UPDATES & ANALYSIS

Residential contractors must be licensed to represent homeowners with insurers

by Rox Laird | February 18, 2020

Contracts written by residential contractors who act as unlicensed “public adjusters” representing homeowners’ with insurers following storm damage are invalid under Iowa law, the Iowa Supreme Court ruled Feb. 14.

33 Carpenters Construction Inc. approached a Bettendorf couple following a hailstorm offering to inspect their home for damage, and subsequently represented the couple in dealing with their insurer, State Farm Life and Casualty.

After State Farm made an initial payment on the homeowners’ claim, 33 Carpenters sued State Farm in Scott County District Court for substantially higher reimbursement for its work on the home.

The District Court ruled in State Farm’s favor on summary judgment, saying the homeowners’ assignment of their claim to 33 Carpenters was invalid under Iowa law because the contractor acted as an unlicensed public adjuster as defined in Iowa Code section 522C.2.

The Supreme Court, in a unanimous decision written by Justice Thomas Waterman, upheld the trial court ruling. The Court also disposed of two other 33 Carpenters appeals on Feb. 14, one against Cincinnati Insurance and another against IMT Insurance, that involved the same issues decided in the State Farm case.

As a preliminary matter, the Court had to address 33 Carpenters’ argument that the Iowa Insurance Commissioner, not the District Court, has the sole authority to enforce the statute.

The Court rejected that argument.

“We have never held that Iowa courts lack the authority to adjudicate contractual assignments of insurance claims,” Waterman wrote, and while the Insurance Commissioner has authority to impose penalties on a person who acts as a public adjuster without a license, “nothing in the chapter authorizes the Insurance Commissioner to enforce contractual assignments or declare such contracts void.”

Turning to the question of whether 33 Carpenters’ contract with the homeowners was valid, the Court said it is undisputed that 33 Carpenters was acting as an unlicensed public adjuster representing the homeowners on their damage claim against State Farm. Thus, the contract is void under Iowa Code section 103A.71(5), which says a contract made by a residential contractor is void if the contractor acts as a public adjuster without the necessary state license.

Iowa Code 522C.2(6) says that “a person shall not operate as or represent that the person is a public adjuster in this state” without a license issued by the Insurance Commissioner. And 522C.2(7) defines “public adjuster” as “any person who for compensation or any other thing of value acts on behalf of an insured” by, among other things, “acting for or aiding an insured in negotiating for or effecting the settlement of a first party claim for loss or damage to real or personal property of the insured.”

Iowa is one of 45 states that require by statute the licensing of public adjusters, which is intended to curtail abuses by adjusters who solicit business from homeowners who are vulnerable to exploitation in the wake of natural disasters, Waterman wrote. “Those laws were enacted to protect homeowners and insurers against exploitation by unlicensed contractors after hailstorms, tornadoes, and other natural disasters.”

In a footnote to the decision, Waterman pointed out that protections for insured homeowners have been revised since these three cases were litigated, but the amendments do not apply to the parties in these cases.

The footnote states: “The Iowa Legislature recently enacted the Insured Homeowner’s Protection Act, which now voids postloss assignment contracts between an insured and a residential contractor unless specified conditions are met. 2019 Iowa Acts ch. 49, § 1 (codified at Iowa Code § 515.137A(3), (5)(a) (2019)). This enactment became effective July 1, 2019. Id. State Farm does not argue this new legislation applies retroactively, and we conclude the enactment is inapplicable to the 2016 transactions at issue in this appeal.”

Tags: ins, Iowa Supreme Court, Iowa Supreme Court 2019-20, Iowa Supreme Court Opinions, Justice Waterman