1. What is an Adjuster Fee Escrow Account?

An adjuster fee escrow account is a segregated account into which insurance claim proceeds—or disputed portions of those proceeds—are placed so that:

1. the insured's money is protected;
2. the public adjuster's contractual fee can be preserved;
3. the adjuster cannot simply appropriate the entire insurance settlement;
4. disputed entitlement to the money can be resolved before distribution; and
5. the adjuster does not commingle client/insured funds with personal or business funds.

The important distinction is between:

• insurance proceeds held for the insured, and
• the adjuster's fee or commission, which is normally earned under a separate contractual arrangement.

For example, suppose:

• Insurance settlement = $1,000,000
• Public adjuster's contract = 10%
• Adjuster claims = $100,000
• Insured disputes $40,000 of that fee.

A court may direct that the disputed amount remain in escrow while the undisputed $900,000 (and possibly the undisputed portion of the adjuster's fee) is distributed.

This is materially different from saying that the adjuster owns the entire settlement.

2. Fiduciary character of escrow funds

Several U.S. jurisdictions expressly require public adjusters to treat settlement money as segregated client funds.

For example, Virginia Code § 38.2-1845.16 provides that funds received or held by a public adjuster on behalf of a policyholder must be handled in a fiduciary capacity and deposited into a separate fiduciary trust account. The funds must not be commingled with the adjuster's personal or business funds.

Similarly, North Carolina General Statute § 58-33A-70 requires a public adjuster receiving funds on behalf of an insured toward settlement of a loss to deposit them into a non-interest-bearing escrow or trust account.

Illinois takes a similar approach. 215 ILCS 5/1580 requires a public adjuster holding settlement funds on behalf of an insured to place them in a non-interest-bearing escrow or trust account in an appropriately insured financial institution.

Legal effect

The practical consequence is that the adjuster generally cannot say:

“The insurance company paid me, therefore the money is mine.”

Instead, the adjuster is holding the money in a capacity comparable to a fiduciary/custodian until the money is properly disbursed.

3. Adjuster's fee is normally based on contract

A public adjuster's right to compensation generally comes from the written agreement with the insured.

The contract commonly provides for:

• a percentage of the recovery;
• a fixed fee;
• a combination of fees;
• a maximum fee imposed by state law; or
• other permitted compensation.

North Carolina, for example, expressly treats the public adjuster's fee/commission as an obligation of the insured rather than the insurer.

This distinction becomes extremely important when insurance proceeds are placed into escrow.

Example

Insurance company pays:

$500,000

Public adjuster contract:

10% of insurance recovery

Adjuster's contractual fee:

$50,000

The remaining:

$450,000

belongs to the insured, subject to other legitimate claims against the proceeds.

The adjuster does not acquire ownership of $500,000 merely because the settlement check is made jointly payable to the insured and adjuster.

4. Important case: Collier v. Balzer

A particularly useful case concerning an escrow account and public-adjuster compensation is:

Collier v. Balzer, 329 WDA 2015 (Pa. Super. Ct. 2016).

Facts

The insureds had an insurance dispute arising from tornado damage.

Their public adjuster, Balzer, was entitled under the agreement to 20% of settlement proceeds.

The overall settlement was approximately:

$1.05 million

There was a dispute about whether the adjuster was entitled to 20% of the entire settlement, including amounts attributable to the insureds' bad-faith claim.

The court arranged for portions of the settlement to be distributed and directed that approximately $758,000 be placed into an interest-bearing escrow account.

Later, another $448,000 was released from escrow to the insureds, leaving approximately $310,000 plus interest in escrow.

Adjuster's argument

The adjuster argued that the escrow money should not be released because the public-adjuster contract allegedly required all parties to be paid simultaneously.

Court's reasoning

The court rejected that argument.

The contract required settlement payments to be made payable to the insureds and the adjuster. The court concluded that the purpose of that provision was essentially to protect the adjuster against non-payment.

Because the amount remaining in escrow exceeded the amount the adjuster claimed, the adjuster's interest was adequately protected.

