2.2 Compensation Agreements, the 12.5% Fee Cap, Supplemental Claims & the 3-Business-Day Right to Cancel

Compensation Agreements, the 12.5% Fee Cap & the Right to Cancel

A New York public adjuster has no right to compensation from an insured unless the right rests on a written memorandum signed by the party to be charged that specifies or clearly defines the amount (Ins. Law § 2108(p)). Regulation 10 (11 NYCRR Part 25) turns that statute into a detailed set of contract, fee, and cancellation rules that the Series 17-62 outline tests by section number: contract requirements (§ 25.6), maximum compensation (§ 25.7), the insured's right to cancel (§§ 25.8-25.10), and the prescribed forms (§ 25.13).

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The Written Compensation Agreement: 11 NYCRR § 25.6

A public adjuster may be paid solely under a written compensation agreement consistent with Form 1 in § 25.13(a).

Required Contents (Form 1 and § 25.6)

1. Names and addresses of the public adjuster and the insured; if the adjuster is a business entity, the sublicensee must also be named.
2. Date and time of initial contact (which lets the Department test compliance with the 6:00 p.m.-8:00 a.m. solicitation ban).
3. Loss location and date of loss, and a statement that the insured retains the adjuster to act or aid in preparing, presenting, adjusting, negotiating, or settling the claim.
4. The fee percentage, which the insured initials, and the number of attached disclosure statements.
5. The Notice to Insured: the 12.5% cap, the supplemental-claim 20% rule, that fees for outside experts and referral compensation count toward the cap, that the insured is not required to use any vendor the adjuster refers, that the fee may be negotiated below the maximum, and the right to cancel.
6. Signatures of the public adjuster (or, for a business entity, the sublicensee or the licensed employee who made the agreement) and the insured or other party to be charged.

Language and Scope Rules

• The agreement (and the notice of cancellation) must be in the same language principally used in the oral negotiations and presentation (§ 25.6(d)).
• Outside experts: if an expert or consultant retained by the adjuster performs services directly related to the adjusting function, those fees must be included in the compensation agreement and are subject to the fee cap (§ 25.6(f)).
• Referral disclosures: see Section 2.1 for § 25.6(e).

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Maximum Compensation: 11 NYCRR § 25.7

A public adjuster may not charge a fee in excess of 12.5 percent of the recovery for services rendered on a claim, except that on a supplemental claim the adjuster may charge up to 20 percent if the aggregate fee charged is less than or equal to 12.5 percent of the full claim payment.

Key mechanics:

• Fee base: the fee is computed on monies paid by the insurer after the insured retained the adjuster. Money the insurer paid before the retention is not part of the base (§ 25.7(a)).
• Supplemental claim (defined in § 25.5(e)): the insured made the initial claim without a public adjuster, the insurer paid, and the insured then retained a public adjuster to prove the amount and extent of the loss, not its cause.
• Referral compensation counts: any compensation the adjuster receives, directly or indirectly, for referring the insured to a vendor is deemed compensation from the insured and counts toward the maximum (§ 25.7(b)).
• No referral compensation at all where the adjuster has a financial or ownership interest in the vendor (§ 25.7(c)).
• Multiple adjusters: where more than one public adjuster performs valuable services and no valid cancellation occurred, the insured owes no more in total than the § 25.7 maximum (§ 25.10(c)).

Fee Scenarios

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The Right to Cancel: 11 NYCRR §§ 25.8-25.10

Every compensation agreement is subject to New York's Door-to-Door Sales Protection Act (Personal Property Law §§ 426-431), as Ins. Law § 2108(p)(2) directs (§ 25.9(a)).

Timing

• The insured may cancel until midnight of the third business day after the date the insured signed the agreement (§ 25.8(a)).
• Business day means any calendar day except Sunday and the listed business holidays (New Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day) (§ 25.5(a)). Saturday counts.
• Example: an agreement signed Thursday can be cancelled through midnight Monday (Friday = day 1, Saturday = day 2, Sunday excluded, Monday = day 3), assuming no holiday.

The Notice of Cancellation (§ 25.9)

• At signing, a completed "NOTICE OF CANCELLATION" form, in duplicate, must be attached to the agreement and be easily detachable. It must be printed in not less than 12-point type, be consistent with Form 3, and be in the same language as the agreement.
• The adjuster fills in both copies with its name, business address, the transaction date, and the cancellation deadline (not earlier than the third business day).
• The adjuster must tell the insured orally, at signing, about the right to cancel.
• Until the adjuster complies, the insured may cancel in any manner and by any means, and the three-day period does not begin to run until compliance.
• The agreement may not include a confession of judgment or any waiver of the insured's rights under Part 25, including the right to cancel (§ 25.9(e)).

How Cancellation Works (§ 25.8)

• Cancellation occurs when written notice is given to the adjuster. It need not use the form; any writing showing the insured's intention not to be bound is sufficient.
• Notice by mail is effective when it is deposited in a mailbox, properly addressed and postage prepaid.
• Under Form 3, payments made and negotiable instruments signed by the insured must be returned within ten business days after the adjuster receives the cancellation, and any security interest is cancelled.

Compensation After Cancellation or Replacement (§ 25.10)

• The adjuster is not entitled to any compensation for services performed before a valid cancellation (§ 25.10(a)).
• If an adjuster performs no valuable services and another public adjuster, a broker, or an attorney later successfully adjusts the loss, the first adjuster gets nothing (§ 25.10(b)).
• If more than one adjuster performs valuable services without a valid cancellation, the insured's total obligation is capped at the § 25.7 maximum (§ 25.10(c)).