Whether a Lay Adjuster May Properly Advise, Counsel and Represent the Legal Interests of an Insured

You have asked the Committee to opine as to whether it is the unauthorized practice of law for a non-lawyer insurance adjuster to represent, counsel and assist an insured in pursuing a first-party insurance claim against the insured's own carrier as a result of a fire loss. The controlling authority is found in Unauthorized Practice of Law Rule 2.

In the inquiry presented the insured suffered damage to his home as a result of a fire. The insured's carrier contacted an emergency services restoration company which provided services to the insured pursuant to the policy. Because of the extent of the damage, the insured became concerned about the policy's limits and coverage for the damage and so contacted a private adjusting firm to represent their (the insured's) interests with the carrier and with the restoration company through its counsel. The concern in the inquiry is that this private adjusting firm has "taken over the 'representation' of the insured in correspondence, meetings and negotiations" with the restoration company and the carrier with regard to resolution of the insured's fire claim. In correspondence, the adjuster has made statements such as "I am not inclined to advise insured to pay for" certain services.

The Committee considered all of the information presented in the inquiry and, applying UPR 2, it is the opinion of the Committee that the conduct of the private adjusting firm/private adjuster is not the unauthorized practice of law. UPR 2-105 (A) provides that a lay adjuster is permitted to engage in all of the activities authorized under all of the other provisions of UPR 2, including investigation, negotiation of settlement and preparation of certain documents, if performed on behalf of a principal "which is making a claim against its own insurance carrier." The same activities, if performed on behalf of a principal against a third party or against a carrier providing coverage for third party liability to a principal, would be prohibited by UPR 2-105(B).

UPR 2-101(B)(3) defines "principal" as "any insured individual...asserting a right to payment under an insurance policy or insurance contract issued to such individual...arising out of the occurrence of the contingency or loss covered by the policy or contract." UPR 2-101(A) defines "lay adjuster" as:

(A) . . .a non-lawyer retained by a principal as an employee, independent contractor, or employee of an independent contractor, for the purposes of

(1) investigating facts and circumstances related of a personal injury and/or property claim;

(2) reporting such facts to his principal; or

(3) assisting his principal in the handling, negotiation and settlement of such claim.

In the situation presented in this inquiry, the insured is the "principal" as defined by UPR 2-101(B)(3). The adjuster fits the definition of "lay adjuster" found in UPR 2-101(A) (1-3). The activities that the lay adjuster in this matter was involved in would be permitted under the provisions of UPR 2-102-2-104. The adjuster was negotiating with the carrier and the restoration company regarding payment of the services of the restoration company and the claim generally, which services would be "subject to a claim which may be paid by [the principal's] insurance carrier" under UPR 2-105(A)(2). In this negotiation, it appears that the adjuster gathered factual information, discussed settlements, and expressed his opinion on the extent of the damage and its value. See UPR 2-103(A)(1). UPC 2-1 provides:

UPC 2?1. For example, the activities of a lay adjuster in claims may consist of acting on behalf of his principal in identifying the facts and parties, securing witness statements, estimating the costs of repair, and compiling other information about the claim. Statements are given by the lay adjuster to his principal from whom he receives instructions as to the disposition of the claim. The lay adjuster then may attempt to settle the claim at the monetary value his principal is willing to pay or accept.

UPR 2-103 (A)(2) allows that a lay adjuster may make statements to "others" in the course of settlement negotiations as to the principal's liability or the law governing the facts so long as the provisions of sections (2)(a-c) are satisfied. In this case, the adjuster was clear in his communications to the carrier and the restoration company as to who he was and that his "principal" might be adversarial. It also appears clear from the correspondence that the carrier and the restoration company recognized the lay adjuster as a possible adversary. Finally, there is nothing to indicate that either the carrier or the restoration company were not competent to handle their affairs. Thus, it appears that, on the face of the correspondence included with this complaint, the adjuster's conduct fell within the scope of what UPR 2-103(A)(2) allows.

Based on all of the foregoing it is the Committee's opinion that it is not the unauthorized practice of law for a lay adjuster to represent the interests of a principal, in this case the insured, in negotiation, settlement or investigation of a claim to be paid under the principal's own insurance policy or contract.

Committee Opinion

February 18, 2005


Updated: Aug 28, 2006