Principle

The important principle is:

An escrow arrangement designed to secure an adjuster's fee does not necessarily give the adjuster a right to prevent release of the insured's undisputed insurance proceeds.

In other words, the escrow must protect the legitimate fee claim—but should not unnecessarily immobilize money to which the insured is clearly entitled.

5. General Star Indemnity Co. v. Custom Editions Upholstery

Another highly useful case is:

General Star Indemnity Co. v. Custom Editions Upholstery, 940 F. Supp. 645 (S.D.N.Y. 1996).

This case involved competing claims to insurance proceeds following a fire.

A public adjuster, Zimring, had a written retainer agreement providing for 10% of adjusted loss proceeds.

The court recognized that the adjuster's entitlement depended upon the contractual relationship with the insured.

Importantly, where the amount of the adjuster's commission had not yet been finally established, the court treated payment as something that should await resolution of the relevant claims.

Principle

The case illustrates an important escrow/interpleader concept:

Where the amount or entitlement to the adjuster's fee remains disputed, the money can be preserved pending determination rather than immediately paid to the adjuster.

6. What happens when the adjuster has no written contract?

This is a major issue.

In General Star, the court observed that, under the applicable New York law, a public adjuster could not recover compensation from a party without a written agreement establishing the fee.

Therefore:

No valid contract → no automatic entitlement to a percentage of the insurance recovery.

The fact that the adjuster performed work is not necessarily sufficient to establish a contractual right to a percentage of the insurance proceeds.

This is particularly important where:

• the adjuster was hired by someone other than the insured;
• the adjuster claims a fee from another claimant's portion of the proceeds;
• the settlement check is made jointly payable;
• there is an oral agreement only; or
• the adjuster claims a percentage of litigation/bad-faith proceeds that were outside the original insurance adjustment.

7. Escrow does not automatically create a lien

This distinction is critical.

An escrow account is a mechanism for holding money.

A lien is a legal interest or security interest in property/proceeds.

A public adjuster may have a contractual right to payment, but that does not automatically mean the adjuster has an attorney-style charging lien over every dollar of an insurance recovery.

This issue arose in General Star, where the court distinguished the public adjuster's contractual position from the special legal nature of an attorney's charging lien.

Thus, the argument:

“My fee is 10%, therefore I have a lien over the entire settlement”

does not necessarily follow.

The adjuster must identify the contractual and statutory basis for the asserted right.

8. Who owns money in the escrow account?

Normally, this depends upon the source of the money and the governing statute/order.

A typical structure is:

Some jurisdictions expressly provide that funds held by an adjuster remain the insured's property until properly disbursed.

For example, New Jersey's statutory framework has specifically addressed escrow treatment of settlement money held by public adjusters.

9. Escrow versus trust account

The terminology can be confusing.

Escrow account

Money is held by a person/institution pending satisfaction of specified conditions.

Trust account

Money is held in a fiduciary capacity for another person.

Fiduciary account

The holder owes duties concerning the money and cannot treat it as its own property.

Insurance statutes frequently use these terms together:

“escrow or trust account.”

North Carolina, for example, expressly uses both concepts in §58-33A-70.

10. What if the adjuster takes the money?

That can create serious regulatory and civil consequences.

For example, a New Jersey Department of Banking and Insurance enforcement order involved public adjusters who received insurance proceeds and failed to place them into the required escrow/trust account. The conduct was treated as a violation and resulted in regulatory proceedings concerning penalties and restitution.

Another New Jersey enforcement record describes public adjusters who misappropriated insurance proceeds and deposited funds into an account other than the required interest-bearing escrow account; the sanctions included license revocation and a monetary fine.

Thus, the escrow requirement is not merely an accounting formality.

It is intended to protect the insured's property.

11. The situation in India is different

If your question concerns India, there is an important terminology issue.

India does not principally use the U.S. concept of a “public adjuster.” The comparable regulated professional is the:

Surveyor and Loss Assessor (SLA).

IRDAI describes a surveyor/loss assessor as a licensed professional who investigates, manages, quantifies and validates losses and reports upon them, subject to professional and regulatory requirements.

The principal statutory provision is Section 64UM of the Insurance Act, 1938.

