July 23, 2016

Ethical Decision Making for Adjusters

Claims adjusters in virtually all jurisdictions are bound by a code of ethics.  Many adjusters are licensed and practice in multiple states and therefore have multiple codes that they must follow.  Violations of any state's ethical standards can result in the revocation of the adjuster's license to handle claims in any given state.  A revocation in one state can further result in a revocation in every state in which an adjuster is licensed.

The ethical rules are important not simply to maintain one's ability to practice, but also because in certain situations the adjuster is in a fiduciary position to the insured.  The fiduciary must act in the best interests of the insured at all times.  Even when the adjuster is in an adversarial position to the insured (i.e., coverage issues) the ethical rules still apply.

The National Association of Insurance Commissioners created the Unfair Claims Settlement Practices Act many years ago.  It has been adopted in whole or in part by most states.  Pennsylvania has adopted the Unfair Insurance Practices Act, which includes rules against unfair claims settlement practices.  40 P.S.§1171.1 et seq.  Almost all allegations of bad faith relate back to a violation of the ethical rules and of the Unfair Claims Settlement Practices Act.

Some circumstances lead to higher duties and/or special requirements for claims adjusters.  Areas where adjusters are often confronted with ethical considerations include background investigations, witness interviews, and site inspections.  Overall, claims adjusters must be fair and should remember to treat the insured as they would want themselves or their parents to be treated if they were on the other side.

Areas that fall below the ethical standards and violate the Unfair Claims Settlement Practices Act include misrepresenting facts, failing to promptly communicate, failing to promptly investigate, not attempting to settle clear liability cases, forcing litigation with lowball settlement offers, failing to provide reasonable explanations, and failing to assure adequate repairs.

In general, an adjuster must:

  • Avoid conflicts
  • Act with due diligence (not delay)
  • Be honest and truthful
  • Not advise against seeking advice of counsel
  • Be fair and objective when interviewing witnesses
  • Treat the claims in accordance with the policy
  • Conduct fair and complete investigations
  • Take proper care when dealing with the elderly
  • Not negotiate with a represented party
  • Not draft special releases
  • Report improper conduct of other adjusters
What It Means to You

Adjusters should step back in every situation to ask themselves if they are doing the right thing.  As long as an adjuster has a reasonable awareness of the ethical rules, simply ensuring that what they are doing "feels" right should be all that is required to do the ethical thing.