In a recent decision by the Seventh U.S. Circuit Court of Appeals, the court interpreted Illinois law and clarified the rights and obligations of owners, their insurers and public adjusters in the situation in which the public adjuster is identified as a co-payee on a check paying insurance proceeds. Under the court’s decision, an insurance company fulfills its payment obligations once a co-payee entitled to receive payment does receive it. The effect was to leave the property owner of a fire-damaged building with no remedy against its insurer, but instead a claim against its public adjuster, which had apparently absconded with the insurance funds prior to completing the building repairs.
Building owner Thirteen Investment Company suffered property damage due to a fire. Thirteen’s losses were covered under an insurance policy it had with Foremost Insurance Company. Thirteen hired Paramount Restoration Group, a public adjuster, to be Thirteen’s agent to “assist in the preparation, presentation, negotiation, adjustment, and settlement” of the fire loss and “direct[ed] any insurance companies to include Paramount … on all payments on” the claim. Ultimately, Foremost delivered two checks to Paramount, which then endorsed the names of all co-payees to cash the checks but kept the payments for itself. Having not received any of the insurance proceeds, Thirteen sought declaratory judgment against Foremost claiming a breach of its policy when Foremost failed to pay Thirteen. The district court granted summary judgment in favor of Foremost because the insurer’s duty to perform was discharged when Paramount accepted and cashed the insurance checks.
On appeal, the Seventh Circuit affirmed. Thirteen claimed that Foremost’s delivery of the check to Paramount did not discharge the insurance company’s obligation to pay Thirteen itself. However, the court noted that Paramount was Thirteen’s designated public adjuster and agent, and was authorized to negotiate and settle with Foremost, so it concluded paying Paramount had fulfilled the insurer’s obligation to provide compensation for the fire loss. Since Paramount acted within the scope of its role in the negotiation and endorsement of the insurance checks, Foremost’s duty to perform was discharged once the checks endorsed by Paramount were accepted by the bank. Furthermore, Foremost’s policy did not state that the checks must exclusively be sent to Thirteen. Moreover, because Paramount acted as Thirteen’s agent, and delivery to an agent is delivery to the principal, delivery to Paramount was equivalent to delivery to Thirteen itself.
The court also considered that because insurance companies have no involvement in the selection of a public adjuster, it would be unjust to hold insurers liable for the wrongdoings of public adjusters. This last point is, perhaps, the most important for owners to remember—to be cautious in selecting agents and delegating their rights and duties.
This blog was written with contributions from Summer Associate, Simran Merchant.
Supplemental Materials
Thirteen Investment Co. v. Foremost Ins. Co. Grand Rapids Michigan, ___ F. 3d ___, slip op. 22-2203 (7th Cir., May 5, 2023).pdf (223.87 KB)
