have actually benefited from the restrictions that prohibit any person, except a licensed attorney at law, from receiving contingent fees for public adjusting services. In Richard's Realty Company, L.L.C. v. Paramount Disaster Recovery , the plaintiffs owned apartment complexes in Slidell, LA, which sustained extensive damage as a result of Hurricane Katrina. Richard's Realty Company, L.L.C. v. Paramount Disaster Recovery , 476 F.Supp.2d 618 (E.D. La. 2007). Plaintiffs' principal retained the services of defendant Paramount Disaster Recovery ('Paramount') as its public adjuster. The parties entered into a contract in which Paramount would receive a 20% contingency fee from any insurance proceeds paid to the plaintiffs. The plaintiffs' properties were insured under a flood policy that State Farm Fire and Casualty Company issued. State Farm tendered its full policy limits of $250,000, of which amount $50,000 was paid directly to Paramount pursuant to its contingency fee agreement with the plaintiffs. When the plaintiffs learned that Paramount received a percentage of the flood insurance proceeds, they terminated their contract with Paramount because they believed Paramount had contributed essentially nothing toward having State Farm pay its limits.

Plaintiffs filed suit against Para-mount seeking to nullify its contract and recoup the $50,000 flood proceeds because the contract was contingent upon or based on a percentage of the amount of the claim. The court held that the Paramount contract violated Louisiana's statutory prohibition against contingency fee contracts, observing that Louisiana 'has a history of restricting persons, professional associations, professional corporations, and limited liability companies from encroaching upon the practice of law in representing the interests of another as an advocate.' Id. at 621-622. In this instance, Louisiana's regulation of public adjusters protected the policyholders' interests.

South Carolina Law

South Carolina has also been active in revamping its Insurance Code to regulate public adjusters. See S.C. Code Ann. ”38-48-10 through 38-48-160. South Carolina's revised Insurance Code relating to public adjusters defines 'public adjusting' as 'investigating, appraising or evaluating, and reporting to an insured in relation to a first party claim arising under insurance contracts that insure the real or personal property, or both, of the insured.' S.C. Code Ann. '38-48-10(2). South Carolina's Code mandates that 'public adjusting does not include any activities which may constitute the unauthorized practice of law …(and) a public insurance adjuster shall not engage in any conduct which constitutes the unauthorized practice of law' S.C. Code Ann. ”38-48-10(2), 38-48-70(e).

South Carolina's Supreme Court was tested on the interpretation of the new legislation shortly after enactment of the state's restrictions on public adjusters in L.W. Linder v. Insurance Claims Consultants, Inc. , 348 S.C. 477, 560 S.E.2d 612 (S.C. 2002). The plaintiffs' home was damaged by fire, and they became concerned about how repairs were being handled while their claim was being adjusted. The plaintiffs met with the principals of Insurance Claims Consultants, Inc. ('ICC'), a public adjusting company. During their meeting, ICC advised plaintiffs that their gun collection claim, which their insurer rejected, should have been covered under the policy. The plaintiffs entered into a contract with ICC, and the terms of the contract with ICC included a 10% share of the total amount adjusted or otherwise recovered. In addition, the plaintiffs executed a 'notice' to their insurance carrier, which indicated that ICC had been hired to prepare the plaintiffs' claim and that ICC should be contacted for 'any further information and negotiations' concerning the plaintiffs' claim. After executing the contract with ICC, the plaintiffs discharged the attorney they had retained shortly before contacting ICC.

The majority of communications between ICC and the insurance company's adjuster concerned cost-related issues and discussions on the amount and extent of repairs. Ultimately, the plaintiffs approved the claim that ICC submitted, but payment of the claim was delayed and ICC recommended that plaintiffs retain an attorney. When the plaintiffs received payment on their claim, they did not pay ICC the contractually agreed upon 10% fee, and ICC filed suit to recover its fee. The plaintiffs filed an answer, and when they attempted to amend their answer to have a class certified to obtain relief for ICC's alleged unauthorized practice of law, the trial court denied their request and stayed the action to allow them to seek declaratory relief in the South Carolina Supreme Court.

The plaintiffs filed a Complaint for Declaratory Judgment and alleged, among other things, that ICC engaged in the unauthorized practice of law. As of 2002, the date L.W. Linder was decided, the issue of whether insurance adjusters engage in the unauthorized practice of law was novel in South Carolina, so the L.W. Linder court relied upon decisions from other jurisdictions, including Rhode Island, Pennsylvania, and Texas, for guidance on this issue. Id. at 488. The Supreme Court held that ICC engaged in the unauthorized practice of law based on its 'acts of (1) interpreting and advising the clients on the insurance policy, and (2) negotiating with the insurer on coverage disputes … ' Id. at 495. Specifically, the court concluded that ICC engaged in prohibited conduct when it advised plaintiffs on the extent of coverage for their gun collection and then subsequently discussed it with the insurance adjuster. The court reasoned that the act of advising plaintiffs of their rights under the insurance policy and becoming involved in a known coverage dispute required legal knowledge and skill, which is prohibited conduct by non-attorneys. Id. at 495.

