Recoverability of Public Adjuster Fees
After a first party property loss, an insured sometimes retains a public adjuster to assist them in presenting their insurance claim and advocating their position to their insurer. In doing so, the public adjuster will often base their fee on a percentage of the insured’s gross settlement with their insurer. This has led to some attempts by insureds to recover the contingency fee charged by their public adjuster from their insurer, either as part of the coverage under their insurance policy or as part of their damages in subsequent litigation.
In Canada, the case law dealing with the recoverability of these fees is sparse. That said, the cases that have addressed this issue seem to indicate that at least in some circumstances, a portion of a public adjuster’s fees may be recoverable. The purpose of this paper is to discuss those circumstances in two contexts:
- Recoverability of a public adjuster’s fee under the insurance policy; and
- Recoverability of a public adjuster’s fee as damages in litigation.
Coverage under the Policy for Public Adjuster Fees
Insurance policies often specifically provide coverage for “professional fees” but exclude coverage for a public adjuster’s fee. An example of this standard policy wording is:
We agree to extend the insurance provided to include the reasonable expenses you incur at our request to pay your accountants, auditors, architects, engineers, or other consultants or other professionals to produce and certify particulars or details or other proofs, information or evidence as may be required for the purpose of investigating or verifying the quantum of loss in the event of a claim except any expense associated with the use of lawyers, public adjusters, loss appraisers and/or loss consultants.
In those circumstances, it is clear that a public adjuster’s fees are excluded from coverage under the policy.
The issue is more complex when public adjuster’s fees are not specifically excluded. In 854965 Ontario Ltd. Dominion of Canada General Insurance Co., 2003 CanLII 42670 (ON SC), 64 OR (3d) 234 (“Dominion”), the insured’s property was damaged by fire and the policy provided coverage for payment of:
… reasonable fees payable to the insured’s auditors, accountants, lawyers, architects, engineers or other consultants, excepting the insured’s own employees, for producing and certifying particulars or details of the insured’s loss or losses in order to arrive at the loss payable under this policy in the event of a claim.
The insured filed an Interim Proof of Loss claiming payment of $20,000, which was their limit for professional fees, to be used to pay the cost of retaining a public adjuster. The insurer refused to pay the fee and the insured invoked the statutory appraisal process set out in the Ontario Insurance Act, RSO 1990, c.I.8. As in most provinces, Ontario’s statutory appraisal process can be triggered to resolve any dispute between insured and insurer regarding valuation. Notably, this process is limited to resolving a dispute on valuation and cannot decide matters of law, including whether or not there is coverage for the item in dispute. In this case, the insured sought to invoke the statutory appraisal process to quantify the value of the public adjuster’s fees. The insurer refused on the basis that this would involve a determination of mixed law and fact and was therefore unsuitable to be determined by appraisal. An application was brought and in deciding the issue, the Court held:
The policy provides indemnity coverage for certain expenses incurred by the insured in establishing its loss over and above actual physical fire loss. The enhancer endorsement lists reasonable fees payable to “other consultants” which would include a licensed adjuster…
The insured (applicant) entered into an agreement for professional [fees] with the NFA. The NFA has assisted the applicant with its insurance claim. The applicant would not have had to incur the fees but for the fire. The payment of the fees will be a loss to the applicant. The “professional fees” are required to be submitted to the respondent as a “loss” in a proof of loss form.
Based on the above, the court went on to find that the professional fees incurred by the public adjuster were capable of being determined by appraisal.
That decision was appealed and upheld by the Ontario Superior Court who specifically agreed that “other consultants” included a public adjuster. In affirming the decision, the Court also made it clear that even though the matter was capable of being determined by the statutory appraisal process that did not necessarily mean the insurer was ultimately liable to pay the fees:
It is to be noted that the issue at bar does not concern the liability of the insurer for the payment of the adjuster’s fees. Rather the issue concerns solely whether the determination of the value of such reasonable fees is to proceed through the appraisal process as required by s. 128 of the Insurance Act.
The appellant urges that the umpire in this circumstance will be required to determine questions of law or mixed questions of fact and law. We disagree. The umpire will only have to determine the reasonableness of the fees and assign a value to them. The action which has been commenced in the court will continue if necessary to determine any questions of law concerning the entitlement to recover these particular fees under the policy.
