A phone call brings a new assignment: a large firedestroyed several local businesses in a strip mall. While initialreports suggested the fire was still under investigation, witnesses noted that they firstsaw fire from the grocery store, the anchor tenant, and it spreadto the neighboring book store and salon. While the fire departmentcontained the blaze to those three stores, the remaining businessessustained varying degrees of smoke and water damage. Those stores,though fortunate to escape the direct physical damage, would remainclosed while the fire was investigated and the damagesrepaired.

This is how the morning started for Wayne, a general adjusterfor a national independent adjuster (IA) firm. Shortly after taking theassignment, Wayne received the ACORD first notice of loss (FNOL)form and the insurance policy for the grocery store, a nationalchain. The property coverage for this loss came through amanuscript policy where four separate carriers had taken on apercentage of the risk. One carrier had assumed half the risk andwas designated as the lead, while the remaining carriers haddivided up the remaining risk by varying amounts. 

As Wayne began documenting and preserving the scene, anothercarrier approached him about acting as an IA for the book store'sproperty claim. As Wayne pondered whether he could serve as theindependent adjuster for this claim, the fire investigator heretained uncovered information regarding the cause of the fire.Investigators placed the origin close to a hot water heater, andthe grocery store manager admitted that, prior to the fire, therewere discarded cardboard boxes stacked up against the heater nearthe burner. However, the fire investigator also confirmed there wasa sprinkler system in this area that could have put out the fire,but that it had been shut off by a painter working inside thestore. 

In this scenario, the IA has a host of issues he needs toidentify and address promptly to ensure that he serves his client,or potential clients, properly. He must not only recognize that hisclient's insured may have potential liability for causing the fire,but also that his client may have a viable right ofsubrogation.

This scenario creates multiple separate conflicts of interestthat must be addressed. First, the liability carrier for thegrocery store should be notified of the loss, if it has not beenalready. Second, it is likely that the property carrierssubscribing to the risk may wish to explore subrogation moreclosely; however, to do so will invariably highlight the grocerystore's negligence. Moreover, Wayne must determine whether he canact as the IA for the book store's carrier if there is a goodchance the book store and the grocery store could ultimately beadverse to each other in future legal proceedings. What can Waynedo to protect his client and his client's insured's interest?

Privileged Reporting

At the outset, an IA must recognize that all of his activitiesmay be fully discoverable by many different parties if the matterultimately ends up in litigation. Often, the IA's work product isnot protected under the attorney-client communication or workproduct privileges. 

In fact, the discoverability of the adjuster's reports orcommunications will be analyzed differently depending on who isrequesting the information, when, and why. For example, asubstantive report prepared by the IA, analyzing both first-partyproperty coverage and liability issues after the adjuster hasspoken with the insured, will likely be discoverable in a subrogationaction if a third party makes such a request. A judge willultimately decide whether the full report or a redacted report thatomits the adjuster's liability analysis will suffice. This sameinformation may also be fully discoverable if the affected insuredrequests this information in a later coverage action. 

However, if the loss ultimately ends up as a liability claim,then many times the adjuster's report will be fully protected fromdisclosure by the work product protections if you can establishthat it was made in anticipation of litigation. Moreover, somestates recognize an insured-insurer privilege, but that protectionis only for liability claims against an insured.

Therefore, while the IA has an obligation to its client togather factual information, the adjuster should not analyze thelegal impact of those facts, which could later be discoverable,unless the clients make a specific request to do so. 

Navigating Conflicts of Interest

In large, multi-party losses where a potential conflict ofinterest exists, it is critical that the IA reacts quickly toprotect the interests of both the policyholder and the carrier,even if doing so limits or prevents an IA's ability to work foradditional clients stemming from the same occurrence. 

While the adjuster may not have a fiduciary duty to thepolicyholder, the insurer that retained him does. Therefore, theadjuster needs to keep its client—the insurer—informed of alldevelopments as they occur. If the decisions that an IA makesregarding these potential conflicts of interest negatively impactthe insured, then the insurance company client may be exposed toadditional liability and even potential bad faith, depending on thestate.

This does not mean that an IA can never accept multipleassignments from multiple carriers involved in one occurrence. Inmany instances, a little leg work will reveal that the potentialconflicts of interest are not conflicts at all. Whatever theadjuster decides, obtaining consent from the insurers, even thoughnot required, is the best and safest practice.

Multiple Carriers, Multiple Insureds

When an IA faces the prospect of working for multiple carriersthat insure multiple parties on the same loss, the adjuster shouldinitially evaluate if there is any real conflict ofinterest. 

