Your co-op or condo is probably properly insured. But that may not be enough to cover the cost of repair, especially if the incident is major: a construction crane falls against a condominium building and damages the façade and several apartments; a fire creates havoc on several floors with smoke and water damage; a storm rips a roof off a co-op building and exposes shareholder units to wind and weather-related damage.
“The insurance company gives a determination of what happened, what was damaged, whether it is covered, and what the cost would be to repair the damage,” explains Ed Mackoul, president of Mackoul & Associates, an insurance brokerage. But, he adds: “The insured are not always happy with the result they get.”
When Do You Need a Public Adjuster?
What is a public adjuster? The public adjuster is an independent insurance specialist hired by an insured party – a condo or co-op board, management company, or building owner – to secure a claim that better reflects the work required to repair damages.
“Adjusters are very good, very knowledgeable, know the policies and know how to get things done,” says Mackoul. “But there isn’t always a need for them. There are instances when a claim is cut and [dried], you know what caused the damage, and the insurance company gives an estimate similar to that from a contractor. There may not be a need for a public adjuster at that point if there are no issues.”
You need a public adjuster for large claims. “On a large claim, however, you may want someone to represent your interests,” explains Mackoul. “Why take a chance if anything slips through the cracks? You also want to look at a public adjuster if there is [any] disagreement with the insurance company.”
Steve Gutenplan, president of Affiliated Adjustment Group, a leading New York public adjuster, has experienced a wide range of complicated insurance claims during his company’s 20-year history. In 2006, New York Yankees pitcher Cory Lidle’s single-engine plane crashed into the Belaire Apartments condominium at 527 East 72nd Street. The plane struck a 30th-floor apartment, killing Lidle and his instructor co-pilot. A resident was seriously injured. The building – as well as personal property – was significantly damaged. In 2008, a high-rise crane collapsed at a Manhattan construction site at 303 East 51st Street into an adjacent apartment building. Seven people were killed, a townhouse was crushed, and six other buildings were significantly damaged. Evacuation orders were issued from the city for occupants of nearly 300 residential units across 17 buildings.
You need a public adjuster for any major crisis. In the aftermath of Hurricane Sandy in 2012, Gutenplan says his company received 5,000 claim requests in one week. To gauge the impact of Sandy on the insurance industry and public adjusters, AAG typically handles roughly 500 claims a year. “They ranged from regular run-of-the-mill claims that we get on a regular basis to $50 million claims,” Gutenplan says of the Sandy insurance fallout.
During that crisis, AAG represented Battery Park City Authority, which oversees residential and commercial buildings on Lower Manhattan’s West Side as well as a large number of cooperatives and condominiums across the city affected by the storm, and negotiated a number of post-Sandy insurance claims. “We had to turn away quite a bit of business,” Gutenplan says.
Co-ops and Condos Are Unique
“Condos and co-ops are unique because there is going to be more than one insurance company involved and you need to refer back to the proprietary lease and bylaws and offering plan,” Gutenplan says. “There are going to be various sections that dictate who is responsible – what we call ‘insurable interest.’”
Away from the headlines, Gutenplan explains a public adjuster’s role is usually more mundane but the mission is still the same – navigating a policy and making sure an insurance claim payout totals an amount to which the insured is entitled.
How Claims Are Calculated
A public adjuster uses a pricing guide. The majority of insurance claims are calculated using a pricing guide for repairs that is pretty much an industry standard. Of course, one size does not always fit all. “Most companies use a standardized price guide called Xactimate,” explains Bob D’Amore, president of the New York Public Adjusters Association, an approximately 100-year-old organization that brings together 164 of the roughly 400 licensed public adjusters in the state. “Xactimate is a [computer] program that has been written by the insurance services organization, which is a collaboration of insurance companies. It is done by zip code but it does not cover every contingency. Even at its best, it is low because it has been written for insurance companies.”
