Adjusting Losses 20% Flashcards
Agent
One who receives the authority to act on behalf of someone else
Principal
The source of the agent’s authority; this can be the agent’s employer, an insurer, or anyone who contracts the agent to work on their behalf
Insurance
Adjuster
Someone who investigates, evaluates, and negotiates claims arising under insurance contracts and brought against the insurer
Claimant
A person or entity that requests indemnification for losses under the terms of an insurance policy
Insurance
Sales Agent
Someone who is contracted to sell and service insurance policies on behalf of the insurer
An agent’s authority can bind.
● What the agent says or does can bind the insurer
● Agents should take the utmost care in what they say and do
● Even if the agent makes mistakes, the insurer may have to accept them
Three major responsibilities of contracted agents:
- Adhere to or follow the contract
- Use reasonable judgment and care at all times
- Provide all necessary information and documentation to the insurer
Types of Authority
● Express Authority
● Implied Authority
● Apparent Authority
Express Authority
Authority that is directly granted to the agent in writing via the agent’s contract
Agents usually have express authority to:
● Sell policies
● Collect premiums
● Issue binders
● Offer discounts(such as multi-policy discounts)
● Cancel insurance
Implied Authority
The authority that the public reasonably believes the agent to have, based on the
agent’s representations
These representations include:
● Portraying one self as a representative
● Wearing a name tag with company logo
● Handing out company business cards
● Words and actions that go “hand-in-hand” with express authority and are usual
in order to perform an agent’s duties
Apparent Authority
Indirect authority that is granted when the insurer does not correct its agent, even
though the agent may be acting in error
● Granted when the insurer does not act
● By not correcting the agent, the insurer implies consent
The Four Types of Sales Agents:
- Independent Insurance Sales Agent
- Exclusive Agent
- General Agent
- Direct Writer
Claimant
An individual or business that makes a claim for payment after a loss occurs
● Must believe loss is covered by an insurance policy
○ claimant’s own policy
○ policy of a liable party
● Must prove the loss to the insurer
● If loss is covered, insurer will indemnify claimant
The Claim Function
The part of the insurance contract that lets the insurer fulfill its promises to the insured.
Two main goals:
● Comply with the terms of the contract
● Support the insurer’s financial stability
An adjuster must get claimants the indemnity they deserve while protecting the insurer from fraud and making sure not to pay more than the contract allows.
Adjusting
The process of comparing a claimant’s losses to the promises made in an insurance
policy
Insurance Adjuster
An agent who processes insurance claims for a salary, a fee, or commission
The Insurance Adjuster works on behalf of:
● An insurer
● A private company
● An adjusting company (an adjusting bureau)
● The claimant
Adjusters can work for the insured or the insurer.
Staff Adjuster (Company Adjuster)
● Employed by only one insurer
● They are salaried employees
● Can work either locally, regionally, or nationally
● Also called “company” adjusters
● Work for insurers, such as State Farm, Nationwide Insurance, and Aetna
Independent Adjuster
● Also called “fee adjuster” or “bureau adjuster”
● Not contracted to any particular insurer
● Self-employed
● Processes claims, sometimes for multiple insurers at the same time
● Paid by fee schedule, daily rate, or time + expense
● Sometimes paid on a commission basis (percentage of the final settlement amount)
Public Adjuster
● Hired by policyholder (the claimant)
● Represents the policyholder in the claim
● Charges a commission, usually about 10% of settlement
● Hired when the insured knows the insurer will be making a payment for the
claim
● Helps determine the proper identification and valuation of a loss
● Specializes in appraising and negotiating claims
Emergency Adjuster
● Temporarily licensed by insurance commissioner when there is a catastrophe
● May be adjusters from other states
● May be an individual who is temporarily certified by an insurer to adjust claims
● Only allowed to work on claims related to the disaster
Three Responsibilities of an Insurance Adjuster
- Acts as the Fiduciary Agent
- Has the Power to Bind
- Must Report to the Principal
Responsibilities of an Insurance Adjuster
- Acts as the Fiduciary Agent
The adjuster acts as a fiduciary agent for the principal (the insurer).
In order to be a fiduciary agent, an adjuster must:
● Have authority granted by an insurer via a contract
● Act for, and on behalf of, the principal (the insurer)
● Protect the principal’s financial and property interests
Adjuster’s responsibilities as fiduciary agent for the principal:
● Always act in the principal’s best interests with utmost good faith (honesty, fair
dealing, and full disclosure)
● Never act with self interest
● Never profit without express permission
● Never act if a conflict of interest exists
Responsibilities of an Insurance Adjuster
- Has the Power to Bind
The principal is bound by the adjuster’s decisions and actions.
