Filed Under:Risk Management, Corporate Risk

Documentation a must for adjusters to avoid a malpractice claim

A little investigation is necessary to determine how much
A little investigation is necessary to determine how much "pain" is worth.

To “ferret out a mystery” implies that one digs at the facts until the truth is known.

The ferret and the mongoose are related little animals that scurry around with their noses to the ground, seeking prey. Adjusters do the same, seeking the data of claims: Does coverage apply? Is the insured liable? Are there any defenses? What are the damages?

Any error or omission can create problems. It's called “professional liability,” and adjusters are just as vulnerable to errors and omissions as any attorney, physician or other professional.

There are six basic hazards that lead to the kind of errors that at best cause overpayment and at worst lead to litigation. (These are in addition to the hazard of laziness, which afflicts any job.)

The first of these horrible hazards is careless documentation. Every aspect of an adjuster's file must be accurate. The first steps in any adjustment are investigation, evaluation and resolution of coverage. How does one accurately investigate coverage?

Over the years of supervising and managing claims I have read thousands of adjusters’ files. Most were accurately documented. But about one in five contained missing, misleading, inaccurate or insufficient documentation.

Many of these errors were coverage-related. Too many adjusters seem to proceed on the basis of “Well, there's a policy, so there must be coverage!” The fact that a policy is in force is only a hint that the policy applies to the loss. That must be investigated and evaluated.

Does the wording of the policy actually fit the claim? If all one ever investigates is auto fender-benders or stolen bicycle claims, perhaps a whole lot of coverage investigation isn't needed. But there are hundreds of different types of policies that insurers (or self-funding entities) offer, and each is entirely different.

The assumption theory

A common phrase in many adjusters’ files reads, “The agent confirmed coverage.” Really? That is not the agent's or broker's job! The agent may confirm that a policy has been issued and that it has this or that endorsement. But it is the adjuster who must confirm that the coverage applies to the claim, not the agent.

Most are familiar with the saying that describes the word “assume.” Adjusters cannot assume anything. They must check things out, dig a little deeper and produce enough facts to make the correct decision. The laws of every state are different, ranging from the old common law theory of “contributory negligence” to a whole variety of “comparative negligence” rules. When an adjuster's report (or computer notes) state, “The insured is liable,” the auditor wants to know why the insured is liable, and whether there are any defenses to that liability. Otherwise, the adjuster is guessing or assuming. Knowing that there is liability requires facts, not just the insured's or police reports.

How much is pain worth?

In a fire or auto collision claim, determining the amount of damage is pretty much a mechanical process, but it must be done carefully and accurately. Then the coverage and liability factors must be applied to that damage. But not all damage is material.

Some claims involve “financial” damage, which may not be covered if it is not “bodily injury” or “property damage.” The policy, with perhaps a few exceptions (loss of use, for example), may cover only direct damage, or perhaps only indirect loss.

But some claims end up involving both direct and indirect loss, as in an injury claim. Here is where documentation (usually medical, but often supplemental investigation) is crucial. The claimant hurts. It's claimable “pain and suffering” or discomfort. But how much is pain worth? That requires investigation and careful evaluation, which must be detailed enough so that when it comes time to negotiate the adjuster has all the accurate information.

Careless documentation can be fatal to a claim.

Related: 5 ways claims pros can prepare for depositions

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