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Civil Litigation Survival Guide for Independent Adjusters - Part 1

Tue, 18 Mar 2014
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Published in Articles

Part 1: INTRODUCTION

Unfortunately, insurance litigation has resulted in independent adjusters being ensnared in civil ligation that really constitutes a dispute between the policyholder and the insurance company. The devastating consequences are that independent adjusters are being sued for many thousands of dollars over adjusting assignments that generate fees that are only a fraction of the amount of liability exposure. As a result, independent adjusters face the impossible dilemma of invoking their professional liability coverage or defending themselves without the benefit of coverage. By invoking their coverage, the independent adjuster faces having to come out of pocket for the amount of the self-insured retention (usually a minimum of $5,000.00) or exposing themselves to unlimited attorneys’ fees and thousands of dollars in potential liability exposure. If the independent adjuster chooses to invoke coverage, not only will he/she have to pay the self-insured retention amount, but also create a claims history that will, at best, result in increased premiums. At worst, professional liability coverage may become unavailable. If an independent adjusting company is unable to obtain professional liability coverage, it will be extremely difficult for it to obtain assignments.

The purpose of this paper is to discuss how we got to where we are today and some potential measures that can be taken by independent adjusters to lessen the impact of the current state of affairs in insurance litigation.

HOW WE GOT HERE

Under the provisions of the Texas Insurance Code, an independent adjuster bears individual liability for his/her actions in connection with adjusting an insurance claim. This is true even if the independent adjuster is simply following the claims guidelines of the insurance company for which he/she has been retained.

By the same token, insurance companies are held responsible for the claims handling regardless of whether the claim is handled by the company itself or through an independent adjuster. Under the general rule a person cannot be held liable for the actions of an independent contractor if the independent contractor is truly independent. However, under the terms of the Texas Insurance Code, insurance companies cannot assert that it is not responsible for violations of the Insurance Code because the claim was handled by an independent adjuster.

Therefore, the question arises as to why an insured would sue an independent adjuster if the insurance company, who has much greater assets, is liable for the claims handling that was performed by an independent adjuster. It seems that it would make no sense for the insured to have two sets of lawyers coming after him when his recovery is not going to be increased by suing the independent adjuster along with the insurance company.

A. DIVERSITY OF JURISDICTION

Typically, the attorneys representing insureds prefer to have their cases tried in State Court. State Court provides a number of advantages to policyholders that are not available in Federal Court. If a lawsuit involves plaintiffs who are citizens of one state and defendants who are citizens of other states, then there is diversity of jurisdiction. If diversity exists and the amount in controversy exceeds $75,000.00, then the case is subject to being placed in Federal Court.

In order to destroy diversity of jurisdiction, attorneys representing policyholders will try to find a defendant who is a citizen of the same state as the policyholder. A prime target is the independent adjuster. Also, it may be the insurance agent.

B. HAVING SOMEONE TO PLACE BLAME ON THE INSURANCE COMPANY BESIDES THE POLICYHOLDER

The attorneys representing the policyholders hope that the insurance adjuster will “turn on” the insurance company in order to alleviate or mitigate his/her own liability exposure. It is the policyholder’s dream for an independent adjuster to testify that the insurance company insisted that a claim be handled differently than what the independent adjuster recommended.

C. EASE OF DISCOVERY

It is easier to obtain documents and deposition testimony when a person is a party to a lawsuit as opposed to being a non-party witness. For example, if the independent adjuster is a party to the lawsuit, the policyholder’s attorney only has to issue a notice by mail, fax or otherwise to the attorney representing the independent adjuster in order to compel the production of documents; the answering of written discovery and the giving of depositions. If the independent adjuster is not a party, then it is much more difficult logistically to obtain documents and deposition testimony.

D. ANOTHER SOURCE OF SETTLEMENT FUNDS

Unfortunately (depending upon your perspective), litigation is extremely expensive. Therefore, independent adjusters and their professional liability insurance carriers are sometimes faced with a dilemma of paying significant amounts of money which would equal projected litigation expenses or contesting a defensible case knowing all the while that, at the end of the day, the best result would be a no-liability verdict, but the same amounts of money being spent in litigation costs. Therefore if, for example, it would cost $20,000.00 to defend the independent adjuster (regardless of the result) and there is a settlement offer that is equal to or less than $20,000.00, it makes economic sense for the independent adjuster to settle, even though there is no liability.

 

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