This authority:
● Is granted to adjuster in writing
● Means the adjuster may act on behalf of the employer
● Binds the employer
More on the Power to Bind
The adjuster is expected to:
● Take the utmost care in written and verbal communications
● Take special care with determining the exact value of loss
Responsibilities of an Insurance Adjuster
- Must Report to the Principal
Who is the principal?
● The source of authority
○ the contracted employer
○ insurer
○ and/or whomever contracts the adjuster
Good reporting means:
● Giving frequent status and progress reports to the principal
● Providing private information for the benefit of the principal only
Essential Elements of a Loss Report
● Policy inception and expiration dates
● Date of the occurrence, or loss
● Identification of all parties involved in the claim
● Full description of the loss
● Tort and tortfeasors (if applicable)
● Policy form and policy number
● Policy coverages
● Policy deductibles
Initial Report
● Often required after 15 days
● Also called the “initial report” or “field report”
● Time-lines and deadlines (expediency issues)
● Apparent losses
● Liability issues (when known)
● Applicable coverages
● Initial claim reserve
Interim (a.k.a. Status) Report
● Update on claim progress
● Due at set intervals as long as a claim is open
● New evidence (depositions, statements)
● Medical information
● Repair estimates
Final (a.k.a. Full) Report
● All facts and evidence of the claim
● Policy coverages applied
● Adjusted losses
● Final claim disposition
A formal request to settle the damage
● Claimant must prove the loss and submit the total to insurer
● Insurer sends an adjuster, who must decide whether claimant has adequately proven the loss
The Steps of the Claim Process
- Acknowledge the claim
- Establish lines of communication
- Prepare necessary paperwork
- Determine insurer’s liability in the claim
- Investigate the losses
- Determine the time and cost of repairs
- Apply all policy coverages and provisions
- Negotiate a settlement
- Prepare final reports
The Steps of the Claim Process
- Acknowledge the Claim
● Respond within required amount of time
● Contact via letter or phone call
● Keep track of the date of first contact
● Adjuster: liaison between claimant and insurer
The Steps of the Claim Process
- Open Lines of Communication
● Makesurethere is a way to communicate with claimant
● Provide current business address & phone number
● Respond to the claimant’s communications promptly
● Answer any questions
The Steps of the Claim Process
- Prepare All Necessary Paperwork
● Determine the type of claim it is
● Prepare the necessary paperwork to process the claim
● Make sure the claimant receives and understands how to complete the required paperwork
● Proof of Loss forms:
○ help insurer begin its investigation
○ often due within 60days
● Promptly follow up with additional paperwork, if required
The Steps of the Claim Process
- Preparing Paperwork: The Claim File
● Organized source of documentation for all claim details
● Copies of all communications
● Evidence from investigation, such as:
○ photos/sketches of property
○ copies of medical bills
○ copies of all claim forms
○ witness statements
● Claim file must reconstruct the loss and how it was handled
The Steps of the Claim Process
- Determine Insurer’s Liability in the Claim
● Was the policy active at the time of loss?
● Does the claimant have insurable interest?
○ Do any other parties have insurable interest (mortgage company, etc.)?
● Does the policy cover the type of damage or injury being claimed?
○ Does the policy cover the proximate cause of the loss?
available for this loss?
● Will any other policies cover this loss?
● Is there a history of similar claims? If so, have they reduced the policy limit
● Has the insured met all requirements of the contract?
○ If covered, move on to next step
○ If NOT covered, deny the claim with a full explanation
The Steps of the Claim Process
- Investigation: Property Claims
● Inspect damages
● Take photos
● Interview claimant and witnesses
● Review police report
● Consult with professionals
The Steps of the Claim Process
- Evaluation Step 1: Determine Time and Cost of Repairs
● Cost to repair or replace damaged property
● Additional expenses caused by the loss
● Anyapplicable medical bills
● Lost wages
● Time-frame of repairs
Competitive Estimates
● Claimant gets additional repair estimates from different mechanics
● Insurer compares estimates to come up with fair settlement
● Estimates must be based on physical inspection, not pictures or descriptions
● Estimates can vary widely
The Steps of the Claim Process
- Evaluation Step 2: Apply Policy Coverages and Provisions
● Relevant deductibles
● Co-insurance penalty, if applicable
● Policy limits
● Policy valuation: is depreciation a factor?
