PA’s & Claim Inflation…it happens!

After my May 28 post titled “PA’s & Chip Merlin; “…until proven guilty!” I was contacted by a Miami public adjuster. He was “fed up” with his “entire profession.” He wanted to quit and do something else.

He talked about fraud and corruption. He spoke of fancy cars PA’s drive and how they couldn’t afford them if they acted ethically. He talked about how fraud is motivated by exorbitant contingency fees subtracted from amounts otherwise due the claimant.

Except for the anecdote on “fancy cars” I thought he was reading from one of my blogs.

FACT: Whether prohibited by statute or simply common practice, PA’s never (or almost never) charge a flat fee or a reasonable hourly rate for their services.  I’m willing to bet most, including my caller, believe it is prohibited.

Whether a flat fee or hourly rate isn’t permissible, or whether it’s impractical, or both, is a subject for another blog.

Whether the contingency fee approach allows, creates and/or stimulates “claim inflation” is the subject of this blog. As is what Florida lawmakers should do to fix the problem.

I certainly don’t want to assume guilt before it’s proven. But, the case of PA Robert Leverett II who, it is alleged, criminally inflated a fire loss at the Red Roof Inn on West Colonial Drive in Orlando, is particularly instructive. Especially as to how pervasive “claim inflation” may be and how easy it is to get away with.

I’ve read the investigative summary available from the Orlando State Attorney and all the publicly available evidence I could get my hands on, including: sworn affidavits from forensic experts, bills and reports from emergency remediators, engineering reports, private investigator affidavits and the Examinations Under Oath (EUO’s) administered to the owners of the Red Roof Inn.

Whereas Chip Merlins’ readers commented on why the insurer (Capacity Insurance Company) made an initial offer lower than its final offer; those on the other side (my readers) might wonder why a PA with an innocent state of mind would “lawyer-up” and not freely cooperate with the investigation.  Truth is, I don’t have a clue on either front.

What the documents slowly revealed to me is that, globally speaking, the incentive for claim inflation is generally profound and the opportunities for engaging in it are not only ubiquitous but, if done right, easily obscured.

In the subject case I detected a pronounced reluctance to provide information in the EUO’s administered to the hotel owners. Maybe it’s just me. But, they often pointed to other owners, experts they hired, or to advice from their PA. They seem confused on basic information about their operation, the claim and even which owner folds the towels and/or does maintenance.

Admittedly there was a language barrier, but…that doesn’t excuse being unclear on prior damage issues, from water or mold, or how many rooms were actually damaged in the fire. At least one owner even recanted a portion of his sworn testimony.

I slowly learned how a dishonest PA could coach claimants on claim inflation and, to establish “plausible deniability” for having done so, recommend an “expert” or engineer, hired/paid by the claimant, to assess damage and structural integrity. One with whom the PA has worked many times before and feels comfortable working with.

Then, influence the engineers investigation and report with hints, winks and nods. Veiled suggestions and promises of more work in the future.

Then, use the fact that you didn’t hire the expert or write his opinion as your defense.  A defense Merlin pens as a “passionate difference.”

For the most audacious claim inflators, when all else fails, a bribe might work. After all, at best, it’s “he said, she said”.  In this case, Leverett said he didn’t. Another expert, one apparently not interested in lunch at a topless bar, says he did.

Besides, depending on the size of your tips, an afternoon of “exotic dancing” isn’t much different than paying a plumber a $1500 referral! The latter, in my opinion, being one of the most egregious stimulants of claim inflation there is.

You decide.  Read my previous post on the Leverett case.  Check out the investigative summary.  Read between my highlights. And, most of all…read between the lines.

Read where the restoration company included an additional 34 page estimate on seven rooms and roof trusses “solely at the request of the public adjuster”. Read where the owners engineering report stated that “..no testing or analysis” was conducted on truss damage–damage alleged to have occurred adjacent to plastic sheathing that didn’t even melt.

If your still curious (or incredulous), let me know. I’ll send you the CD with the EUO’s and other documents obtained from the Orange County State Attorney.

Again, let’s be clear. Leverett is innocent until proven guilty. It’s just too bad (and somewhat off the point), that the appearance of guilt is enhanced when a trial lawyer and founder of the Florida Association of Public Insurance Adjusters defends him.

The point is:  Claim inflation is so easily committed and so easily obscured that a contingency fee, just like exorbitant referral fees, is the absolute wrong approach for compensating anyone involved with an insurance claim.

That’s why PA contingency fees are statutorily defined to violate public policy in some other states!

In 2015 Florida lawmakers could immediately lower exorbitant consumer fee’s paid to PA’s and lower rates long term by requiring public adjusters to charge a reasonable hourly rate or a flat fee for their services.

In lieu of that they should at least lower the contingency fee cap to 10% across the board (the current 20% is the highest in America) while making it clear in the law that PA’s can charge a flat fee or reasonable hourly rate if they choose to do so.

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