Adjuster Only Owes a Duty to the Insurer

Independent Adjuster Owes no Duty to Insured Absent Fraud

Barry Zalma

Oct 02, 2024

Transcript

Adjuster Only Owes a Duty to the Insurer

BACKGROUND

Although a landlord-tenant dispute between St. Luke #2, LLC (“St. Luke”) and Hermes in the aftermath of Hurricane Ida started the dispute, this case deals with the obligations of insurance adjusters and their vendors to the insured.

Hermes owned the property, located at 4201 Woodland Drive in New Orleans, on which St. Luke operates its nursing facility. After Hurricane Ida Hermes filed a third-party demand against its insurers and others, arguing that it could not afford to repair the property because its insurance claims were denied including a claim against Applied-a third-party engineering firm that had been hired to investigate and report on the cause and extent of damage to Hermes' property-and Sedgwick Claims Management Services, Inc. (“Sedgwick”), a third-party insurance adjusting company.

Hermes claimed Applied's report intentionally or negligently misrepresented the cause of damage to Hermes' property occasioned by Hurricane Ida. Hermes argued that, after the storm, it provided Sedgwick with photographs showing the damage caused by the storm. Hermes claimed that the photographs showed “evidence of unprecedented and widescale water damage, water driven through storm created penetrations by wind in numerous windows, walls, and the building envelope.” According to Hermes, Applied's report discounted the Category 4 Hurricane conditions as the primary cause of the widespread damage throughout Hermes' property and generally blamed the damages on the age of the roof, and lack of maintenance to the HVAC and plumbing systems. Hermes argued that Applied's report intentionally or negligently ignored the best evidence of the cause and extent of damages available.

Hermes also alleged that Sedgwick and Applied colluded and engaged in a civil conspiracy to deprive Hermes of insurance benefits and that Sedgwick colluded to exclude the best evidence available. Hermes further claimed that Applied clearly acted in bad faith with the intent to deprive Hermes of the insurance benefits for which Hermes is entitled.

THE MOTION

Applied moved to dismiss Hermes' claims, arguing that Louisiana law limits or bars recovery against third-party adjusters, like Applied, who assist insurers in processing and handling insurance claims. Applied also argued that, to the extent Hermes intends to allege fraud, Hermes has not pled a fraud claim.

ANALYSIS

The USDC concluded that Applied's motion to dismiss had merit. First, with respect to Hermes' negligence claim, Applied argues that absent fraud, an insurance adjuster generally owes no duty to an insured in adjusting a claim. Even when an adjuster's investigation is substandard, the independent adjuster owes no duty to an insured to conduct a proper investigation.

If no duty to the insured is imputed on an insurance adjuster, like Sedgwick, it stands to reason that no duty is extended to a party retained by the insurance adjuster, like Applied. Because Applied was an agent of the insurance adjuster, Applied owed Hermes no duty in the absence of fraud or misrepresentation. Accordingly, the USDC found that Hermes' negligence claim against Applied fails.

To allow an allegation that the adjuster conspired with the insurer to avoid paying the claim would be contrary to the statutory and case law limitations on suits against adjusters

Defendant Applied's motion to dismiss Plaintiff's claims with prejudice, pursuant to Federal Rule of Civil Procedure 12(b)(6), was granted.

ZALMA OPINION

Insurance adjusters duties are to the insurer that hired them to perform a service. Since there is no contract between the adjuster and the insured, there is no duty of care owed to the insured. The insured may have a right against the insurer but not against the adjuster or vendors retained by the adjuster to assist in its investigation. The Plaintiff had a cause of action against its insurer but could never state a cause of action against the adjusters just to complicate the litigation or try to avoid federal jurisdiction.