Study 7: Evaluation and Negotiation - Summary

Question 1

The loss adjuster may call upon experts to do the following

Answer 1

• Appraise damage
• Assess fault
• Determine causation

Question 2

The need for evaluation in a claim

Answer 2

• Reports or documentation must be carefully reviewed and the policy wording carefully compared to the known facts of the case.
• When repair estimates must be evaluated and compared, the adjuster asks for the costs to be itemized on the estimates to distinguish between any variations.
• Whenever the adjuster’s suspicions have been raised, a thorough investigation is warranted.

Question 3

Evaluating evidence submitted as part of a claim

Answer 3

• Claimants must substantiate their claims, ideally by providing receipts or visual documentation of the more expensive items in their claims. A receipt is not necessary to submit a claim.
• The loss adjuster must be satisfied that submitted documentation is authentic and should know the circumstances under which the receipts were obtained.
• Whenever evidence is to be evaluated in court, the credibility of witnesses and claimants plays an important part.

Question 4

The need for explanation of the bases of evaluation

Answer 4

The insured, having paid the policy premium, is entitled to have the damaged insured items repaired or replaced. However, to avoid misunderstanding, the insured should immediately be informed of how the policy wording operates to cover replacement cost.

Question 5

Depending on the item in question, one or more of the following bases of evaluation could be used

Answer 5

• Actual cash value
• Replacement cost
• Competitive pricing
• Safety requirements
• Court decisions

Question 6

Actual cash value

(Bases of evaluation)

Answer 6

A fair value of the item at the time of loss. Often calculated as the cost to replace an item, less depreciation for age, wear and tear, and depreciation.

Question 7

Replacement cost

(Bases of evaluation)

Answer 7

The cost of an item of like kind and quality. For example, suppose a fire destroys a 10-year-old dining table and chairs. The insured would be entitled to the cost of a new dining room table and chairs of like kind and quality to the original set.

Question 8

Competitive pricing

(Bases of evaluation)

Answer 8

Having two or more companies compete or bid on a project. For example, for a total house fire, it may be appropriate to have contractors bid or compete on the repair job to determine who has the best price.

Question 9

Safety requirements

(Bases of evaluation)

Answer 9

When an item is lost or damaged, there may be additional costs required to ensure the replacement or repairs are safe or up to code. For example, after a house fire, the wiring or plumbing may be found to have been outdated and not up to code. There may be additional costs to ensure that the wiring and plumbing are up to date after being repaired.

Question 10

Court decisions

(Bases of evaluation)

Answer 10

Adjusters can look to prior court decisions in determining settlement on certain types of losses.

Question 11

The following methods can be used to determine a reasonable ACV

Answer 11

• Replacement or repair cost less depreciation
• Market value (also known as fair market value)—The amount that a person is willing to pay on the open market. For example, suppose a fire destroys a unique printing press that is not made or sold anymore. There may be a market for this type of property, but it has value only if someone is willing to pay for it.
• Income value—property may have more value to an owner because of the income earned on it, rather than its value were it to be sold.

Question 12

Most common and effective formula used in loss adjustment

Answer 12

Replacement cost - depreciation = actual cash value

Question 13

Pair and Set Clause

Answer 13

• Prevents an insured from claiming the total loss of a pair or set because a part of it has been lost or damaged
• Example: if one chair in a matched set were lost, the insured could not claim for loss of the entire set. The remaining item has value so receiving the full value of the set violates the principle of indemnity

Question 14

Parts Clause

Answer 14

• Prevents the insured from claiming a total loss if only one part of an item of property has been lost or damaged.
• The insurer is not liable for more than the insured value of the part lost or damaged, including the cost of installation.

Question 15

Replacement Clause

Answer 15

• Can be employed when the adjuster and the insured are unable to agree about the value of damaged property
• Instead of making payment, the insurer has the option to repair, rebuild, or replace the property damaged.
• Must advise the insured within 30 days of receipt of the proof of loss

Question 16

Negotiation skills for the insurance adjuster

Answer 16

• For a loss adjuster, negotiating means realistically and fairly evaluating the claim to reach a reasonable settlement.
• Adjusters prepare to negotiate by obtaining and reviewing all information in advance.
• Alternative strategies should be developed.
• Adjusters must have a settlement goal in mind and recognize when a claimant is willing to accept a claims evaluation.
• Adjusters should be honest and fair, cooperative, pleasant, and friendly.
• Negotiations should be based on specific, objective criteria.

Question 17

Loss adjusters may have their actions scrutinized in court to determine the following

Answer 17

• Was the insured placed under duress?
• Did the loss adjuster ask the insured to sign an agreement, such as a non-waiver agreement, before it was properly or thoroughly explained?
• Did the insured have a legal disability that the loss adjuster should have considered?
• Should the insured have sought independent legal advice?

Question 18

Salvage Negotiation

Answer 18

• The loss adjuster may have an opportunity to sell property salvaged from the loss back to the insured at a reasonable cost.
• If a sale to the insured cannot be negotiated, the insurer may have to sell the salvage, donate it, or throw it away.

Question 19

Resolving conflict during the negotiation

Answer 19

When a loss adjuster and claimant disagree about something involved in the negotiation, differences of opinion can be resolved with good negotiation skills. The following tips can help:

• Separate the person from the problem.
• Determine the options for mutual gain.
• Avoid being defensive or aggressive.
• Focus on the interests of both parties.

Question 20

When to involve legal counsel

Answer 20

• When litigation seems probable on a claim, the insurer may consider involving counsel early.
• Typically applies to serious injuries with high exposures

Question 21

Test of credibility

Answer 21

When evidence is to be evaluated in court, a test of credibility is done. The two elements of the test are:

• The credibility of the information disclosed
• The impression a witness makes

Question 22

Forms of Alternative Dispute Resolution

Answer 22

• Resolving disputed claim settlements in court can be inconvenient, time-consuming, and expensive.
• Many claims are now being settled through alternative dispute resolution (ADR) processes.
• ADR also reduces the chances of ill will between the parties.
• The two most popular forms of ADR: Mediation & Arbitration

Question 23

Mediation

Answer 23

• In mediation, representatives of each party meet in private with an impartial mediator to try to reach a settlement
• The mediator helps the parties to define the differences in their positions, identify the real areas of dispute, and consider solutions.
• However, the mediator has no authority to decide the dispute or to force the parties to accept a settlement. Mediation is non-binding unless the parties agree on a settlement

Question 24

Arbitration

Answer 24

• More formal than mediation but less formal than going to court
• In arbitration, the parties agree to be bound by the decision of an impartial third party, the arbitrator. Settlement is legally binding.
• Claim disputes in an arbitration hearing can usually be heard within four to six weeks

Question 25

Appraisal

Answer 25

• Insurance acts prescribe an appraisal process for policies that require appraisal to determine specified matters in dispute
• For auto policies, it may be invoked when the insurer receives a proof of loss and disagrees with the nature and extent of repairs or amount payable
• For property policies, it may be invoked when there is disagreement on the value of the property insured, the property saved, or the amount of the loss
• As with arbitration, the outcome of the appraisal process is binding on both the insured and the insurer.