Ask the Attorney by
This column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues that they have encountered with respect to their associations. Discussion of these questions, as well as prior questions, can be found on the CAI-MN LinkedIn page: www.linkedin.com/groups?gid=1769135
My standard management contract provides that I receive a portion of all insurance claims that I handle for my client associations; is this okay? Probably not, unless you are also a certified public adjuster. Minnesota Statute Chapter §72B contains regulations that apply to the adjusting of insurance claims. The purpose of the statute is to “provide high quality service to insureds and insurance claimants in the State of Minnesota by providing for well trained adjusters . . . who are qualified to deal with the public in the interest of a fair resolution of insurance claims.”1 To accomplish this intent, the statute requires anyone who investigates, negotiates or advises individuals or companies in matters relating to an insurance claim, and charges for this service, to be licensed. Public adjusters can serve a vital role in resolving insurance claims. If an association suffers a loss, a public adjuster can represent the association to ensure that the claim is fully paid by the insurance company. The public adjuster is hired by the association and will review the damages and negotiate on behalf of the association to ensure that all recoverable costs are included in the claim settlement. While not every claim warrants the services of a public adjuster, many larger claims do. In Minnesota, all public adjusters must be licensed with the State — and that is where managers can get into trouble.
the real or personal property of the insured, on behalf of an insured in negotiating for, or effecting the settlement of, a claim for loss or damage covered by an insurance contract.”2 In plain language, this means that anyone who helps the holder of an insurance policy negotiate or settle a claim for personal or real property must be licensed by the State as a public adjuster. In order to understand the type of activities that are not permitted under the statute, here are two recent examples of enforcement actions by the Minnesota Department of Commerce for alleged violations of the public adjuster laws. The first case involved a management company that managed several associations that suffered catastrophic loss as a result of storm damage. The management agreements with the various associations included a provision that management would provide services related to processing insurance claims in exchange for 10 percent of the amount recovered under the insurance policy. The Department of Commerce alleged that this was a violation of Minn. Stat. §72B because the management company was not licensed as a public adjuster. In addition to charging the association, the Department of Commerce found that the management company received 10 percent of the claim value from the contractor selected for the repair. The association was not informed of this additional payment to the management company. This was alleged to have violated Minn. Stat. §82, the statute governing licensed real estate professionals.
The law defines a “public adjuster” as any person who, for compensation or any other thing of value, on behalf of the insured “acts or aids, solely in relation to first-party claims arising under insurance contracts that insure
The second case also involved a property management company and, amazingly enough, the same building contractor as in the prior example! The association suffered a loss that was covered by insurance. The management company entered into an agreement with the building contractor to be paid a “project management” fee. This relationship was not disclosed to the association. It was alleged by the Department of Commerce that the project management fee was in violation of Minn. Stat. §72B. It
1 Minn. Stat. §72B.01
2 Minn. Stat. §72B.02 Subd. 6(1)
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Minnesota Communit y Living
Nigel H. Mendez, Esq., Carlson & Associates, Ltd.
should be noted that even if it had been disclosed to the association, it may still have been a violation of the Statute. Both of these situations were resolved via a consent order — where the charged party agrees to an informal disposition of the matter. Therefore, no hearing was held and no findings of fact were ever produced. But even informal disposition can be expensive. In the first example, the management firm was ordered to pay $200,000. $160,000 was divided among the six associations involved and the remaining $40,000 was paid to the State as a civil penalty. In the second example, even though no direct fee was charged to the association, the management company was ordered to pay $15,000 to the association and an additional $15,000 to the State as a civil penalty. In summary, managers and their employers need to be careful how they handle insurance claims on behalf of their associations. It is clear that charging a fee to assist an association with a claim is not allowed. If your management contract includes a provision authorizing fees for such work, it should be changed immediately. However, even if your contract does not charge extra for handling insurance claims, the DOC contends that it also violates Minn. Stat. §72B. I would recommend that all contracts that include a provision regarding insurance claims be changed to clarify that no negotiation of a claim will be performed by the manager. Finally, there are exceptions to the public adjuster licensing requirements. The most notable exception is for attorneys. Attorneys are exempt from the public adjuster licensing requirements. Accordingly, associations may retain an attorney to negotiate an insurance settlement on their behalf. To have a question answered in a future article, please email it to me at nmendez@carlsonassoc.com with the subject line “Ask the Attorney.” While I can’t promise that all questions will be answered, I will do my best to include questions that have a broad appeal. Questions will also be answered by other attorneys practicing in this area of law. The answers are intended to give the reader a good understanding of the issue raised by the question but are not a substitute for acquiring an opinion from your legal counsel.