Utah State Bar v. Summerhayes & Hayden, Public Adjusters
| Decision Date | 03 November 1995 |
| Docket Number | No. 940375,940375 |
| Citation | 905 P.2d 867 |
| Court | Utah Supreme Court |
| Parties | UTAH STATE BAR, Plaintiff and Appellee, v. SUMMERHAYES & HAYDEN, PUBLIC ADJUSTERS, a Utah Corporation; Melodie J.M. Summerhayes; Susan L. Hayden; Bruce A. Davis dba Davis & Davis Public Adjusting; and Ronald S. Bennett, Defendants and Appellants. |
Carman E. Kipp, Gregory J. Sanders, Stephen A. Trost, Salt Lake City, for appellee.
Robert H. Wilde, J.C. Ynchausti, Midvale, for appellants.
Jennifer L. Falk, Salt Lake City, for amicus National Association of Public Insurance Adjustors (NAPIA).
Defendant Summerhayes & Hayden, Public Adjusters, a Utah corporation, and individual defendants Melodie J.M. Summerhayes and Susan L. Hayden (collectively "Summerhayes & Hayden") appeal from the trial court's grant of summary judgment in favor of the Utah State Bar enjoining defendants from engaging in the practice known as third-party adjusting. Summerhayes & Hayden contend that the trial court erred in finding that the practice of third-party adjusting constitutes the unauthorized practice of law because the Legislature authorized the practice in title 31A of the Utah Insurance Code.
Melodie J.M. Summerhayes and Susan L. Hayden, principal officers and agents of the defendant corporation, are licensed public adjusters, pursuant to Utah Code Ann. §§ 31A-26-101 to -311, and are in good standing with the Utah Department of Insurance. Since July 1989, Summerhayes & Hayden have participated in and supervised the adjusting of first-party and third-party claims under insurance policies.
"First-party adjusting" occurs when an insured hires a public adjuster to assist the insured in filing a claim of loss with its insurer. First-party adjusting is based on contract law. Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985). The insurance policy, as the contract between the insured and the insurer, delineates the rights of the parties. The adjuster is hired to assist the insured in determining the amount of loss recoverable under the policy. The adjuster documents and measures damages, gathers relevant facts, determines repair or replacement costs, and submits the claim to the insurance company. The adjuster then negotiates with the insurance company, or the insurance company's adjuster, to obtain the best settlement for the insured. As compensation, the adjuster receives a percentage of the settlement amount recovered under the policy.
"Third-party adjusting" occurs when an adjuster represents a stranger to the insurance contract on a claim asserted against a tortfeasor. Third-party adjusting is not based on principles of contract law but on principles of common law tort. There is no legal relationship between the party asserting the claim and the insurance company. See Pixton v. State Farm, 809 P.2d 746, 750 (Utah Ct.App.1991). Thus, the third-party adjuster must determine the extent of the liability, rights, and duties of the parties before attempting to resolve the issue of a settlement amount.
In their practice of third-party adjusting, Summerhayes and Hayden represent persons injured in accidents, advise them concerning benefits they are entitled to, and receive a fee based on a percentage of the settlement amount recovered from the tortfeasor's insurance company. Specifically, appellants investigate their clients' injuries and damages by taking pictures of the accident scene; requesting medical records and statements; requesting police reports; conducting personal interviews with clients; investigating officers, witnesses, and other claims adjusters; and researching similar cases. After investigating, appellants negotiate with insurance company claims adjusters in an effort to settle their clients' claims. The clients review each offer and counteroffer made to the insurance company until they agree upon a settlement. If a satisfactory settlement is not obtained or appellants believe legal representation is necessary, they refer the client to an attorney licensed with the Utah State Bar. Summerhayes and Hayden are not admitted to practice law within the State of Utah; they have not represented that they are licensed attorneys, nor have they performed services in court for their clients.
In December 1990, the Bar commenced this action, alleging that third-party adjusting was the unauthorized practice of law and seeking a declaratory judgment and injunctive relief prohibiting Summerhayes & Hayden from engaging in third-party adjusting. On cross-motions for summary judgment, the trial court ruled in favor of the Bar and entered a permanent injunction prohibiting Summerhayes & Hayden from engaging in third-party adjusting. The trial court ruled that the practice of public adjusters in representing injured persons with claims against tortfeasors through negotiation with insurance companies constituted the unauthorized practice of law. The court rejected appellants' contention that the Legislature authorized public adjusters to perform third-party adjusting and ruled that third-party adjusting was not authorized under title 31A of the Utah Insurance Code. The trial court also denied appellants' oral motion to stay the injunction pending appeal. This Court subsequently granted a motion to stay the injunction entered against appellants pending the disposition of this appeal on its merits.
