Petition to the Illinois Department of Insurance: Allow Contractual Provisions for Recovery of Attorney Fees in Cases of Insured Breach of Contract

Background

Under current Illinois Department of Insurance (DOI) regulations, public adjusters are subject to a statutory cap of 10% of the insurance settlement for personal residence and catastrophic event claims. This provision ensures fair compensation practices and protects insured parties from excessive charges. However, in rare instances when an insured party receives a settlement facilitated by the public adjuster’s professional services but then fails to fulfill their contractual obligation to pay, the public adjuster is forced to absorb additional costs to pursue the funds owed.

Statement of Issue

Our request for attorney fees is not a request for additional compensation beyond the statutory cap. Instead, it addresses the need to cover attorney fees associated solely with the collection of unpaid amounts due under the contract. These costs arise only when the insured party, acting in bad faith, does not pay the public adjuster for work already performed—work which often results in the insured receiving a fair settlement they might not otherwise have achieved.

The statutory cap limits our recovery to 10% of the claim amount, but without the ability to recoup collection-related attorney fees, public adjusters are left with no practical remedy to recover payment without a significant reduction in compensation. The costs of legal action to enforce a contract in cases of insured nonpayment are substantial, and without the inclusion of attorney fees, public adjusters are effectively left with no choice but to bear these losses.

Good Faith and Fair Dealing

As public adjusters, we enter these contracts in good faith, relying on the insured’s compliance to pay the agreed-upon fee once their claim is settled. However, the lack of recourse for recovering attorney fees in cases of nonpayment puts us in an unreasonable position: we may perform hundreds of hours of work for the insured, only to face further financial burden if they refuse to honor the contract.

Without enforceable penalties for nonpayment, the contractual agreement loses its effectiveness, undermining the purpose of having a contract in place.

Request for Contractual Language Allowance

We request that the Illinois Department of Insurance allow contractual language that permits recovery of attorney fees exclusively for the purpose of collection actions due to nonpayment by the insured. This language would not alter or expand the statutory cap on claim-related compensation but would simply allow public adjusters to recover necessary costs in instances where an insured breaches the contract.

By allowing public adjusters to include this language, the Department would be ensuring that we, as licensed professionals, are not financially penalized when the insured acts in bad faith. This would provide a fair and balanced approach to enforcing contractual obligations without altering the protection provided to insureds under the statutory cap.

Conclusion

We urge the Illinois Department of Insurance to consider the importance of this petition for public adjusters across the state. Allowing contractual provisions for the recovery of attorney fees in cases of insured breach of contract is a fair and reasonable solution that supports both public adjusters and insured parties in upholding their contractual commitments.