A phone call brings a new assignment: a large fire destroyed several local businesses in a strip mall. While initial reports suggested the fire was still under investigation, witnesses noted that they first saw fire from the grocery store, the anchor tenant, and it spread to the neighboring book store and salon. While the fire department contained the blaze to those three stores, the remaining businesses sustained varying degrees of smoke and water damage. Those stores, though fortunate to escape the direct physical damage, would remain closed while the fire was investigated and the damages repaired.
This is how the morning started for Wayne, a general adjuster for a national independent adjuster (IA) firm. Shortly after taking the assignment, Wayne received the ACORD first notice of loss (FNOL) form and the insurance policy for the grocery store, a national chain. The property coverage for this loss came through a manuscript policy where four separate carriers had taken on a percentage of the risk. One carrier had assumed half the risk and was designated as the lead, while the remaining carriers had divided up the remaining risk by varying amounts.
In this scenario, the IA has a host of issues he needs to identify and address promptly to ensure that he serves his client, or potential clients, properly. He must not only recognize that his client’s insured may have potential liability for causing the fire, but also that his client may have a viable right of subrogation.
This scenario creates multiple separate conflicts of interest that must be addressed. First, the liability carrier for the grocery store should be notified of the loss, if it has not been already. Second, it is likely that the property carriers subscribing to the risk may wish to explore subrogation more closely; however, to do so will invariably highlight the grocery store’s negligence. Moreover, Wayne must determine whether he can act as the IA for the book store’s carrier if there is a good chance the book store and the grocery store could ultimately be adverse to each other in future legal proceedings. What can Wayne do to protect his client and his client’s insured’s interest?
However, if the loss ultimately ends up as a liability claim, then many times the adjuster’s report will be fully protected from disclosure by the work product protections if you can establish that it was made in anticipation of litigation. Moreover, some states recognize an insured-insurer privilege, but that protection is only for liability claims against an insured.
Therefore, while the IA has an obligation to its client to gather factual information, the adjuster should not analyze the legal impact of those facts, which could later be discoverable, unless the clients make a specific request to do so.
Multiple Carriers, Multiple Insureds
When an IA faces the prospect of working for multiple carriers that insure multiple parties on the same loss, the adjuster should initially evaluate if there is any real conflict of interest.
In multi-party losses where the potential liability between the parties is covered, the adjuster should still obtain consent from each client in the order he was retained before working for multiple carriers.
However, it must be noted that some states will not allow these provisions to be enforced, particularly if there is an underlying public policy consideration at play. Wisconsin has a statute that prohibits enforcing any provision in a lease where a tenant or landlord is relieved of legal liability for damages caused by that party’s own negligence. Therefore, while the IA may not be expected to perform a legal analysis of these documents, any discussion that the adjuster has with his client about a potential conflict of interest should also cover whether someone has performed a legal analysis of them.
However, many of these subscription policies are generated for large corporations and garner huge premiums for the carriers involved. Often, these policies dictate which IA firm will be used for all losses, and the insured has some say regarding who will adjust its losses. Therefore, the IA has some interest as well in keeping the insured happy.
That said, the IA must recognize that the insured is not his client and that his fiduciary duty is to the carriers only. Often, the adjuster will be tempted to push the boundaries in these situations and provide guidance to the insured regarding coverage questions. The IA might also want to review issues outside the scope of the claim. The adjuster would be wise to avoid these temptations, however, as they may constitute a violation of the IA’s fiduciary obligation to the client and could also make the adjuster akin to a public adjuster, depending on the state where the loss took place.
Where does all of this leave Wayne? As it turns out, he was able to obtain copies of the leases between the landlord and the tenants. The leases held harmless provisions between the landlord and all tenants. So, at the end of the day, all carriers involved agreed that Wayne could handle multiple assignments without conflict. Well, sort of. The painter’s liability carrier has denied liability. Wayne has avoided discussing subrogation issues in his client reports other than to say that counsel has been retained and will report directly on those issues. The end result? Conflicts are avoided for a job well done.