A first-party property adjuster’s job involves verifyingcoverage, determining the scope of the loss, calculating the costof repairing the covered damage(s), and paying the policyholder.That's the idea anyway; however, a look at experience, currentlitigation, and select claims-handling procedures indicatesotherwise. In fact, it can lead one to believe that the process andnecessity of accurately determining the full scope of loss is alost art, or at least an overlooked one.

The claims adjuster owes a duty to the insured to give at leastas much consideration to the interests of the insured as to thoseof the insurance carrier. The adjuster is the expert, or at leasthas experience in handling hundreds more claims than the averageinsured. This claims professionals either is or should bemuch more conversant with the nature, type and location of damagesoften associated with a particular cause of loss. To accuratelycalculate the benefits owed, the insurer must properly and fullyinvestigate the nature and extent of the damage(s) to establish afull scope of loss. The full scope of loss would include adetermination of all damage resulting from the covered cause ofloss, as noted below.

A scope or scope sheet isa list of the areas damaged, which includes the type of damage, adescription of the proposed type of repairs, and a measurement ofthose areas.¹

The adjuster has a duty to advise the first-party insured of thebenefits available under the policy. The insurance company isoperating from a position of superior knowledge and deals withclaims and policy provisions on a daily basis. The insurancecompany wrote the policy, and the policyholder generally has noability to negotiate the policy provisions. Thus, the individualpolicyholder must take the policy as is or not at all.

The primary duty of the claim representative is to deliverthe promise to pay. Therefore, the claim representative's chieftask is to seek and find coverage, not to seek and find coveragecontroversies or to deny or dispute claims.²

The adjuster’s inspection of the damages for most claimsgenerally can and should be done with the insured. The adjustershould know what type of damages to expect and where to look forthe damages or when to note open items or areas for more invasiveexamination or testing by an expert or contractor. For a relativelystraightforward claim, the adjuster can decide on the spot whatdamages are covered and what, if any, damages are not covered.

The adjuster should try to obtain an agreement with the insuredon the scope of loss and damages before proceeding with pricing outthe work or repairs in an estimate. If the adjuster and the insuredcan agree on the nature and extent of the damage and what iscovered and not covered the adjuster can proceed with the nextsteps in adjusting the claim.

Insurance industry standards require that an adjuster beexperienced or otherwise able to handle the claims assigned to himor her. The adjuster should be properly trained and knowledgeable.Depending upon his or her level of expertise, the adjust may beoperating under the supervision of someone who is more experienced.The insurer also has a duty to make sure that the adjuster is awareof—and following the rules set forth by—the Unfair ClaimsSettlement Practices Act and/or procedures of the state, alongwith industry best practices. As Barry Zalma advises:

There is no excuse, regardless of the size of the loss, forfailing to complete a thorough investigation. Such a failure can beconstrued as a breach of the Model Fair Claims PracticesAct.³

Some losses are simply too large or too complicated to be scopedon a simple walk-through and discussion. On larger or morecomplicated claims, the adjuster (or the adjuster's expert orcontractor) should still inspect the loss with the insured (or theinsured's expert, contractor, or public adjuster). Regardless ofthe size of the loss, it is necessary for the claims adjuster andthe insured to come to an agreement, at an early stage preferably,on the scope of the loss.

The adjuster and the insured must work together to arrive at aproper scope of loss. The adjuster has the experience and knows thecoverage; the insured knows the property. Zalma also advises:

To aid the insured in his obligation to prove his loss, theinsurance claims professional must, on the first visit, establishwith the insured the exact Scope of Loss. This means that theinsurance claims professional and the insured [or his publicadjuster] must walk through his house or business and agree toexactly what was damaged and destroyed as a result of the perilinsured against.⁴

Until the adjuster and the insured have agreed on the scope ofloss, to include all reasonably known damages and both sides haveagreed on whether the damaged items can be repaired or will need tobe replaced, any estimates with pricing may be premature. As Zalma points out, "once the insurance claimsprofessional and the Insured have agreed to the Scope of Loss, theinsurance claims professional should have the insured sign the formagreeing to the scope."⁵