On appeal, Summerhayes & Hayden argue that the trial court erred on two points: first, in ruling that the Legislature did not authorize public adjusters to perform third-party adjusting and, second, in holding that third-party adjusting is the unauthorized practice of law. Thus, the issue presented to this Court is whether third-party adjusting by licensed public adjusters constitutes the practice of law and, if so, whether public adjusters have been authorized to perform third-party adjusting. We review the trial court's grant of summary judgment for correctness, affording no special deference to the trial court's legal conclusions. Jackson v. Righter, 891 P.2d 1387, 1389 (Utah 1995).
Appellants assert that, in performing third-party adjustments, public adjusters do not perform services in a court or with respect to any matter pending in court. They admit that they execute contingent fee contracts with clients, advertise their specialty in personal injury adjustments, and negotiate with tortfeasors' insurers to settle claims. Appellants contend that these actions do not constitute the practice of law.
The practice of law, although difficult to define precisely, is generally acknowledged to involve the rendering of services that require the knowledge and application of legal principles to serve the interests of another with his consent. See Nelson v. Smith, 107 Utah 382, 391, 154 P.2d 634, 638 (1944); Unauthorized Practice of Law Comm. v. Prog, 761 P.2d 1111, 1115 (Colo.1988); State ex rel. Stephan v. Williams, 246 Kan. 681, 793 P.2d 234, 240 (1990); R.J. Edwards, Inc. v. Hert, 504 P.2d 407, 416 (Okla.1972); Washington State Bar Ass'n v. Great W. Union Fed. Sav. & Loan, 91 Wash.2d 48, 586 P.2d 870, 875 (1978). It not only consists of performing services in the courts of justice throughout the various stages of a matter but in a larger sense involves counseling, advising, and assisting others in connection with their legal rights, duties, and liabilities. Nelson, 154 P.2d at 638; see Merco Constr. Eng'rs, Inc. v. Municipal Court, 21 Cal.3d 724, 147 Cal.Rptr. 631, 633-34, 581 P.2d 636, 639 (1978); State Bar v. Superior Court, 207 Cal. 323, 278 P. 432, 437 (1929); Idaho State Bar v. Villegas, 126 Idaho 191, 193, 879 P.2d 1124, 1126 (1994); Eley v. Miller, 7 Ind.App. 529, 34 N.E. 836, 837-38 (1893); People v. Alfani, 227 N.Y. 334, 125 N.E. 671, 673 (1919). It also includes the preparation of contracts and other legal instruments by which legal rights and duties are fixed. Malia v. Giles, 114 P.2d 208, 212 (Utah 1941); see Bennion, Van Camp, Hagan & Ruhl v. Kassler Escrow, Inc., 96 Wash.2d 443, 635 P.2d 730, 732 (1981).
This Court has the exclusive authority to regulate the practice of law in Utah. Utah Const. art. VIII, § 4; Bailey v. Utah State Bar, 846 P.2d 1278, 1281 (Utah 1993); Barnard v. Utah State Bar, 804 P.2d 526, 528 (Utah 1991). This authority includes the power to determine what constitutes the practice of law and to promulgate rules to control and regulate that practice. There is little in Utah case law that assists in the determination of which specific acts, beyond the representation of another's legal interests in a court of law, constitute the practice of law. What constitutes the practice of law in any given situation requires a case-by-case decision, and therefore, each case must be evaluated to determine whether the particular acts involved constitute the practice of law.
The practice of third-party adjusting by public adjusters falls clearly within the definition of the practice of law. In third-party adjusting, an adjuster represents an injured client in making a claim under a liability insurance contract against an insurance company that insures or indemnifies a third person who is or may be liable for the injury caused to the adjuster's client. Because no agreement or contract exists between the claimant and the insurance company, the claim cannot be settled by merely allocating the risk according to the insurance contract, as is done in first-party adjusting. Consequently, to give any advice, counsel, or facilitate a settlement, the adjuster must determine the legal rights, duties, and relationships of the different parties.
For example, after making an objective valuation of damages, an adjuster, to adequately serve the client's interests, must make a judgment of the extent to which that valuation should be compromised in settlement negotiations. Such a determination necessarily requires legal knowledge and skill and the application of abstract and complex legal...
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