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A Public Adjuster must use a contract that has been approved by DIFS or risk not receiving a fee.

Author’s note. This email is the first of what is intended to be a monthly email series on topics related to public adjusters, and issues that may interest or apply to them.

MCL 500.1226(4) states that "An adjuster for an insured shall not provide his or her services to a client until the adjuster has contracted in writing, on a form approved by the commissioner, with the insured or his or her authorized representative." (Emphasis added).

A recent case from the Michigan Court of Appeals further explains why. So here it is.

After a fire severely damaged their farm, the insureds filed a claim with their insurer, Nationwide Agribusiness Insurance Company (Nationwide). Nationwide failed to pay the claim, and after several months, the insureds sued. The suit eventually settled, but the settlement did not end the case because several third parties, including a public adjuster (PA) asserted claims against the settlement proceeds.

Specifically, the PA maintained that it was entitled to 8% of the settlement on the basis of a contract with the insureds. Following an evidentiary hearing, the trial court denied the PA's claim. On Appeal, the Michigan Court of Appeals affirmed finding that the PA is not entitled to collect a fee.


A Public Adjuster must only use a contract that has been approved by DIFS or risk not receiving a fee.

I. Background


The insureds owned and operated a commercial farm, and resided on it. A fire occurred in the farm’s large pole barn. The barn contained substantial amounts of farm equipment and some other personal property, much of which was destroyed. The home was undamaged.

Six days after the fire, the PA appeared at the insureds' farm, and offered his public adjusting services. The insureds initially declined the PA's services. Nearly a month later, the PA called the insureds again asking if they would meet with him a second time and they agreed. During this second meeting, the insureds signed the PA contract. The contract provided that the PA would receive 8% of the insureds' recovery from Nationwide, including a recovery obtained through a settlement.

The contract signed by the insureds was not on a form approved by the director of the Department of Insurance and Financial Services (DIFS) as required by MCL 500.1226(4) of the Insurance Code of 1956, MCL 500.100 et seq.3.

Specifically, the form used by the PA did not provide that “[a] contract which is executed within 48 hours after the conclusion of the loss-producing occurrence shall be voidable at the option of the insured for 10 days after execution of the contract.” MCL 500.1226(4). In addition, the contract did not contain notice of the right under the home solicitation sales act (HSSA), MCL 445.111 et seq., to cancel a contract for goods and services within three days of execution, MCL 445.112(1), if “the solicitation is received by the buyer at a residence of the buyer, and the buyer’s agreement . . . is there given to the seller . . . .” MCL 445.111(a). After the contract was signed, the PA submitted a proof of loss and supporting documentation to Nationwide, which failed to pay the claim, and the insureds sued. About two months later, the insureds sent the PA a letter terminating the PA contract. A few months later, after a mediation, the insureds and Nationwide settled their lawsuit. Because the PA claimed that it was entitled to an 8% of the settlement proceeds, the trial court ordered that a portion of the settlement proceeds be held in trust pending resolution of those claims.

Alternatively, the PA maintained that, even if the contract had been cancelled, the PA was entitled to reasonable compensation for the services it provided under a quantum meruit theory.

Subsequently, the trial court held an evidentiary hearing on the PA's claims, after which it found that the PA contract failed to comply with both MCL 500.1226(4) and the HSSA. The trial court further concluded that as a result of these statutory violations, the insureds were entitled to void the contract, that the insureds did not ratify the contract, and that the PA could not maintain a claim for unjust enrichment as such a claim would circumvent the statutory requirements.


A Public Adjuster must only use a contract that has been approved by DIFS or risk not receiving a fee.

II. Under MCL 500.1226(4), Public Adjusters Contracts must be approved by the DIFS' commissioner


The PA conceded that its contract did not conform with MCL 500.1226(4) as it did not include the mandatory provision that if the contract was signed within two days of the fire, the party retaining the public adjuster has 10 days to void the contract. The PA maintained, however, that the subject provision was immaterial because the contract was not signed within two days of the fire and so provided no rights to the insureds under the facts of this case. But MCL 500.1226(4), a remedial statute intended to protect consumers, does not contain an exception for failing to include mandatory provisions on the grounds that they are not relevant to the particular insured. The statute provides:

An adjuster for an insured shall not provide his or her services to a client until the adjuster has contracted in writing, on a form approved by the commissioner, with the insured or his or her authorized representative. A contract that is executed within 48 hours after the conclusion of the loss-producing occurrence shall be voidable at the option of the insured for 10 days after execution of the contract. MCL 500.1226(4). (Emphasis added). Given the statute's absolute bar on the provision of services unless the contract form has been approved by the commissioner, the Michigan Court of Appeals held that it may not overlook the requirements of the statute even though the particular omission or error did not affect the rights of the insured. The use of the word “shall” in the first sentence of MCL 500.1226(4) makes clear that the necessity of a written contract “on a form approved by the commissioner” is mandatory. See 1031 Lapeer LLC v Rice, 290 Mich App 225, 231; 810 NW2d 293 (2010). The statute places the burden of compliance on the PA, and its noncompliance, whether intentional or accidental, gives the insured the right to void the contract.


III. Moral of the Story: Use approved Public Adjusting Contracts.


As a PA, the moral of the story is that you must use an approved public adjusting contract or risk losing your hard-earned fee.


Who is Rabih Hamawi?


Attorney Rabih Hamawi

Attorney & Counselor


Rabih Hamawi is a principal at the Law Office of Rabih Hamawi, P.C. and focuses his practice on representing policyholders in fire, property damage, and insurance-coverage disputes against insurance companies and in errors-and-omissions cases against insurance agents. He may be reached at (248) 905-1133.



Disclaimer: This post is for informational purposes only. It does not create an attorney-client relationship, and isn't intended and should not be construed as the providing of legal advice.



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