If either side or both sides proceed without an agreed on scopeof loss and move on to the stage of preparing estimates ondiffering scopes of loss the claim becomes much more difficult toadjust. When dealing with estimates based on differing scopes ofloss the adjuster has lost sight of one of the basic premises ofproperty insurance—indemnification for the loss itself. If there isno agreement on the scope of loss, then the adjuster may notactually know what the loss really is. The claims process maydevolve from a discussion of the actual loss to an argument overdollars with the insurance company focusing on low value estimatesand the insured focusing on high value estimates, with both sidesclaiming to be right, all without regard to what the loss actuallyis.

Only after agreement has been reached on the scope of lossshould the adjuster proceed with determining the actual dollar costof the repairs:

A preliminary scope is normally provided to the insurer withinitial reports, but it is also commonly provided to contractorswho have been asked to submit repair or reconstruction bids. Thepreliminary scope allows the contractor to prepare a bid thatcovers the same items as the adjuster's scope.⁶

If the adjuster has a proper and complete scope of loss, agreedon with the insured, it becomes a fairly simple matter to provide acopy of the scope to the adjuster's contractors and the insured'scontractors, if any, to be priced out. Now, if the contractorsagree on the scope and price out the same scope, the matter willnormally be just a matter of the insured choosing which contractorto use. When the difference is just pricing, the policy allows forarbitration.

While the insurance policy generally provides for arbitration,it must be remembered that Arbitration presumes there is anagreement on the scope of loss and the focus is on determining theright price for an agreed on damage—for example, replace the entireroof versus a few shingles. The arbitration process is not designedfor—and generally cannot resolve issues about—the scope ofloss.

If the adjuster is unable to prepare a proper scope of loss,then it is recommended that a competent expert or consultant bebrought in to assist the adjuster. Insurance industry standardsrequire the adjuster/company to call in appropriate experts orvendors as needed to assist the adjuster in determining the causeof the loss and/or the scope of loss.

Experts are commonly used to determine facts, to verify theextent of loss or damage, and to estimate the value of loss to realand personal property.⁷

All too often property claims without an agreed on scope of losswill wind up in litigation. Most attorneys quickly, or eventually,realize that to litigate the matter properly they have to hireexpensive experts or contractors to sit down with each other andwork out what the actual damages are before anyone can move on totalking dollars for settlement.

If the insurance claims professional does not have an agreedon scope of loss at the beginning of the adjustment, the loss will,invariably, be larger when it is finally put together by theinsured or his public adjuster.⁸

Unfortunately, it is not just the large complicated claims thathave problems with obtaining an agreed on scope of loss. It isunderstandable that both sides will need experts and contractorsfor a power plant explosion with more than $200 million in damagesor for a large hotel that has incurred $50 million in damages froma major hurricane. However, when an adjuster just walks through ahouse with covered water damage and fails to carefully look for andfind all reasonably expected damages and fails to discuss and agreeon the damages with the homeowner one has to question whether theinsurance company is properly training the adjuster.

Determination of the proper scope of loss is a vital part of afirst-party property loss but is often overlooked with thecompany's push to close claims quickly or with the overworkedadjuster doing a quick and cursory look at visible damage andforgetting to look for the not-so-visible damage. Slow down alittle bit, do a better inspection, communicate with and explainmatters to the insured and more claims will settle faster andwithout expensive litigation.

Let's bring back the art of obtaining a mutually agreed-uponscope of loss!

Footnotes

¹ Property Loss Adjusting, 3^rdEdition, Donna J. Popow, American Institute for Chartered PropertyCasualty, 2009, page 5.14

² The Claims Environment, 1^st edition,James Markham, 1993, Insurance Institute of America, pg.13

³Property Claims, 2^nd edition, BarryZalma, Claim School, Inc., ISBN: 1884770-19-3, 1998, page89

⁴Property Claims, page 12

⁵Property Claims, pages 12, 13

⁶Property Loss Adjusting, page 5.14

⁷Property Loss Adjusting, page 5.14

⁸Property Claims, page 13