After the loss is immediately reported to the insurer—directly or through the services of an agent or broker—it is time to deal with the claim. The insured will be contacted by an insurance adjuster representing the insurer, usually within 24 hours after the insurer receives the notice of loss.
In the initial telephone conversation, the adjuster will inquire about the type and extent of loss. If the damage is only smoke damage in a break room, a basic adjuster might be assigned to deal with the claim without personal inspection and will instruct the insured to obtain an estimate from a contractor and start the clean-up and painting needed. The adjuster will usually accept the bid or bill from the contractor for the small job, apply the deductible, and send a check.
On the other hand, if the adjuster is advised that there has been a catastrophic fire to a 30,000 square foot warehouse structure, an appointment would be set to immediately inspect the damaged property by the adjuster and a construction consultant to deal with the evaluation of the damage and what will be necessary to place the business back into its original condition using materials of like kind and quality.
Depending on the extent of loss, the experience level of the adjuster assigned, and the need for the assistance of experts, the adjuster will deal with the claim or pass it to a more experienced person.
What Is an Insurance Adjuster?
The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within 60 days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.
The policy allows the insurer to then, and only then, respond to the insured's proof of loss. The insurer can then either accept or reject the proof submitted by the insured.
Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.
Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries.
Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing, insurers created the insurance adjuster to fulfill the insurer's obligation to deal fairly and in good faith with the insured.
An "adjuster" or "insurance adjuster" is by statutory definition, a person, co-partnership, or corporation who undertakes to ascertain and report the actual loss to the subject-matter of insurance due to the hazard insured against. Insurance companies create, by issuing an insurance policy, a contractual obligation to pay its insureds' valid claim. To do so insurers understand that the person insured is not able to prove the cause and extent of loss without assistance. Therefore, insurers dispatch a person with special knowledge—the adjuster—to separate fact from fiction, to establish cause and origin of the claimed loss, and determine sufficient information to enable the insurance company to determine the amounts necessary to indemnify the insured as the policy promised. The adjuster is also present to distinguish the valid claim from a claim for which the insurance company is not liable under its policy.
Some policies specifically state that the claimant must use his own judgment in estimating the amount of loss and that the assistance of an insurance adjuster is a "courtesy only"—the claimant must still send a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help the insured or claimant complete it.
As a general rule,
[w]hen an insurer gives its insured written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the insured to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy.1
Since the invention of the adjuster more than a century ago the first person from the insurer that the insured meets when he or she suffers a first party property loss is the adjuster. The claim adjuster was invented to smooth the claims process and be certain that the insured receives the indemnity promised and to perform a complete and thorough investigation to avoid fraudulent claims.
Every modern claim adjuster should know that it is his or her duty to aid the insurer in its obligation to fulfill the promises made by the policy of insurance and assist the insured in presenting his or her claim to the insurer.
An insurance adjuster, regardless of duty, is a person engaged in the business of insurance. The first party property insurance adjuster limits his or her activities to the investigation and adjustment of first party property claims like fire, lightning, windstorm, hail, theft, and so on.
Statutes define an adjuster as one who investigates losses on behalf of an insurer as an independent contractor or an employee of an independent contractor. An insurance adjuster is an agent of the company and his powers and authority are prima facie coextensive with the business entrusted to his or her care.
The duty of the adjuster is to ascertain and determine the amount of any claim, loss, or damage payable under an insurance contract, and/or effecting settlement of such claim, loss, or damage. The acts of an adjuster within the apparent scope of his authority are binding on the company without notice to the insured of limitations on his powers.2
The Duties and Obligations of the Property Adjuster
Although a special relationship exists between an insurer and insured because they are in privity of contract as an individual, the individual insurance adjuster is not in privity with the insureds based on their insurance policy wording. Thus, although the employee adjuster does not owe a special duty to the insureds on which the bad faith tort could be based against the adjuster, he or she owes the duty to the insurer employer although actions of the adjuster can support a claim of bad faith against the insurer for whom the adjuster works.3
In the absence of privity of contract, an insurance adjuster is not individually liable to an insured for a failure to settle a claim against an insured.4 However, the actions of the adjuster can cause the insurer that employed him or her to face charges of breach of the insurance contract and liability for breach of the tort of bad faith.
An independent insurance adjuster is not liable to an insured for malfeasance when the insurer delegates to the adjuster the responsibility to handle the insured's claim because the adjuster is not in contractual privity with the insured.5
However, in Texas, the Texas Supreme Court has determined that the "adjustment of claims and losses" qualifies as "the business of insurance," thus making an adjuster a "person" under the Texas Insurance Code.6
Regardless of the jurisdiction, the adjuster must conduct himself or herself in such a way that there will never be an issue that the insurer breached the contract directly or through the adjuster's action. Although protected from individual tort liability, acting in bad faith and exposing the insurer to a bad faith judgment will probably cause the adjuster to lose his or her job.
Imposed on the adjuster by the insurer and by state law and regulation is an obligation to investigate the loss, interpret the policy wording, and apply the policy wording to the facts discovered in the investigation. A first party property adjuster must be educated, trained, experienced, and ready to help an insured obtain the benefits promised by the insurance policy.
How the Adjuster Analyzes the Policy Wording
The adjuster, when interpreting a policy of insurance, must, like a court, analyze it like other contracts and construe the contract to give effect to the intention of the parties as manifested by the reasonable meaning of policy terms.7 Because of the unequal bargaining power between an insurance company and its insured, and insurance companies' expertise in this field, insurance policies are viewed as adhesion contracts. Although a court will not write a better policy for the insured than he or she purchased, an adjuster is obliged (as is a court) to strictly construe any exceptions to coverage against the insurer. Courts will enforce only the restrictions and the terms in an insurance contract that are consistent with the objectively reasonable expectations of the average insured and are clear and unambiguous.
The adjuster, or the insurer's underwriting department, can recreate the policy from the declarations page, the partial forms in the "daily file," and standard forms from the underwriting department by including each form listed on the declarations page. The adjuster, if the forms are not easily available can always view a current copy of the policy in the possession of the insured. If computer access is available to the adjuster he or she may gain the necessary information on...