Although Dominion did not make specifically determine whether the insurer was liable for payment of the public adjuster’s, it certainly seems based on the comments in that case that where the policy provides coverage for “other consultants” under professional fees, there is a strong argument that this includes the reasonable fees of a public adjuster, subject to any other defences the insurer may have.
Recoverability of Public Adjuster Fees in Litigation
A second issue is whether absent the policy wordings, there might be recovery for public adjuster fees arising from the litigation. This issue was discussed in Mostafa v. Prudential of America General Insurance, 1999 CanLII 8721 (ON CA) (“Mostafa”). In that case, the insured’s claimed under their policy after a fire destroyed much of their home and contents. Their insurer denied the claim, alleging the insured’s were guilty of arson and fraud with respect to their claim for contents. At trial, the court found that there was coverage, but for much less than the insured’s had initially claimed. In doing so, the trial judge also found that the insurer had acted in by alleging arson / fraud and ordered the insurer to pay the costs of the action on a solicitor-client basis.
The insurer appealed the ruling on a number of grounds, all of which were dismissed. At the same time, the insured’s cross-appealed with respect to the amount of their claim and:
… to provide specifically for payment to them of the fee charged by their public adjuster.
The Court of Appeal dismissed the first part of the insured’s cross-appeal. In dealing with the public adjusting fees, the court held that [emphasis added]:
For a fee of 7%, Alex N. Sill Insurance Adjustment Company (Canada) Ltd. undertook to assist in the calculation and presentation of the respondents’ claim for building and contents. The respondents submitted that Dyson J. should have ordered the appellant specifically to pay the amount of Sill’s fee which, we were advised, was approximately $79,000 plus interest.
For the appellant’s “bad faith” in dealing with the respondents’ claim, Dyson J. ordered the appellant to pay to the respondents their costs of the action on a solicitor and client basis. The quantification of those costs will entail the assessment of the amount payable for reasonable disbursements for services reasonably necessary to advance the respondents’ position at trial. While that assessment will undoubtedly include some reference to the Sill fee, we consider it preferable to leave to the assessment officer the calculation of the specific amount of that fee that should be assessed in the context of the respondents’ solicitor and client costs.
Based on Mostafa, it appears that where the court orders costs paid on a solicitor-client basis, the insurer will have to pay the reasonable costs of the public adjuster’s fee.
In Plester v. Wawanesa Mutual Insurance Company, 2006 CanLII 17918 (ON CA), the insured’s furniture store was damaged as a result of fire and their insurer denied the claim, also on the basis of alleged arson. The insured’s were successful during a jury trial and awarded damages, including aggravated and punitive damages at trial. Their insurer appealed and the insured’s cross-appealed on the issue of costs, including leave to appeal the refusal of the trial judge to allow the $60,040 fee of their public adjusters as a disbursement. In initially disallowing their fee, the trial judge had commented that the public adjusters were not expert witnesses and therefore were not entitled to expert witness fees, but also stated that their fee should have been included as an item of special damages. The insured’s applied to have the fee added to their special damages but the trial judge denied because that fee was not been considered by the jury and their insurer was challenging the amount being claimed. In considering the cross-appeal, the Court of Appeal stated:
Croth was not qualified as an expert witness at trial. However, the trial judge apparently overlooked the fact that Hanson was qualified at trial as an expert in building contracting and estimating. In my view, the Plesters are entitled to claim an expert witness fee for the services rendered by Hanson.
Unfortunately, the quantum of the fee for Hanson presents a problem. The National Fire Adjustment Company did not produce a detailed invoice breaking down the services rendered. Its bill of $60,040 (which includes the services of both Croth and Hanson) is based on a percentage (six percent) of the Plesters’ total recovery.
Hanson testified that, with traveling time, he spent two days at the site of the fire. He then spent another day or day and a half preparing his estimate. In my view, a reasonable fee for these services would be $3,000 a day or $10,500. I would allow an additional $3,000 for preparation of his evidence at trial and his attendance at trial, for a total of $13,500.
In respect of the balance of the fee claimed for the services of National Fire Adjustment, I see no error in the refusal of the trial judge to include the disbursement in the award of costs.
The decision in Plester certainly seems to indicate that where a public adjuster is qualified as an expert, at least a portion of his fee will be recoverable. It also leaves the door open as to whether the entirety of the public adjuster’s fee could have been properly claimed as consequential or special damages. Unfortunately, we do not have the benefit of written reasons from the trial judge but he does appear to have indicating that the public adjuster’s fee should have been presented to the jury as part of the claim for special damages.