● Coverage exclusions or extensions
● Other policies that may cover the same losses
- Evaluation Step2: Deductible Absorption
Tom’s Policy Limit:$100,000
Deductible: $1,000
Example1:Partial Loss
Amount of covered loss: $25,000
Minus the deductible:-$1,000———–
Settlement amount $24,000(within the policy limit of $100,000)
The Steps of the Claim Process
- Evaluation Step2: Common Settlement Options
Property Claims:
- Repair property
- Replace with like kind and quality
- Replace with new
- Pay fair value for damaged property
The Steps of the Claim Process
- Evaluation Step2: Common Settlement Options
Liability Claims:
● Special damages–objective expenses like medical bills, repair bills, lost
wages, etc.
● General damages–intangible losses like pain and suffering, loss of use, etc.
Often determined by court
● Punitive damages typically not covered–but state law may allow
The Steps of the Claim Process
- Negotiation and Resolution
● Goal: to find a settlement amount that is fair and equitable for all parties
● The adjuster proposes a settlement to the claimant
● If the claimant doesn’t accept the amount, the adjuster will need to negotiate a sum they both find acceptable
Sometimes negotiations are not necessary if the value of the insured item is pre-established
Negotiation can be extremely complex:
● Liability issues
● Multiple coverages
● Unclear causes of damage
● Disputed damages
● Legal issues
● Un cooperative claimants
The Steps of the Claim Process
- Prepare Final Adjustment Reports
● Provide final settlement documents to claimant
● Explain settlement documents
● Inform claimant of repair deadlines
● Explain depreciation recovery (if applicable)
● Store related claim documentation
● Close the claim
The adjuster must qualify the settlement:
● Explain the reasons for the settlement amount
● Step-by-step justification for decision
Reservation of Rights
Tells insured the insurer will start the claim process, but might deny it
Used when:
● There is a coverage dispute
● The claimant took too long to report claim
Investigation: Liability Claims
Bodily Injury:
● Type of injury
● Copies of all medical bills and receipts
● Documentation of lost wages
● How severe is the disability, impairment, or disfigurement?
● Are general damages covered?
● Did any pre-existing condition contribute to injury?
Investigation: Liability Claims
Other Liability claims:
● Is policyholder liable?
● Is anyone else partially responsible?
● Is a lawsuit imminent?
● How much would defending a law suit cost?
● What is the probability of winning?
Investigation: Critical Evidence
● Examine scene of loss or damage
● Photograph damage
● Sketch the property
● Take statements from claimant and the at-fault party (if applicable)
● Inspect and photograph the damaged cars
● Document skid marks to help determine point of impact
Investigation: Official Reports
● Police reports
● Fire department reports
● Death certificates
● Autopsy reports
● Coroner’s inquests
● Medical reports
● Weather reports from the time of the loss
● School records
● Court records from previous crimes
● Birth and marriage certificates
● Coast guard reports (boating incidents)
● Civil Aircraft Board(C.A.B)reports(aircraft)
Additional reports helpful for auto claims:
● State reports filed by the people involved in the accident
● Motor vehicle inspections
● Traffic court proceedings
● Hack bureau reports if the accident involved a taxi
● Reports from the Interstate Commerce Commission(ICC) for trucking accidents
Documentary/Visual Evidence
● Deeds/leases
● Diagrams
● Sketches
● Photos
● X-rays
● Contracts for construction or repair
● Employer records for wage loss claims
Industry Experts:
● Doctors and medical examiners
● Car inspectors
● Engineers in the field(mechanical, structural, electrical, etc.)
● Actuaries
● Handwriting Experts
Investigation: Written Statements
Introduction:
○ identify interviewer and interviewee
○ date, time, and place of interview
Investigation: Written Statements
Body:
○ where, when, how the loss occurred
○ description of injuries
○ make and model of cars involved
○ where the driver started out, was headed, and why
○ what happened after the accident (conversations, police, ambulance,
hospitals, etc.)
Investigation: Written Statements
Conclusion:
○ interviewee verifies in own handwriting that the statement is true
○ signature below conclusion on right of page
○ witness signs on left
Investigation: Recorded Statements
Introduction:
○ state names and locations of everyone on recording
○ age and address of interviewee
Investigation: Recorded Statements
Body:
○ same goal as written interview
○ recording must be continuous: explain any interruptions
○ stay objective: no leading or argumentative questions
○ avoid excessive sympathy
○ don’t discuss insurance or settlements
Investigation: Recorded Statements
Conclusion:
○ interviewee has a chance to add or change any details
○ interviewee must verify that he understood all questions and answered
honestly
○ interviewer states again that conversation was recorded
Claim=
Formal request to settle
When a claimant submits a claim, the adjuster can:
- Accept the request and pay the claim
- Reject the request and deny the claim
- Negotiate a settlement with claimant
- Use an alternative dispute resolution method
When a claimant submits a claim, the adjuster can:
- Accept the Request and Pay the Claim
● Claimant has proven damages
● Adjuster determines settlement amount based on investigation
● If amount is close to claimant’s offer, adjuster comes to agreement with
claimant and may issue a settlement check
Note: small differences should be settled in favor of the claimant.