In an attempt to provide guidance as to what does and does not constitute the unauthorized practice of law, the court provided a list of accepted and unacceptable activities and noted, 'because the activities of public insurance adjusters may bring them close to the line between permissible business conduct by non-attorneys and the unauthorized practice of law, we must clarify what is and is not appropriate conduct by public adjusters.' Id. at 492. The court held that the following activities were prohibited conduct by public adjusters:

A. Advising clients of their rights, duties, or privileges under an insurance policy regarding matters requiring legal skill or knowledge, i.e., interpreting the policy for clients.

B. Advising clients on whether to accept a settlement offer from an insurance company.

C. Becoming involved, in any way, with a coverage dispute between the client and the insurance company.

D. Utilizing advertising that would lead clients to believe that public adjusters provide services which require legal skill. Id. at 493.

The court declared that the following public adjusting practices are permissible and not the unauthorized practice of law:

A. Providing an estimate of property damage and repair costs, i.e., any purely appraisal-oriented activities by the public adjuster.

B. Preparing the contents inventory and/or sworn statements on proof of loss.

C. Presenting the claim to the insurance company, i.e., delivering the necessary paperwork and data to the insurer.

D. Negotiating with the insurance company, as long as the discussions only involve competing property-damage valuations. Id. at 492-493.

Perhaps aware that the L.W. Linder decision left the court open to criticism based on the recurring argument that the phrase 'engaging in the unauthorized practice of law' is a way for the legal profession to create a monopoly for lawyers or for economic protectionism, the court observed that it is the court's duty to 'protect the public from the potentially severe economic and emotional consequences which may flow from the erroneous preparation of legal documents or the inaccurate legal advice given by persons untrained in the law.' Id. at 486-487. The court made it clear that the protection of the public was not left to individuals or companies with the word 'public' as a designation of their profession. Instead, the L.W. Linder court correctly concluded that this duty fell upon its shoulders.

California Law

California addressed these issues some time ago, having enacted statutes in the 1980s to govern the activities of public adjusters. The Public Insurance Adjusters Act (the 'PIAA'), codified in Division 5, Chapter 2, '15000 et seq. of the California Insurance Code, was added by Statutes 1985, c. 1202, '1. Like the laws in Louisiana and South Carolina that prohibit public adjusters from engaging in the unauthorized practice of law, '15002 of the PIAA provides, '(n)othing in this chapter shall be construed as entitling any person to practice law in this state, unless he or she is an active member of the State Bar of California.' The PIAA defines public adjusting as follows:

A public adjuster within the meaning of this chapter is a person who, for compensation, acts on behalf of or aids in any manner, an insured in negotiating for or effecting the settlement of a claim or claims for loss or damage under any policy of insurance covering real or personal property or any person who advertises, solicits business, or holds himself or herself out to the public as an adjuster of those claims and any person who, for compensation, investigates, settles, adjusts, advises, or assists an insured with reference to claims for those losses on behalf of any public adjuster. Cal. Insurance Code, Div. 5, Chap. 2, '15007.

California's use of the term 'advises' broadens the definition of public adjusting as compared with laws in Louisiana and South Carolina, but nevertheless there are no reported cases in that state concerning public adjusters who may have engaged in the unauthorized practice of law, whether through advising a policyholder of his rights or by interpreting policy provisions.

Final Observations

Like Hurricanes Katrina and Rita in 2005, the recent wildfires in California highlight the need for additional scrutiny and regulation of public adjusters. Legislation regulating public adjusters plays a vital role in protecting policyholders. California's Second District Court of Appeal keenly recognized the need for such protection and observed, '(t)his history demonstrates that the Legislature recognized that insureds would often be susceptible to exploitation in the wake of earthquakes, fires, floods, and similar catastrophes and that consumers of public adjusting services needed protection.' Building Permit Consultants, Inc. v. Mazur, 122 Cal.App.4^th 1400, 1412 (2004).

As the South Carolina Supreme Court articulated, '(t)he practice of law is not confined to litigation but extends to activities in other fields which entail specialized legal knowledge and ability. Often, the line between such activities and permissible business conduct by non-attorneys is unclear.' State v. Buyers Service Co., Inc., 292 S.C. 426, 431; 357 S.E.2d 15, 18 (1987). In order to bring needed clarity to the potentially blurred distinctions between the rendering of legal advice and permissible business conduct, the regulation of public adjusters by state legislatures is a vital tool in truly protecting the interest of the general public. These regulations are not intended to burden the profession of public adjusting. Rather, they are designed to protect the public from the inherent dangers of non-attorneys engaging in the unauthorized practice of law.

Reed S. Minkin is an attorney with the New Orleans firm of Lugenbuhl, Wheaton, Peck, Rankin & Hubbard. He practices primarily in the areas of insurance coverage, insurance defense, and trial and appellate litigation. His professional background also includes experience with construction litigation, construction liens, and title insurance litigation.