The question often comes up as to whether a public adjuster hired by the insured should be listed on payments made under the policy for the insured’s claim. Many public adjusters provide insurance companies with an assignment signed by the insured requesting the public adjuster or public adjusting firm be named on any loss payments made under the policy.

In 2006, the Tennessee legislature enacted a statute concerning public adjusters in general. The statute describes the public adjuster’s duties as well as the requirements of any public adjuster contract. The statute provides the following important provisions for consideration as to whether inclusion of the public adjuster and the payment is appropriate:

A public adjuster shall ensure that all contracts for the public adjuster’s services are in writing and set forth all material terms and conditions of the engagement.
Any compensation or anything of value in connection with an insured’s specific loss that will be received by a public adjuster shall be disclosed by the public adjuster to the insured in writing, including the source and amount of the compensation.
Nothing in this part shall prevent a public adjuster from requesting an insured to request the insurer to include the public adjuster’s name as a payee on any check.
Tenn. Code Ann. §§ 56-6-914 & 917.

An assignee of claim proceeds has no right to recover proceeds beyond that which the named insured had. See, e.g., Zaharias v. Vassis, 789 S.W.2d 906, 910 (Tenn. Ct. App. 1989). An assignment of policy proceeds is distinguished from an assignment of the policy itself. See, e.g., Metropolitan Life Insurance Co. v. Brown, 160 S.W.2d 434, 437-38 (Tenn. Ct. App. 1941). Tennessee courts hold that an assignment of proceeds made after a loss, as distinguished from an assignment made prior to the loss date, was valid despite the lack of consent by the insurer since the liability of the insurer was fixed at the time of the loss.

Based upon the statute, if the insured is required to assign rights to the public adjusting firm under the specific terms of the contract, the statute makes it clear that that provision is not valid. However, the statute also contains a provision that allows a public adjuster to “request” an insured to ask the insurance company to include the public adjuster on any loss payments. What we know is that if the “assignment” is made part of the actual public adjuster contract itself, it is not valid. However, if the assignment comes in the form of some other independent document, the question is whether such would fall into the category of a “request” by the insured. So far, there are no Tennessee cases on this issue. For this reason, this is likely a consideration that should be made on a case by case basis.

However, what about situations when a first party loss is also payable to a mortgagee? In most residential and commercial property policies, the mortgagee has a right to be paid along with the insured as interests appear. If the insurer were to additionally include the public adjuster as a payee along with the mortgagee and the insured, this would directly affect the mortgagee’s rights under the policy. For this reason, when the policy lists a mortgagee and contains the standard mortgage clause, the public adjuster should not be included as a payee even if there is an otherwise valid assignment.