1.4 Fee Caps, Escrow and Claim Proceeds, Solicitation Limits, Standards of Conduct, and Records

Compensation Rules (215 ILCS 5/1570 and 50 Ill. Adm. Code 3118.90)

Payments to and from unlicensed persons

• A public adjuster may not pay a commission, service fee, or other consideration to a person for investigating or settling Illinois claims if that person must be licensed and is not (Section 1570(a)).
• A person who must be licensed but is not may not accept such consideration (Section 1570(b)).
• A public adjuster may pay or assign compensation to people who do not investigate or settle claims, such as office staff, unless State law otherwise forbids it (Section 1570(c)).

The two 10% caps

A catastrophic event is an occurrence of widespread or severe damage that overwhelms State and local response resources and severely affects economic activity. The cause may be fire (including arson not caused by the willful act of an owner or resident), flood, earthquake, wind, storm, explosion, or extended severe weather, as determined by a declaration of a State disaster by the Governor. The declaration may be made county by county, lasts 90 days, and may be renewed in 30-day intervals. Outside a declared catastrophe, Section 1570 sets no percentage cap for non-residential property, but the fee must still be stated in the approved contract.

How the fee is calculated (Part 3118.90)

1. The fee may not include the deductible and is based only on the net claim payment made by the insurer.
2. A client may not be charged a higher fee for declining the contractor or vendor the adjuster prefers or recommends.

Worked example. A homeowner's covered roof and interior loss is valued at $42,000 with a $2,000 deductible, so the insurer pays $40,000. The maximum fee is:

$$0.10 \times \text{\textdollar}40{,}000 = \text{\textdollar}4{,}000$$

A fee calculated on $42,000 ($4,200) would include the deductible and violate Part 3118.90(b).

Policy-limit payments and fee timing

Section 1575(c) removes the percentage fee when the insurer pays or commits in writing to pay the policy limit within 5 business days after the loss is reported. Section 1575(e)(1) bars collecting a fee on money due but not yet paid, or taking the whole fee out of the first check.

Holding the Insured's Money

Escrow (215 ILCS 5/1580). A public adjuster who receives, accepts, or holds any funds on behalf of an insured toward settlement must deposit them in a non-interest-bearing escrow or trust account at a financial institution insured by an agency of the federal government, located in the adjuster's home state or where the loss occurred. The money belongs to the insured, so mixing it with operating funds is conversion risk; misappropriating money collected as a public adjuster is a Class 4 felony (Section 1610).

Residential proceeds (215 ILCS 5/1590(i)). On a personal residence loss, the insurance proceeds must be delivered to the named insured or the insured's designee. When the insurer pays the insured and the adjuster jointly, the insured must release the adjuster's share within 30 calendar days after receiving the check, money order, draft, or funds, or give the adjuster a written explanation of the delay.

Solicitation Limits (215 ILCS 5/1590(b) and 3118.115(a))

A public adjuster may not propose or attempt to propose representation to any person:

1. while a loss-producing occurrence is continuing;
2. while the fire department or its representatives are engaged at the damaged premises; or
3. between 7:00 p.m. and 8:00 a.m.

Under Part 3118.115(a), an adjuster also may not let any unlicensed person or entity that the adjuster has an interest in, or that will pay the adjuster, solicit a loss in violation of these limits. Part 3118.80(c)(17) requires the contract to attest that the adjuster who signed is the adjuster who solicited the business.

Conflicts of Interest and Referrals

Illinois uses disclosure plus consent rather than a total ban:

General Ethical Requirements (215 ILCS 5/1590(a), (c), (j)-(m))

• Serve with objectivity and complete loyalty to the client alone, giving the information, counsel, and service that best serve the insured's claim (1590(a)).
• Do not let unlicensed employees or representatives do work that requires a license (1590(c)).
• Do not take a claim beyond your competence or knowledge of the coverage (1590(j)(1)).
• Do not make false or maliciously critical statements intended to injure anyone in the insurance business (1590(j)(2)).
• Do not act as a company or independent adjuster on the same claim while licensed as a public adjuster (1590(j)(3)).
• Do not accept a contract or power of attorney giving you authority to choose who performs repairs (1590(j)(5)).
• Put all engagement terms in writing (1590(j)(6)).
• Do not advance money or anything of value to an insured pending adjustment, except emergency services (1590(j)(7)).
• Do not agree to a settlement without the insured's knowledge and consent; on request, provide a document showing the scope, amount, and value of the damages before asking for settlement authority (1590(k)).
• Do not give legal advice or engage in the unauthorized practice of law (1590(l)).
• Do not claim to represent an insurer, a fire department, or the State, to be a fire investigator, or that your services are required to file a claim. You may say you are licensed by the State of Illinois (1590(m)).

Records (215 ILCS 5/1585 and 3118.50)

A public adjuster keeps a complete record of each transaction, including:

1. the insured's name;
2. the date, location, and amount of the loss;
3. a copy of the contract and the separate disclosure documents;
4. the insurer's name and the amount, expiration date, and number of each policy;
5. an itemized statement of the insured's recoveries;
6. an itemized statement of all compensation received from any source;
7. a register of all money received, deposited, disbursed, or withdrawn, including trust account transfers;
8. the name of the adjuster who executed the contract;
9. the name of the insured's attorney, if any, and of the insurer's claim representatives; and
10. evidence of financial responsibility.

Records are kept at least 7 years after the transaction with the insured ends and are open to the Director's examination at all times. Records marked proprietary in writing are confidential and exempt from the Freedom of Information Act. Part 3118.50 defines "records material" to include books, papers, and documents in any physical form. Failing to keep these records is a ground for discipline under Section 1555(a)(16).