Although not addressed directly in Canadian case law, a recent US case (where use of a public adjuster is much more common) may provide some guidance. In Kingshill Hospitality, Inc. v. American Economy Ins. Co., No: 5:18-cv-520, 2018 WL 6427681 (M.D. Fla. Dec. 5, 2018) (“Kinghill”), the insured sued their insurer for breach of contract relating to a fire loss, including a claim for “consequential damages” for having to retain a public adjuster. The insurer brought a motion to have that part of the claim dismissed summarily. The court agreed with the insurer, holding that [emphasis in original]:
Consequential damages… stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting…
Kinghill argues it pleaded a basis for consequential damages when it alleged “it had to retain the services of an insurance claims professional (Public Adjuster) to pursue its claim. Assuming that is true, the expenses of obtaining a public adjuster did not flow from American Economy’s alleged breach of contract.
Instead, Kinghill chose to incur those costs just three days after American Economy made a coverage determination. Because those costs were incurred in May – before the alleged breach occurred when American Economy partially denied coverage on June 1 – Kinghill’s public adjuster expenses cannot be categorized as consequential damages.
While that conclusion resolves the Motion to Strike, another of American Economy’s arguments merits a brief discussion. American Economy argues that Kinghill’s request to be compensated for the expenses of its public adjuster should be categorized as extracontractual damages that can only be recovered in a bad faith lawsuit. The Court agrees with the major premise, although it is misapplied to the facts of this case.
If an insured believes that its insurer is not attempting to settle a claim in good faith and hires a public adjuster to refute the damage estimate or coverage determination proffered by an insurer, such expenses could be considered extracontractual damages. And, under those facts, the consequential damages would be extracontractual damages that could only be recovered in a bad faith action…
But those are not the facts before the Court, Kingshill does not allege that it retained its public adjuster because American Economy acted in bad faith. Instead, it alleges it retained a public adjuster to assist it in submitting its claim.
It is unclear how Kingshill would be interpreted by a Canadian court. The case places a great deal of emphasis on when the insured hired a public adjuster, which in that case was notably before a dispute with the insurer regarding valuation or coverage arose. As a result, the court found that the public adjuster’s fees did not arise from a breach of contract since the alleged breach had not taken place at the time the public adjuster was hired. The court did state in obiter dictum find that the public adjuster had been hired to refute the damage estimate or a coverage determination; such fees would have been covered as extracontractual damages in a bad faith claim.
The ruling in Kingshill appears to create some logistical issues, such as how an insured, without the initial assistance of a public adjuster, could be expected disagree with the insurer’s assessment of valuation or coverage and then hire a public adjuster. That said, the importance placed on remoteness / proximity in recovering a public adjuster’s fee as discussed in Kinghill does make some logical sense when compared to the Canadian law on consequential pecuniary loss, at least in the context of a bad faith action. As set out in Insurance Bad Faith by Gordon G. Helicker:
In an action against the insurer pursuant to the policy the insured’s remedy is not restricted to the benefits stipulated in the policy, together with any applicable interest and costs. Rather, the insured may be able to recover for certain pecuniary losses which are consequent upon the wrongful delay or denial of the policy proceeds. The limiting factor on the recovery of such losses will be the principle of remoteness…
In these cases, however, one must be careful to differentiate between uninsured pecuniary loss which results from the insurer’s breach of contract and uninsured pecuniary loss which results from the insured event itself. The former loss may be recoverable, but the latter is not, for it would occur regardless of whether the insurer was in breach.
Ultimately, Canadian courts are yet to deal directly with the concept recoverability of a public adjuster’s fee. That said, there are a few principles seem to emerge from the decisions discussed above:
- Where the policy provides coverage for professional fees including “other consultants” and does not specifically exclude public adjuster’s fees, there is a strong argument those fees should be covered.
- Where the insurer is ordered to pay costs on a solicitor-client basis, this likely includes the reasonable fees of a public adjuster.
- Where a public adjuster is properly qualified as an expert witness, at least a portion of their fees can be recoverable as a disbursement.
- Where the need for a public adjuster arises from the insurer’s alleged breach of contract, there is an argument that fee should be recoverable as special damages in a subsequent litigation.