Duties of the Adjuster with Regard to First Party Property Insurance
Adjusters are Not Parties to the Contract
No standard policy of property insurance mentions the insurance adjuster. No insurer is required to have an insurance adjuster on staff. All of the obligations with regard to the proof of a claim rests on the insured. Regardless, insurers learned that requiring an insured to do everything proved to be unworkable.
Insurance is a service business. Insurers quickly learned that most people who suffer a loss find it traumatic. Few knew that the policy contained conditions. Almost none understood that they were required to report a loss immediately or submit to the insurer a sworn proof of loss no later than sixty days after the occurrence of a loss. All have difficulty complying with the conditions of their policy. To resolve the problem and to assist insureds in complying with policy requirements insurance companies created the position of insurance adjuster.
The adjuster provides the assistance the insured needs to comply with the policy conditions. The adjuster is the living embodiment of the insurance company. It is the adjuster who communicates with the insured after a loss is reported to the insurer.
Usually, the insurance adjuster is the only person connected to the insurance company the insured will ever meet. The adjuster provides the insured the service promised by the insurance company. He or she is the person the insured meets when he or she faces a loss and needs help. It is the adjuster, and the help he or she gives the insured, that is the means by which the insurer keeps the promises it made when the policy was issued. Without this service insurers would be unable to convince the insured or a jury that the insurer treats each insured with good faith and fair dealing.
The adjuster is the foundation upon which an insurer is built. If the adjuster is not professional and does not provide the service promised by the insurer, the promise made by the policy is broken and the insurer will first lose customers and ultimately fail. Every insurer is aware that claims that are owed must be paid promptly and with good grace. To do otherwise would be to ignore the purpose for which insurance exists: to provide service, protection, and security to the insured.
The word “adjuster” is defined as follows:
One whose business it is to ascertain the loss and agree with the assured on the settlement; one who determines the amount of a claim, as a claim against an insurance company; the person who makes the adjustment or settlement. [Hemmer-Miller Dev. Co. v. Hudson Ins. Co. of N.Y., 63 S.D. 109, 256 N.W. 798 (S.D. 1934)]
Idaho, by statute, defines an adjuster as:
‘ADJUSTER’ DEFINED
(1) An 'adjuster' is a person who, on behalf of the insurer, for compensation as an independent contractor or as the employee of such an independent contractor, or for fee or commission, investigates and negotiates settlement of claims arising under insurance contracts. [Idaho Code 41-1102]
The first party property adjuster, applying general and common national practice, has a duty to:
help the insured prove the loss to the insurer;
help the insured understand the terms and conditions of the policy;
conduct a thorough investigation to determine if the facts exist to allow the policy to provide indemnity to the insured; and
conduct a thorough investigation to establish, if possible, that a third person is responsible for the loss so that the responsible party can be pursued to recover, in addition to the money paid by the insurer, the deductible or other non-covered portions of the loss.
The adjuster must also be aware of labor and material costs and building construction methods in his or her geographical area in order to fulfill his or her duties to assist the insured in presenting the claim.
For the adjuster to perform his or her duty to the insured and the insurer the adjuster must be familiar with, and understand the need to, act fairly and in good faith in fulfillment of the implied covenant of good faith and fair dealing. The covenant of good faith and fair dealing “is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party’s rights to the benefits of the agreement.”[1]
The covenant never appears in the policy wording. It is, however, the most important promise made by the insurer to the insured and the most important promise made by the insured to the insurer. Both the adjuster, working on behalf of the insurer and the insured must treat each other with the utmost good faith and do nothing that will prevent the other from receiving the benefits of the policy.
When an insurer denied coverage for a loss involving the collapse of part of the insured’s structure, the court, although agreeing with the insurer’s interpretation of the policy language that led to its original denial of the claim, stated that it “does not follow that (the carrier’s) resulting claim denial can be justified in the absence of a full, fair and thorough investigation of all the bases of the claim that was presented.”[2] The court stated that the fact that a coverage lawsuit had been filed “did not excuse (the insurer) from the continuing responsibility to fully investigate [the] claim.”
However, where there is a genuine issue of material fact or the issue is fairly debatable, as to the insurer’s liability under the policy for the claim asserted by the insured, there can be no bad faith liability imposed on the insurer for advancing its side of that dispute.[3]
In trial, any opinions of insurance adjusters as to what is covered in the policy are inadmissible[4] as is the testimony of experts since what is covered and what is not can only be resolved by the court as a matter of law. Regardless, the adjuster and an insurance claim expert can testify concerning the custom and practice of the industry and how that custom and practice resulted in a decision, in good faith, by the insurer and its adjuster.