Construction Law Update: Supreme Court Prohibits Residential Contractors From Acting as Public Adjusters Without a License


In a trio of decisions issued on February 14, 2020, 33 Carpenters Constr., Inc. v. State Farm Life & Cas. Co., 939 N.W.2d 69 (Iowa); 33 Carpenters Constr., Inc. v. Cincinnati Ins. Co., 939 N.W.2d 82 (Iowa 2020); and 33 Carpenters Constr., Inc. v. IMT Ins. Co., 939 N.W.2d 95 (Iowa 2020), the Iowa Supreme Court declared “‘void’ contracts entered into by residential contractors who perform public adjuster services without the license required under [Iowa Code] section 522C.4.” In these cases, the homeowners had suffered damages to their homes because of hail, wind, and storms. A residential contractor, 33 Carpenters Construction, approached the homeowners, asked to inspect their homes, and then entered into written agreements with them whereby 33 Carpenters agreed to repair the damage in exchange for the homeowners’ insurance proceeds. The homeowners also agreed to allow 33 Carpenters to act on their behalves concerning the submission, adjustment, and payment of insurance claims on the homes, and assigned to 33 Carpenters their rights to the insurance proceeds. The homeowners’ insurance companies investigated the damages, prepared estimates of the repair costs, and issued payments for the repairs. 33 Carpenters claimed that the repair costs and other amounts owed were more than what the insurance companies paid. The insurance companies disagreed, so 33 Carpenters filed lawsuits.

In the lawsuits, the insurance companies argued that 33 Carpenters’ contracts with the homeowners were void because 33 Carpenters was acting as a public adjuster without a license as required by Iowa statutory law. The Supreme Court agreed. It explained that “Iowa is one of forty-five states with statutes requiring licensure of public adjusters. . . . The goal of the licensing statutes is to ‘curtail unethical and abusive practices’ by public adjusters who ‘present[ ] danger to the public by “chasing fires” and soliciting clients under conditions of duress. . . .’ The unethical practices include ‘price gouging[,] ... collusion[,] ... high-pressure sales tactics, fraud, and incompetence.’ Homeowners and their insurers are especially vulnerable to exploitation ‘in the wake of earthquakes, fires, floods, and similar catastrophes.’” Therefore, “the Iowa legislature specifically chose to regulate contracts ‘to repair damage [to homes] resulting from a naturally occurring catastrophe including but not limited to a fire, earthquake, tornado, windstorm, flood or hail storm.’ Iowa Code § 103A.71(4)(a) (2016). The Iowa Insurance Division has determined that requiring public adjusters to be licensed is in the public interest, necessary for the protection of policyholders, and consistent with the purposes of Iowa Code chapter 507A. . . . Iowa Code chapter 522C’s purpose is ‘to govern the qualifications and procedures for licensing public adjusters in this state, and to specify the duties of and restrictions on public adjusters, including limitation of such licensure to assisting insureds only with first-party claims.’ Iowa Code § 522C.1.”

One of the operative statutes says that a “‘contract entered into with a residential contractor is void if the residential contractor violates subsection 2, 3, or 4.’ [Iowa Code] § 103A.71(5),” and “Section 103A.71(3) declares that ‘[a] residential contractor shall not represent or negotiate on behalf of, or offer or advertise to represent or negotiate on behalf of, an owner or possessor of residential real estate on any insurance claim in connection with the repair or replacement of roof systems, or the performance of any other exterior repair, exterior replacement, or exterior reconstruction work on the residential real estate.’ [Iowa Code] § 103A.71(3).” Another operative statute, Iowa Code Section 522C.2(7), defines “public adjuster,” and Iowa Code Section 522C.4 says that “[w]ithout a license issued by the commissioner in accordance with chapter 522C, ‘[a] person shall not operate as or represent that the person is a public adjuster in this state. . . .’” The Supreme Court concluded, “If we compare the language of section 103A.71(3), which lists activities that a residential contractor is forbidden from doing, with the definition of a public adjuster in section 522C.2(7), it is apparent that section 103A.71(3) prohibits residential contractors from acting as public adjusters.” Based on this conclusion, the Court “interpret[ed] these provisions together to hold that contracts entered into by a residential contractor acting as an unlicensed public adjuster are void under section 103A.71(5).”

The Court then analyzed 33 Carpenters’ actions to determine if it acted as a public adjuster. In one of the cases, the Court noted that “33 Carpenters representative Shepherd directed the Clausens to file a claim with State Farm, which they promptly did that same day, and Shepherd attended the inspection of the Clausen property with the State Farm representatives in place of the Clausens. Shepherd’s conduct aligned with 33 Carpenters’ representations on its website, which advertised to homeowners that it would ‘meet personally with your insurance adjuster, as an ADVOCATE on YOUR behalf, and discuss the work that needs to be completed to repair your home to its original beauty and value.’ Additionally, 33 Carpenters submitted the first estimate to State Farm before the Clausens assigned their claim. 33 Carpenters thereby acted on behalf of the Clausens in negotiating their claim. Altogether, these activities demonstrate that 33 Carpenters was acting for and aiding the insureds, the Clausens, in effecting the settlement of their claim with State Farm for damage to their real property within the meaning of section 522C.2(7)(a).” The Court also stated that “Shepherd, as 33 Carpenters’ representative, undisputedly approached the Clausens uninvited and offered to inspect their home for hail damage, and he directly solicited business for 33 Carpenters after finding damage on the roof and siding. The same day, Shepherd advised the Clausens to file a claim for that damage and had them sign documents agreeing to pay 33 Carpenters with their insurance proceeds in exchange for the company agreeing to repair the storm damage. This constitutes advising an insured about first-party claims for damage to the insured’s real property. 33 Carpenters’ six-step process on its website additionally exemplifies solicitation of business investigating losses and advising insureds regarding claims with promises to ‘ADVOCATE on YOUR behalf’ and work directly with the insurance company to ensure all damaged areas are included in the report, among other things. Such conduct directly aligns with that of a public adjuster within the meaning of sections 522C.2(7)(b) and (c).” Similar facts existed in the other two cases. As a result, the Court found that 33 Carpenters acted as a public adjuster, and, because it did not have the required license, its contracts with the homeowners were void thereby precluding 33 Carpenters from recovering any additional money from the insurance companies.

Contractors performing storm-related repair work on residential homes need to be aware of this decision, and would be well advised to obtain the required public-adjuster license before performing such work. Failure to do so could result in their contracts being declared void thereby causing them not to be paid for their work.

Contact attorney Steve Marso at 515-288-6041 for more information about this or other construction matters.

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