The Office of General Counsel issued the following opinion on May 12, 2003 representing the position of the New York State Insurance Department.
Public Adjusters Fee Check Mortgagee as Payee
Does an insurer have to include the mortgagees name (as a payee) on the public adjusters fee check when the insured requests that the adjuster be paid by a separate check payable solely to the adjuster, pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 25.12 (1995) (Reg. 10)?
The public adjusters fee check may be issued solely to the public adjuster only if the insured, in accordance with Section 25.12 of Reg. 10, has made such a request of the insurer and the mortgagees interest would be satisfied by the balance of the claim proceeds, or if such request is made by both the insured and the mortgagee.
The insured signed a letter asking that the public adjuster be added as an additional payee. There is a mortgage on the property. The insurer proposes issuing two checks one to the named insured and the mortgagee and one to the named insured, the mortgagee and the public adjuster for the amount of the public adjusters fee. The public adjuster is insisting that the check for his fee should not include the mortgagee.
Section 25.12 of Reg. 10 provides:
When a claim is settled where the insured is represented by a public adjuster, upon the request of the insured, the insurers check may be made payable to both the public adjuster and the insured or to the public adjuster named as a payee, but not in excess of the amount of the public adjusters fee, as indicated in the written compensation agreement signed by the insured and filed with the insurer. The balance of the proceeds shall be payable to the insured or loss payee, or both, whichever is appropriate.
This section governs the payment of a claim by an insurer as it pertains to the relationship between the public adjuster and the insured. It is not intended to, and does not, diminish the rights of the mortgagee or a loss payee under the insurance contract. See Office of General Counsel Opinion March 6, 1991; NILS opinion 87-3.1 August/September 1987. In this connection, the court in Public Adjustment Bureau, Inc. v. Bankers Federal Savings and Loan Association, 83 Misc.2d 317, 319, 371 N.Y.S.2d 347, 350 (Civ. Ct. N.Y. County 1975), noted that:
[A] mortgagee clause in a standard fire policy creates an independent insurance of the mortgagee's interest just as if it had received a separate policy from the insurer but without any inconsistent or repugnant conditions imposed by the policy upon the owner of the insured property and free from invalidation by the latter's 'act or neglect'. Syracuse Savings Bank v. Yorkshire Insurance Co., 301 N.Y. 403, 94 N.E.2d 73 (1950). Thus, for example, no settlement between the owner (or its agent, which includes a public adjuster retained by the owner) and the insurer can operate in any way to the detriment of the mortgagee. Hathaway v. Orient Insurance Co., 134 N.Y. 409, 32 N.E. 40 (1892); McDowell v. St. Paul Fire & Marine Insurance Co., 207 N.Y. 482, 101 N.E. 457 (1913).
Thus, the public adjusters fee check may be issued solely to the public adjuster only if the insured, in accordance with Section 25.12 of Reg. 10 has made such a request of the insurer, and the mortgagees interest would be satisfied by the balance of the claim proceeds, or if such a request is made by both the insured and the mortgagee. If the mortgagees interest would not be completely satisfied by the balance of the claim proceeds, or if the mortgagee has not agreed to pay the adjuster by separate check, then the insurer must make a fee check payable to the mortgagee as well as to the public adjuster.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.