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                                        7 N.J.L. 147
                                        January 19, 1998

                                        151 N.J.L.J. 317
                                        January 19, 1998


Appointed by the New Jersey Supreme Court


Licensed Public Adjusters

    The Committee on the Unauthorized Practice of Law has received an inquiry asking whether a licensed public adjuster is engaged in the unauthorized practice of law by adjusting third-party claims or first-party matters involving other than property damage claims.
    In third-party adjusting, a public adjuster represents an injured claimant in making a claim against a third person who may be liable for an injury and who may or may not be insured under a liability insurance policy. Under such circumstances, no agreement or contract exists between the claimant and the insurance company. In such cases, the claim cannot be settled by the mere allocation of responsibility according to the insurance contract as is done in first party adjusting. It is therefore necessary in third-party adjusting to determine the legal rights, duties and relationships of the parties.
    In the negotiation of third-party claims, there are numerous factors that come into play, including a judgment of the extent to which the elements and evaluation of damages should be assessed and compromised in settlement negotiations. This determination necessarily requires legal knowledge and skill. There must be an application of legal principles involving negligence, causation, the elements of comparative fault, the Rules of Evidence and the Rules of Court. In such matters, an adjuster must also consider other factors that may affect a claimant's ability to pursue the claim, such as Statutes of Limitations, jurisdictional issues and affirmative defenses, all of which must be analyzed. Courts which have considered the issue have determined that third-party adjusting constitutes the practice of law. Utah State Bar v. Sumerhayes and Hayden Public Adjusters, et al., 905 P.2d 867, 870 (S.C. Utah 1995); Idaho State Bar v. Villegas, 126 Idaho 191, 193, 879 P.2d 1124, 1126 (1994); Fitchette v. Taylor, 254 N.W. 910, 911- 12 (Minn. 1934). Other cases reaching the same conclusion include Brown v. Unauthorized Practice of Law Committee, 742 S.W.2d 34, 42- 43 (Tex. Ct. App. 1987); Professional Adjusters, Inc. V. Tandon, 433 N.E.2d 779, 782-83 (Ind. 1982); Dauphin County Bar Association v. Mazzacaro, 465 Pa. 545, 351 A.2d 229, 234 (1976); AAA v. Merrick, 117 F.2d 23 (D. Ct. DC 1940); Cuyahoga v. Brunson, 38 UPN 66 (Ohio 1997) and Mevnier v. Bernich, 170 So. 667 (La. App. 1936). No courts have held to the contrary
    The practice of public adjusting in New Jersey is regulated by both statute and Department of Banking and Insurance regulation. N.J.S.A. 17:22B-2, entitled "Definitions" states, in pertinent part:

        "Public adjuster" or "adjuster" means any individual, firm, association or corporation who, or which, for money, commission or any other thing of value, acts or aids in any manner on behalf of an insured in negotiating for, or effecting, the settlement of claims for loss or damage caused by or resulting from, any accidents, incident, or occurrence covered under a property insurance policy, including, but not limited to a flood, transit, inland marine or ocean marine policy; or who, or which, advertises for, or solicits employment as an adjuster of those claims. The term "public adjuster" shall also include any individual who for money, commission, or any other thing of value, solicits or adjusts those claims on behalf of any public adjuster. (Emphasis supplied)

    This statutory definition is crucial because it limits the field of public adjustment to: (1) first-party claims and (2) claims which do not arise under a liability insurance policy. This statute also contemplates that a public adjuster acts "on behalf of an insured" and not on behalf of a claimant against an insured tortfeasor.
    N.J.S.A. 17:22B-3, "Licensing of Public Adjusters," provides, in part that:
        a. No individual, firm, association or corporation shall act as an adjuster in this State unless authorized to do so by virtue of a license issued or renewed pursuant to this act.

    This section of the statute makes it clear that it is illegal in the State of New Jersey to perform public adjusting services outside the scope of the Licensing Act. This Act clearly limits such services to adjusting first-party claims on behalf of insureds under other than liability policies. The license to adjust, which is issued pursuant to the statute, is limited by the definition of a “public adjuster” to that form of service.
    N.J.S.A. 17:22B-13, “Prohibited Acts,” states, in part:
        No individual, firm, association or corporation licensed under this act shall:
        d. Make any misrepresentation of facts or advise any person on questions of law in connection with the transaction of business as an adjuster[.]

    The New Jersey Department of Banking and Insurance has promulgated regulations pertaining to the licensing of public adjusters (N.J.A.C. 11:1-37.1). The definition of a public adjuster set forth in N.J.S.A. 17:22B-2 is reiterated in N.J.A.C. 11:1-37.2. The regulation's definition reinforces that the role of a public adjuster under New Jersey law is limited to handling first-party claims on behalf of insureds under property policies. N.J.A.C. 11:1-37.14(a), in turn, furthers the statutory prohibition against public adjusters advising anyone with respect to a question of law.
    There are a number of practical concerns that also serve to preclude the adjusting of claims involving personal injuries by licensed public adjusters. Among these concerns are the unregulated nature of the fees public adjusters may charge, as well as the validity and enforceability of a release that may be prepared by a public adjuster, and the potential referral of cases and sharing of fees between attorneys and public adjusters. The Committee is also concerned that if licensed public adjusters were permitted to adjust even first-party personal injury claims, this would permit them to become involved in the representation and adjustment of claims involving PIP, as well as UMI and UIM claims, which involve legal issues and require representation by a licensed attorney of the State of New Jersey.
    Given the foregoing, the Committee is of the opinion that licensed public adjusters are limited to the adjusting of first- party claims involving property damage only. The adjustment of first-party claims involving matters other than property damage, as well as the adjustment of any third-party claims constitutes the unauthorized practice of law.
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