5.5 Hawaii Public Adjusters: Bond, Authority, Contract Requirements & Fee Limits (HRS §§ 431:9-223, 9-226, 9-244)

5.5 Hawaii Public Adjusters: Bond, Authority, Contract Requirements & Fee Limits (HRS §§ 431:9-223, 9-226, 9-244)

A public adjuster is an adjuster employed by and solely representing the financial interests of the insured named in the policy (HRS § 431:9-105). The Hawaii adjuster outline lists public adjuster contracts (§ 431:9-244) as a separate marketing practices topic. Independent adjusters need to know these rules too, because they negotiate opposite public adjusters on large property claims, such as after the 2023 Maui wildfires.

Licensing and Bond

• A public adjuster needs a Hawaii public adjuster license, which requires passing the Hawaii Adjuster exam. It is separate from the independent adjuster license, and the full fee is paid for each (§ 431:9-224; see 5.3).
• Before the license is issued, the applicant must file, and must maintain while licensed, a surety bond of $10,000 in favor of the State (§ 431:9-223):
  • executed by an authorized corporate surety approved by the commissioner;
  • conditioned on the adjuster accounting to any insured whose claim the adjuster handles for money or settlements received;
  • may be written without an expiration date, with aggregate liability limited to $10,000;
  • stays in force until the commissioner releases the surety or the surety cancels on 60 days' written notice filed with the commissioner; and
  • may be replaced by a deposit of $10,000 in cash or approved securities.
• The Insurance Division's licensing instructions require the filed bond to be uploaded through NIPR within 7 days of the online application.

Authority limits: a public adjuster may act only on behalf of insureds (§ 431:9-226(a)). A person licensed as both an independent adjuster and a public adjuster may not represent both the insurer and the insured in the same transaction (§ 431:9-226(b)). Emergency nonresident registration under § 431:9-201(b) is a commissioner's declaration for independent adjusters. Recent declarations expressly excluded nonresident public adjusters until the commissioner finds a need for them.

Producer-adjuster restriction: an adjuster who is also an insurance producer may not adjust a loss where the producer's pay for selling the insurance depends primarily on the adjustment of that loss (§ 431:9-227).

The Public Adjuster Contract (§ 431:9-244)

Required Terms

All contracts for public adjuster services must be in writing and contain:

1. the title "Public Adjuster Contract";
2. a description of the services to be provided;
3. the full salary, fee, commission or other consideration the public adjuster will receive;
4. initial expenses to be reimbursed from the claim proceeds, by type, with dollar estimates, and a requirement that any additional expenses be approved first by the insured;
5. attestation that the public adjuster is fully bonded under § 431:9-223;
6. the insured's full name, street address, insurance company name, and policy number if known;
7. a description of the loss and its location, if applicable;
8. the legible full name of the public adjuster signing the contract;
9. the public adjuster's permanent home state, business address and phone number;
10. the license number on record with the Insurance Division;
11. signatures of the public adjuster and the insured; and
12. the dates each party signed.

Prohibited Terms

A public adjuster contract may not contain a term that:

• requires the insured to authorize the insurer to issue a check only in the name of the public adjuster;
• imposes collection costs or late fees; or
• precludes the insured from pursuing civil remedies.

Compensation Rules

• A public adjuster may not charge, agree to, or accept compensation that the commissioner determines to be unreasonable (§ 431:9-244(c)).
• If compensation is based on a share of the settlement, the exact percentage must be stated in the contract.
• Compensation provisions must be made available to the commissioner on request (§ 431:9-244(h)).

The 72-Hour Rule

If, no later than 72 hours after the loss is reported to the insurer, the insurer either pays or commits in writing to pay the insured the limits of any coverage that applies to the claim, the public adjuster:

1. may not receive a commission consisting of a percentage of the total amount the insurer paid to resolve the claim;
2. must inform the insured that the recovered amount might not be increased by the insurer; and
3. is entitled only to reasonable compensation based on time spent and expenses incurred until the claim is paid or the insured receives the written commitment.

Example: A Kihei home is destroyed by fire on Monday and the loss is reported that afternoon. On Wednesday morning, the insurer sends a written commitment to pay the full $600,000 Coverage A limit. A public adjuster signed on Tuesday cannot take a 10% fee ($60,000) on the Coverage A payment. The adjuster may bill only reasonable time and expenses for work done before the commitment. The adjuster must also tell the insured that the insurer might not pay more on that coverage.

Financial Interest Disclosure

A public adjuster must give the insured a written disclosure of any direct or indirect financial interest the adjuster has with another party involved in any aspect of the claim (§ 431:9-244(e)). This includes ownership (other than as a minority stockholder) of, or expected compensation from, a construction firm, salvage firm, building appraisal firm, motor vehicle repair shop, or any firm that estimates or performs work related to the loss.

Rescission Right

• The insured may rescind the contract within three business days after the contract was signed. The rescission must be in writing and mailed or delivered to the public adjuster's address in the contract within that period (§ 431:9-244(f)).
• If the insured rescinds, anything of value the insured gave under the contract must be returned within 15 business days after the public adjuster receives the cancellation notice (§ 431:9-244(g)).

How the Rules Fit Together on a Claim

The independent adjuster on the other side should confirm the public adjuster's license and letter of representation. Settlement drafts should be issued jointly (insured and public adjuster, plus any mortgagee) unless the insured directs otherwise. A draft must never be payable only to the public adjuster at the contract's insistence.