Section 64UM regulates licensing of surveyors and loss assessors and requires an approved surveyor/loss assessor's report for specified general-insurance claims. It also provides that an insurer cannot pay a person for surveying, verifying or reporting a loss unless that person is an approved surveyor/loss assessor, subject to statutory exceptions.

The IRDAI regulatory framework includes the IRDAI (Insurance Surveyors and Loss Assessors) Regulations, 2015, with subsequent amendments.

Important distinction

Indian law concerning an SLA's professional fee should not simply be equated with the U.S. public-adjuster escrow system.

The Indian regulatory regime principally addresses:

• licensing;
• qualifications;
• appointment;
• duties;
• professional conduct;
• survey/loss assessment;
• reporting;
• remuneration/fees; and
• regulatory supervision.

It does not follow that every SLA is required to maintain an escrow account containing the insurance claim proceeds in the same way that certain U.S. public-adjuster statutes require.

12. Indian case-law position on surveyors

An important Indian case is:

New India Assurance Co. Ltd. v. M/s Demm Auto Engineering Works, decided by the National Consumer Disputes Redressal Commission on 4 January 2022.

The case considered the appointment of surveyors and referred to IRDA's direction concerning appointment of surveyors.

The Commission noted that, in the circumstances discussed, the insured could appoint a surveyor where the insurer's appointed surveyors had not effectively assessed the loss. The Commission relied upon the resulting assessment and awarded the assessed loss along with reimbursement of the surveyor's fee.

This is useful for the proposition that:

A surveyor's fee may become recoverable as part of the relief awarded to an insured where the circumstances justify appointment and the survey was relevant to establishing the loss.

But that is different from saying that the insurer must maintain an escrow account for the surveyor's fee.

13. Key legal questions in an adjuster-fee escrow dispute

When analyzing an actual dispute, I would examine these questions in order:

A. Who appointed the adjuster?

Was it:

• insurer;
• insured;
• court;
• lender/mortgagee;
• broker; or
• another party?

B. Is there a written fee agreement?

If yes:

• What percentage?
• Percentage of what?
• Gross settlement or net recovery?
• Does it include litigation proceeds?
• Does it include bad-faith damages?
• Are expenses separately recoverable?
• Is there a cap?

C. Who received the insurance money?

Was it paid to:

• insured;
• adjuster;
• joint payees;
• attorney trust account;
• court registry; or
• escrow account?

D. Is the fee disputed?

If yes, the disputed portion is often the appropriate candidate for escrow pending adjudication.

E. Is there a statutory escrow requirement?

This is jurisdiction-specific.

Some states expressly require it; others regulate the handling of funds differently.

F. Is the adjuster claiming a lien?

If so, the adjuster must establish the legal source of that lien. A fee contract and a statutory lien are not automatically the same thing.

14. Practical legal position

The safest general formulation is:

An adjuster-fee escrow account is a protective mechanism for preserving disputed or conditionally payable funds; it does not, by itself, establish ownership of the escrowed insurance proceeds or create a lien in favour of the adjuster. The adjuster's entitlement ordinarily depends upon the written fee agreement, applicable insurance statutes/regulations, and any court order governing the proceeds.

The Collier decision is particularly helpful where the insured argues that an escrow arrangement should not prevent release of undisputed proceeds, while General Star is useful when the amount or contractual entitlement of the public adjuster remains unresolved.

If your matter is in India

For an Indian legal opinion, I would not rely principally on U.S. public-adjuster escrow statutes. The analysis should instead start with:

1. Insurance Act, 1938 — Section 64UM
2. IRDAI (Insurance Surveyors and Loss Assessors) Regulations, 2015
3. applicable amendments/circulars;
4. the SLA's appointment letter;
5. the fee agreement;
6. the insurance policy;
7. the insurer's claim-settlement correspondence; and
8. relevant Supreme Court/NCDRC/High Court decisions concerning the evidentiary and legal status of surveyor reports and recovery of surveyor fees.

IRDAI itself identifies Section 64UM and the Surveyors & Loss Assessors Regulations as the principal regulatory framework.