Part 2: MEASURES THAT CAN BE TAKEN TO PREVENT EXPOSURE
Unfortunately, there is nothing that an independent adjuster can do to prevent being sued. As a general rule, a plaintiff only has to write out some accusations and pay a filing fee, which automatically results in a defendant being sued. However, there are some things that an independent adjuster can do to eliminate the impact of civil litigation brought by policyholders.
The most effective measure that can be taken by independent adjusters is to obtain an indemnity agreement from the insurance company at the time the independent adjuster is first retained. The indemnity agreement should state that, in the event that the independent adjuster is sued because of a claim being assigned by the insurance company, the insurance company will provide a defense to the independent adjuster and pay for any resulting liability. Theoretically, the indemnity agreement would not materially impact the insurance company because it already has liability exposure for the actions of the independent adjuster and the same attorneys can defend both the insurance company and independent adjuster if there is an indemnity agreement in place. However, many insurance companies are extremely reluctant to agree to an indemnity agreement because it would preclude the insurance company from going back against the independent adjuster if the independent adjuster truly and properly handled the claim outside the claim guidelines of the insurance company; for example, if it were determined that the insurance company was liable for failure to pay interior water damages after a tornado damaged the insured home because it was found that the independent adjuster refused to inspect the interior of the house after being told by the policyholder that there was interior damage. In that case, the insurance company would be held liable and could have a right to seek reimbursement from the independent adjuster.
As a practical matter, insurance companies can always say that they will not enter into the indemnity agreement and will only approve independent adjusters who do not insist upon one. As a result, the competitive forces in the marketplace may not allow independent adjusters to obtain indemnity agreements. On the other hand, there are definite advantages to the insurance companies by entering into indemnity agreements with their independent adjusters. If these advantages can be emphasized, perhaps more insurance companies will agree to them.
At the time suit is filed against the insurance company and the independent adjuster, they can then enter into a joint defense agreement wherein the insurance company will provide a defense to the independent adjuster. The joint defense agreement can contain an indemnity provision as to the individual lawsuit. This is typically much more palatable to the insurance companies than a blanket indemnity agreement would be as to all claims.
The joint defense agreements may provide a mechanism by which the ultimate responsibility for the payment of any judgment can be determined after the case so that the same attorney can represent both the independent adjuster and the insurance company. If a dispute arises after litigation as to the division of payment, then each side will obtain their own attorneys (which are different than the attorneys who represented them in the policyholder case) to address the division of damages. Even though this arrangement is not as beneficial as an indemnity agreement, it still relieves the independent adjuster of having to pay for a defense in the policyholder case. If the insurance company refuses to provide a defense, the policyholder is then left with a dilemma of either seeking a defense through his/her professional liability carrier or retaining counsel at his/her own expense.
E. WAYS TO LESSEN EXPOSURE
Typical complaints that policyholders have concerning independent adjusters consist of:
- Delay in making the initial contact and the initial inspection;
- Failure to inspect all damage;
- Failure to explain the damage evaluation; and
- Making an incorrect damage evaluation.
In our experience, we have found that these complaints are typically unsupported. For example, we attended a settlement conference where a policyholder was complaining that the adjuster never inspected his roof. However, contained in our file were photographs that were taken while the adjuster was actually on top of the roof. Also, we have had cases where policyholders have specifically stated that they did not sustain any interior damage and would not let the independent adjuster on the inside of their house. Yet, they later asserted that the independent adjuster refused to inspect the interior of their house. We have also had circumstances where policyholders have complained that independent adjusters have not come to inspect their house, but yet numerous appointments were made and the policyholders were not at home at the appointed time.
We suggest that independent adjusters develop a form for policyholders to sign off on that addresses these major complaint areas. For example, the form could ask the policyholder to acknowledge:
- That the independent adjuster inspected the property at a certain date and time;
- That the independent adjuster examined all areas where the policyholder believes there may be damage;
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the independent adjuster photographed each area of the insured property where there may be damage;
- That the independent adjuster spent an adequate amount of time in the inspection of the property;
- That the independent adjuster has included all suspected areas of damage in his/her damage evaluation;
- That the independent adjuster has answered all of the policyholder’s questions;
- That the policyholder acknowledges that the policy may not allow for the full replacement/repair of the damage because of the terms of the policy, such as deductibles and deductions for depreciation and actual cash value determinations;
- That the policyholder understands that he/she can submit a supplemental claim if additional areas of damage are suspected;
- That the policyholder acknowledges that the ultimate decision as to whether a claim is covered and the amount of insured loss is made by the insurance company, not the independent adjuster; and
- Finally, the form should identify the name of the independent adjuster and his/her contact information.
Each of the items listed above should be initialed by the policyholder and signed by the policyholder. The form should be in both English and any native language of the policyholder.
F. SUGGESTIONS CONCERNING STRUCTURING OF PROFESSIONAL LIABILITY INSURANCE COVERAGE
An independent adjusting company may wish to consider modifying the terms of its professional liability insurance coverage so as to perhaps lessen the financial impact of policyholder lawsuits. One suggestion would be to significantly increase the self-insured retention. In other words, instead of having a $5,000.00 self-insured retention, the independent adjusting company may increase that amount to $50,000.00. Obviously, this would provide a greater exposure for payment of first dollars, but it could result in a reduction in premiums that may justify the increase in the SIR. Also, independent adjusters that have a high SIR typically can negotiate the right to retain counsel of their own choosing. By having that right, the independent adjusting company can then negotiate a retainer agreement with a law firm that would benefit the independent adjusting company even further.
On the other hand, a high SIR may work toward the disadvantage of the independent adjusting company by increasing exposure on the front end. Typically, larger companies that can accurately evaluate their exposure can be in a position to take advantage of a high SIR policy.
Independent adjusters should also understand the underwriting policies of their professional liability insurance carriers. If the underwriting guidelines penalize independent adjusters every time they are sued, the result will be either unavailability of coverage or prohibitively high premiums. The independent adjuster may want to consider companies whose underwriting guidelines do not penalize the independent adjuster if a defense is provided by the insurance company and there is no loss payment made by the carrier.
Under the current state of affairs where insurance companies and claim representatives are vilified, it appears that litigation against independent adjusters will not abate. Perhaps there can be legislation that could lessen the impact on independent adjusters. Until then, it is hoped that this paper and our discussion has been helpful in addressing an extremely difficult dilemma.