First, the relationship between the parties affected by largelosses often started well before the loss occurred, and are oftencontractual in nature. In many instances, these entities recognizedthe possible losses and created contractual provisions regardingpotential liabilities. For example, the legal relationship betweentenants and landlord, as well as tenants and other tenants, will begoverned by leases or other documents signed prior to theloss. 

When an independent adjuster is first tasked with anymulti-party loss, such as that involving landlord-tenant,condominium, warehouse or shipping losses, the IA should requestcontracts and other documents between the affected parties toappropriately document the file. At that point, the adjuster willalso have the opportunity to examine possible conflicts ofinterest. 

For example, in residential and commercial leases, the IA should look for subrogation waivers, limitationsof liability and hold harmless agreements. Often, a lease willcontain these provisions, but they will only cover the relationshipbetween the landlord and the tenant. It is important to recognizewhether the scope of these provisions, if present, covers therelationship between just the landlord and tenants or extends totenant-tenant relationships as well. 

In any multi-party loss where the relationship between theparties is not covered by a written document, or if the parties'agreement does not contain a limitation of liability, waiver ofsubrogation, or hold harmless provision, then an IA is wise todecline any invitation to work for more than one party. 

In multi-party losses where the potential liability between theparties is covered, the adjuster should still obtain consent fromeach client in the order he was retained before working formultiple carriers. 

However, it must be noted that some states will not allow theseprovisions to be enforced, particularly if there is an underlyingpublic policy consideration at play. Wisconsin has a statute thatprohibits enforcing any provision in a lease where a tenant orlandlord is relieved of legal liability for damages caused by thatparty's own negligence. Therefore, while the IA may not be expectedto perform a legal analysis of these documents, any discussion thatthe adjuster has with his client about a potential conflict ofinterest should also cover whether someone has performed a legalanalysis of them.

Multiple Insurers, One Insured

Losses assigned to an IA by way of a subscription policy are aslightly different animal, as conflicts of interest relate mostoften to the wishes of the individual carriers and potentially theinsured as well. 

Thankfully, many subscription policies provide some guidance tothe adjuster as to who ultimately decides coverage, expertretention, or other claim-related issues.  To the extentthat the adjuster becomes involved, it can become an issue ofmerely keeping the respective clients content. This situation isdriven more by the personalities of the parties involved than legalconcerns.

However, many of these subscription policies are generated forlarge corporations and garner huge premiums for the carriersinvolved. Often, these policies dictate which IA firm will be usedfor all losses, and the insured has some say regarding who willadjust its losses. Therefore, the IA has some interest aswell in keeping the insured happy. 

That said, the IA must recognize that the insured is not hisclient and that his fiduciary duty is to the carriersonly.  Often, the adjuster will be tempted to push theboundaries in these situations and provide guidance to the insuredregarding coverage questions. The IA might also want to reviewissues outside the scope of the claim. The adjuster would be wiseto avoid these temptations, however, as they may constitute aviolation of the IA's fiduciary obligation to the client and couldalso make the adjuster akin to a public adjuster, depending on thestate where the loss took place.

Lastly, IA firms also face these same issues when they have twoseparate adjusters who are independently retained to work on thesame loss for different carriers insuring different insureds.Adjusting firms are wise to follow the same set of rules set forthabove, but there may be some leeway, as the conflict of interest isless direct.  It is nearly unheard ofthat two attorneys from the same firm would work for differentclients affected by the same loss unless their interestsare perfectly aligned. However, there have been court decisions scattered throughout the country where expertsfrom the same firm were allowed to testify for parties adverse toeach other. In those cases, the courts were most concerned with theexperts' ability to protect against the improper sharing ofinformation. In this regard, it is likely that an adjuster would betreated more like an expert than an attorney, but the ultimatedecision on any conflict issue rests with a judge and will beanalyzed on a case-by-case basis. If the judge rules that there isa conflict that was not appropriately handled, then theconsequences can be drastic and will likely include barring the IAand others tainted by the IA's improper sharing of information.Therefore, taking on such an assignment without performing theappropriate due diligence and obtaining the necessary clientapproval is a risky proposition not worth taking.

Where does all of this leave Wayne? As it turns out, he was ableto obtain copies of the leases between the landlord and the tenants. The leases held harmlessprovisions between the landlord and all tenants. So, at the end ofthe day, all carriers involved agreed that Wayne could handlemultiple assignments without conflict. Well, sort of. The painter'sliability carrier has denied liability. Wayne has avoideddiscussing subrogation issues in his client reports other than tosay that counsel has been retained and will report directly onthose issues. The end result? Conflicts are avoided for a job welldone.