Proper Claims Handling | Property Insurance Coverage Law Blog

Imagine this: your Florida home has just been torn apart by a hurricane. You’re exhausted, overwhelmed, and trying to show the insurance adjuster the gaping hole in the roof. Maybe you forget to mention the water-soaked baseboards or the sagging ceiling across the house. Maybe you don’t even notice the cracked foundation because you’re focused on more obvious damage. You don’t mention that your contents are wet and smell like mildew. You don’t mention that the house is rented to snowbirds who will be coming right after Thanksgiving and staying until next May.

According to some insurance company playbooks and the attorneys they hire to argue against paying any more money, if you didn’t point it out right away, it didn’t happen. Worse, if you tell them later, they will say you did not give them late notice of loss for that coverage.

Is that proper claims handling? Is that ethical claims adjustment? Is it what reputable insurance companies teach their claims adjusters to do? Is it okay to say, “If they don’t ask about the coverage, you are under no obligation to inform them?”

Absolutely not.

Insurance adjusters have a duty to fully and fairly adjust a loss. They are not there to play a game of “hot or cold” where they only acknowledge damage that the policyholder happens to point at. Adjusters are supposed to be professionals trained to investigate all sources of coverage and spot all covered damages, regardless of whether the insured mentions them or not. Anything less betrays the entire purpose of insurance: peace of mind and full financial protection after a loss.

The Ethical Standards Are Clear

The insurance industry, to its credit, teaches its adjusters honest and honorable ways to handle claims. The standard textbook for claims handlers, which leads to an Associate in Claims designation, is James J. Markham, et al., The Claims Environment (1st ed., Insurance Institute of America 1993). There are now subsequent editions.

This treatise notes in part:

Policyholders buy peace of mind and are not seeking commercial advantage when they buy a policy. In addition, they are vulnerable at the time of the loss.

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Upper management also has a responsibility to maintain proper claim-handling standards and practices.

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Policy language is sometimes difficult to understand. The benefit of interpretation should be given to the policyholder.

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Insurance is a matter of public interest and deserves special consideration by the courts to protect the public.

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Insurance contracts are not like other contracts because insurers have an advantage in bargaining power. Insurers should therefore be held to a higher standard of care.

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The claim professional handling claims should honor the company’s obligations under the implied covenant of good faith and fair dealings.

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Claims representatives….are the people responsible for fulfilling the insurance company’s promise.

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When a covered loss occurs, the insurance company’s obligation under its promise to pay is triggered. The claim function should ensure the prompt, fair, and efficient delivery of this promise.

And most importantly, to answer the title of the post:

Therefore, the claim representative’s chief task is to seek and find coverage, not to seek and find coverage controversies or to deny or dispute claims.

Adjusters Are Not Supposed to Wear Blinders

Field adjusters are not supposed to act like tourists, snapping only the obvious sights. They are supposed to be the experts, the trained eyes looking for all damage the average policyholder might miss. They should inspect roofs, walls, ceilings, attics, foundations, and interiors for hidden damage, even if the insured is too stressed or inexperienced to know what to ask about. They should be asking about potential coverages afforded under the policy, such as the lost rental value and the obvious impact that moisture may have on contents.

In moments of crisis, most policyholders do not think like insurance lawyers reading the fine print in the insurance policy. They are hoping they will be treated as the respected insurance industry claims handling treatises teach. They are thinking like people trying to survive this event, restore their lives, and then move on.

Insurance is a product built on trust. When that trust is broken through half-hearted investigations and narrow inspections by claims departments not having a sufficient number of properly trained and motivated adjusters looking to pay all that may be owed under the insurance product after a loss occurs, the entire system suffers. The “system” is all of us and the reputation and trust we place with the notion of what insurance is supposed to be.

In When Words Collide: The Golden Rule – The Purpose of Insurance is to… Insure, I noted that insurance industry educator Bill Wilson uses this quote when discussing the purpose of insurance along with the duty of good faith that insurers owe to their policyholders:

[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.

Warning to Policyholders, Public Adjusters, and Agents

Agents should not assume that simply passing along a notice of loss by a phone call or email saying “the risk is damaged from the hurricane” will be enough anymore. Insurers emboldened by technical loopholes in a recent case surely to be taught and promoted as good law by insurance defense attorneys may argue that unmentioned damages are “outside the scope of notice.” Protect yourself and your clients by demanding thoroughness and investigation into all coverages sold under the policy.

Public adjusters must be more detailed and vigilant. Every aspect of damage must be set forth with increasing accuracy. All coverages must be raised and adjusted as soon as possible to avoid arguments of late notice or prejudice. Actual cash value for all real and personal property should be determined in every case, along with replacement cost figures. Public adjusters failing to do so in the current environment will probably be called out for malpractice and negligence.

Policyholders cannot simply hand over construction estimates and replacement costs backup from catalogs for personal property. This was the accepted practice and requirement for submitting a claim until insurance defense lawyers convinced judges that in the event the policyholder did not rebuild the structure or replace an item, actual cash value claims had to be submitted. These new hypertechnical legal case precedents make it nearly impossible for any ordinary policyholder to properly submit real and personal property claims because they have zero training about what actual cash value means.

There are a number of cases I have cited about the actual cash value issues, but the case on providing notice of each coverage amount was discussed in The New “Notice” Trap: Better Ring a Bell for Every Coverage You Might Claim.

When a business or homeowners buy insurance, they are buying a promise — a promise that if disaster strikes, they won’t be left to figure out the hidden damage themselves. Field adjusters should adjust the loss, not just the conversation. Anything less isn’t just improper, it is a betrayal of what insurance is supposed to stand for and what reputable companies and claims managers teach.

I wish the recent trend in the law would better reflect what the honorable and professional claims adjusters teach and abide by every day. Until that happens, it is better to be safe rather than sorry and follow my suggestions.

Thought For The Day

“It is not what we do, but also what we do not do, for which we are accountable.”
— Molière