“Draft Authority”
● Adjuster can settle directly with claimants and write checks for the insurer
● Often limited to a certain amount (e.g. $5,000)
● Without Draft Authority, adjuster must submit settlement for approval
When a claimant submits a claim, the adjuster can:
- Reject the Request and Refuse to Pay the Claim
Some reasons why an adjuster may deny a claim:
● The damages aren’t covered
● The claim is fraudulent
● The claimant can’t prove damages
● The loss occurred outside the policy period
When a claimant submits a claim, the adjuster can:
- Negotiate with the claimant
● Damage is covered
● Claimant is asking for more than insurer is willing to pay
● Adjuster must negotiate to find an amount that will settle the claim
Adjusters must know the exact amount that the insurer is willing to pay to settle before
investing time in the negotiation process.
No negotiations:
● When dollar amount difference is too small
● When dollar amount difference is too great
● For punitive damages (except in extremely rare cases)
Adjuster/claimant negotiation:
● Only works when both parties are motivated to settle
● Easiest, lowest-cost negotiation option
When a claimant submits a claim, the adjuster can:
4.Alternative Dispute Resolution Methods
● Arbitration
● Mediation
● Appraisal
● Declaratory Judgment
● Litigation (letting the claim go to court)
Litigation should be last resort
● Can be expensive and unpredictable
● Adjuster’s primary motivation: settle claim promptly and efficiently without
‘litigation’
Dispute Resolution: Arbitration
● Arbitrator is a neutral third party
● Arbitrator’s decision is legally binding
● Costs less to taxpayers than a court of law
● Less formal atmosphere allows more evidence
● Arbitrators often have more expertise than juries
Dispute Resolution: Mediation
● Mediator is a neutral third party
● Mediator only advises in the negotiation
● Mediator’s decision is not legally binding
● Settlement is only legally binding if both parties agree to it
● Either party may “walk away” (impasse)
Dispute Resolution: Mediation
Consequences for failure to appear at mediation:
● Severe for the adjuster– contempt of court and/or penalties
● Mild for the plaintiff– no penalty or minor penalty
Dispute Resolution: Appraisal
● Adefinite disagreement must exist prior to appraisal
● Eachside chooses an appraiser
● Bothappraisers agree on an umpire
● Agreement by any two of the three is binding
● Appraisal only decides settlement amount, not whether coverage exists in
the first place
Dispute Resolution: Declaratory Judgment Action
● Court declares the legal rights of both parties
● Court does NOT decide how to resolve the case
● Disputing parties then use the court’s decision to come to settlement
Litigation: last resort method of claim resolution
Taking a claim to court can be
● Expensive
● Unpredictable
● Possible even after binding negotiations
Settlement
When two parties in a dispute reach an agreement
The insurer and the claimant agree on:
● How much will be paid
● Terms & conditions of payment
When a settlement is reached, the claimant:
● Gives up her right to seek any further damages
● Gives up the right to sue
Settlement Options
- Full Release Settlement
● Also called “Full Release of All Claims and Settlement Agreement”
● All damages paid at once
● Most common settlement option
● Insurer pays immediate, single ‘lump sum’ to claimant
● Claimant signs Full Release Form that releases the insurer from additional claims
Settlement Options
- Scheduled Payment Release
● Also called “Open-ended Release,” or “Rehabilitation Settlement”
● The insurer agrees to pay all compensatory damages (both special and
general) up to the point of settlement
● The insurer also pays for “incidentals” for future costs related to the claim
● Most often used in workers compensation claims
Settlement Options
- Payment of Property Damage; Bodily Injury Pending
● Involves claims that have property damage along with a bodily injury
● The insurer indemnifies all property damages while awaiting settlement for
bodily injury
● Claimant must be in a condition in which he can understand this settlement option
Settlement Options
- Advance Payment Settlement
● Used when the claimant’s damages are mostly bodily injury and the claimant is unable to work final settlement amount
● Insurer makes a series of partial payments and then subtracts them from the
● Decreases chances of lawsuit
Settlement Options
- No Release Settlement
● Also called “Walk-away” settlement
● Insurer pays the bills submitted by the claimant
● Signing and cashing a check substitutes for the release form
Settlement Options
- Structured Settlement
● Series of smaller payments over time
● Reserved for largest claims
● Insurer often must pay a portion up front
Liability claims:
● Harder to assign dollar amounts
● Factor in issues like mental duress and comparative negligence