Adds Gutenplan: “You can’t just pop measurements into a computer and come up with a value. The cost of construction on Park Avenue and 72nd Street is very different to what it is on Grand Concourse in the Bronx. We bring in experts to prepare detailed estimates of the damages.”
Using a Public Adjuster Reduces Litigation
Insurance claims rarely – if ever – end up in litigation, say experts, and never for damages. In the event of a disputed claim, every insurance policy affords either party an appraisal for matters of value – which is binding arbitration. A public adjuster also ensures litigation is rarely taken. “You go and ask a contractor for an estimate to repair your building and the contractor says he wants $750,000 and the insurance company says, no, it is only worth $500,000,” says D’Amore. “Somewhere in there is the truth. How do you come to that truth and maximize the recovery? That is what a good public adjuster can do.”
Gutenplan says relationships with insurance companies blow hot and cold but the majority of claims are settled professionally, without conflict. “[Insurance companies] are not my best friends and they don’t give me a blank check, but we know how to co-exist,” he says. “Either we have fought in the past and want to find an amicable resolution to a claim, or I’m going to make them not want to fight with me again. Usually we are pretty successful.”
What Does a Public Adjuster Cost?
Adjusters, who must be licensed in New York by the Department of Finance, take a percentage of the settled claim as their fee. In New York, that fee is capped at 12.5 percent of the collected dollar amount. For sizeable claims and ongoing relationships – think more than $1 million and management companies with multiple properties – fees are negotiable. Public adjusters rarely get involved when an insurance claim is valued under $10,000.
What Are the Pitfalls of Using a Public Adjuster?
Beware of opportunists. Where there is opportunity, there are opportunists. The insurance industry – and the public adjuster business – is no exception. In 2014, after a string of cases where rogue public adjusters scammed homeowners by steering them to use contractors with whom they had undisclosed relationships, New York State passed legislation intended to end dubious connections and financial arrangements.
“There are some very poor adjusters out there and you don’t have to know a whole lot to become an adjuster,” says D’Amore, of the New York Public Adjusters Association. “You have to pass a test and you can take a course that will teach you how to pass the test. It won’t teach you how to be a good adjuster. Experience is the best teacher, and integrity and honesty [are two positive] attributes of a good adjuster.”
Beware of self-dealing. The marquee example used to explain the 2014 law, known as the Gayla Marsh Bill, cited complaints filed against Bronx-based Adjustrite, an adjuster running a scam that directed homeowners to a contractor run by the same company that owned Adjustrite. The company may have more accurately been called “Adjustwrong,” but there was nothing illegal about the arrangement at the time.
Beware of inflated insurance claims. In December 2008, four adjusters and three contractors were ordered to forfeit $248,000 after pleading guilty to kickbacks from inflated insurance claims on properties in Manhattan, Brooklyn, and Staten Island.
The contractors inflated the cost of repairs so they could keep a portion of proceeds for themselves and give part of the money to adjusters. In some cases, adjusters accepted golf outings, golf equipment, or dinners.
Three of the four adjusters involved were employed by Chubb with kickbacks totaling $1 million across
10 properties. The contractors ultimately returned $600,000 to Chubb.
The insurance company launched its own investigation into the scam before reporting it to the New York State Department of Finance and the office of the Manhattan district attorney.
Beware of kickbacks. Chubb had been contacted by a contractor who complained he’d been approached by one of the adjusters who wanted $3,750 as a kickback for a $37,500 repair project he was working on at a Park Avenue condominium.
Beware of paying twice for the same service. “Today, you find adjusters who try to steer people to particular contractors,” explains D’Amore. “That’s fine if it’s a good contractor and you disclose in writing that the contractor is paying you a fee. The state legislature passed a law that says any fee a contractor pays you, plus the public adjustor fee, must not exceed 12.5 percent of the loss. A poor adjuster might [not] do that. What is the percentage of poor adjusters? I think it is small but because they are poor [at their job] they get a lot of attention. The vast majority of adjusters are extremely helpful to people.”