2.3 Best-Interest Duty, Direction-to-Pay Letters (§ 25.12), Insurer Communications & Three-Year Records (§ 25.11)
Key Takeaways
- Ins. Law § 2108(s)(1) gives every public adjuster an affirmative duty to act on behalf of and in the best interests of the insured, and § 2108(o) bars misrepresenting facts or advising anyone on questions of law.
- Under 11 NYCRR § 25.12, an insurer names a public adjuster on a check only if the insured files a direction to pay letter (Form 4), and only for the adjuster's fee less any disclosed referral fee.
- A direction to pay letter must be signed by the first named insured on commercial claims and by all named insureds on non-commercial claims, and any named insured may revoke it in writing before a check issues.
- Under 11 NYCRR § 25.11(b), an insurer must include the public adjuster in any communication it initiates with the insured unless the insured instructs otherwise in writing.
- Public adjusters must keep books, files, and records for at least three years from completion of services, and every fee file must contain the written compensation agreement (§ 25.11(a)).
Best-Interest Duty, Direction-to-Pay Letters, Insurer Communications & Records
A New York public adjuster works for the insured, but the claim money flows from the insurer. The Series 17-62 outline tests the rules that govern that relationship: the statutory duty of loyalty, the prohibition on misrepresentation and legal advice, the procedures for direction of payment (11 NYCRR § 25.12), the insurer's duty to include the adjuster in communications, and records (§ 25.11).
The Duty of Loyalty and Its Limits
- Affirmative best-interest duty: Ins. Law § 2108(s)(1) requires every public adjuster to act on behalf of and in the best interests of the insured when negotiating or settling a claim, or otherwise acting as a public adjuster. Breach is an express disciplinary ground (§ 2110(a)(15)).
- Honesty: under § 2108(o), no licensee may misrepresent facts in the adjusting business or advise any person on questions of law. A public adjuster may explain policy language and present the claim, but legal advice (for example, whether to sue or how to plead a case) belongs to an attorney.
- Communication with the client: practical loyalty means passing on every offer, coverage position, reservation of rights, and denial, and documenting the client's instructions.
Direction-to-Pay Letters: 11 NYCRR § 25.12(a)
Regulation 10 does not give a public adjuster an automatic lien on claim proceeds. Instead, the insured decides who is named on the insurer's checks by signing a direction to pay letter consistent with Form 4 (§ 25.13(d)).
| Rule | Detail |
|---|---|
| Insurer must follow the insured's direction | Subject to the interests of any loss payee or mortgagee |
| Who signs | For commercial claims, the first named insured; for non-commercial claims, all named insureds |
| Options on Form 4 | (1) One check payable to the public adjuster for the fee, with a separate check to the insured and any loss payee or mortgagee for the balance; or (2) one check payable jointly to the adjuster and the insured for the fee, with a separate check for the balance |
| Amount payable to the adjuster | Not more than the adjuster's fee under the signed compensation agreement filed with the insurer, less any referral fee disclosed on a Form 2 disclosure statement |
| No letter, no check | If the insured does not submit a direction to pay letter, the insurer shall not make any check payable to the public adjuster |
| Scope | Payment to an adjuster is only for the elements of the claim the adjuster represents |
| Revocation | A direction to pay letter stays valid for payments on the claim unless revoked. Any named insured may revoke it in writing, signed, before the insurer issues a check, sending the revocation to the insurer with a copy to the adjuster. |
| No conditioning | A public adjuster may not condition doing business with an insured on the insured's signing a direction to pay letter naming the adjuster on the check |
Why this matters: fee disputes and client-fund problems are among the most common sources of public adjuster discipline. Under § 25.12, the fee is paid on its own check, and the client's money goes directly to the client and mortgagee. Any funds a public adjuster does receive belong to the client except for the earned fee. Improperly withholding, misappropriating, or converting money received in the business is a disciplinary ground under § 2110(a)(5).
The Insurer Must Include the Adjuster: 11 NYCRR § 25.11(b)
When an insured is represented by a public adjuster, the insurer must include the public adjuster in any written or oral communications the insurer initiates with the insured, unless the insured instructs the insurer otherwise in writing. The 2021 amendment added this rule so that carriers could not negotiate around the adjuster the insured had hired.
Books, Files, and Records: 11 NYCRR § 25.11(a)
- Every public adjuster must keep its books, files, and records for at least three years from the completion of the services rendered.
- Records must be readily available for Department inspection.
- Every file in which a fee has been paid or will be paid must contain the written compensation agreement required by § 25.6.
- A well-kept file also holds the signed notice of cancellation copy, any Form 2 disclosure statements, the direction to pay letter, estimates, photographs, proofs of loss, and correspondence. These documents prove compliance if the Department or a court asks.
Disputes Between the Adjuster and the Insured: § 25.12(b)
Any mediation, arbitration, or litigation involving a dispute over a New York loss between an insured and a public adjuster, initiated by the public adjuster, must be filed and held in New York and is subject to New York law.
Change of Address and Other Housekeeping
Each licensee must notify the Department of any change of business or residence address, telephone number, fax number, or email address within 30 days (§ 25.4).
Fraud Warnings
Proofs of loss and claim forms carry New York's fraud warning statement, and the Penal Law treats fraudulent insurance acts as crimes (Section 2.4). A public adjuster who prepares an inflated inventory or mischaracterizes old damage exposes the insured to prosecution, and the adjuster to prosecution and license discipline.
A homeowner represented by a public adjuster has not signed a direction to pay letter. The claim settles for $80,000. Under 11 NYCRR § 25.12, how must the insurer issue payment?
Under 11 NYCRR § 25.11(a), for how long must a New York public adjuster keep its books, files, and records?
An insurer's desk adjuster phones the insured directly to discuss a settlement offer without contacting the insured's public adjuster. The insured has given no written instruction about communications. What does Regulation 10 require?