Editor's Note: This is the third article in a six-part series on adjuster ethics.
Logically, for an insurance company and its representatives to be ethical, they must believe in and practice the principle of indemnification. That is what insurance is all about: restoring to wholeness the first- or third-party person(s) who has suffered a loss covered within the policy contract.
“To make whole” those who have suffered loss is not always possible; the adjuster cannot restore a family member killed in an auto accident, or redeem a home blown or washed away in a storm or destroyed in a fire. These are gone forever, but within the terms of the policy contract, the adjuster's ethical duty is to come as close to the principle of indemnification as possible.
However, indemnification has a reverse side; the insured has paid a premium, but the contract he or she receives is conditional and limited. There is often a deductible, or the policy covers only “actual cash value,” hence depreciation and betterment must be considered. In liability, there will be a dollar limit, and comparative (or contributory) negligence of any third party must be considered. How can an adjuster keep all of these factors in mind and achieve true “indemnification”? A settlement by the Unfair Claims Practices Acts, must be “fair and equitable” when liability is “reasonably clear.” It must be fair to both sides, the insurer and the insured or third-party claimant. Overpayment and underpayment are not indemnification.
As a claims manager I was often amazed at how little imagination (or ingenuity) many adjusters displayed. Many seemed to see their role as if they were a human computer. Some property adjusters “knew the price of everything and the value of nothing!” Many liability adjusters seemed to lack any empathy at all with an injured insured or claimant. Where was their humanity? Sure, “total losses” were easy. “Here's the check for your policy limits. Good-bye.” Is it any wonder people hate our industry?
Very few states retain the “contributory negligence” rule in tort claims. Most states recognize “comparative negligence,” either on a pure or modified basis. Previously under the first, any negligence by the third party totally barred a claim. But under the new rules (where contributing negligence over 50 percent may bar a claim in a modified negligence state, or each party's negligence, even 1 percent, must be factored into the settlement) for any type of loss the adjuster must make a calculation of each party's contribution to the totality of the loss. Contributory negligence (especially in a so-called “joint and several” liability state) must seek out every contributing factor and party in a loss, and apportion that negligence into the settlement.
This cannot be done without imagination. Imagine a multi-car intersection accident where none of the witnesses agree as to what happened and none of the drivers will admit fault. Third parties don't have to, although insureds must be honest with their own insurer's adjuster. The adjuster must figure out this mayhem.
Thousands of dollars depend on his or her getting it right, but if the adjuster can't come up with the solid evidence showing who did what, it is likely that expensive litigation may ensue. These used to be called “jury issues,” because if the adjuster didn't figure it out, a jury somewhere would. The last thing an adjuster wants is to ask a jury or judge to decide.
An adjuster without the intellect, intelligence, information and the imagination to put it all together and determine the proper allocations cannot indemnify in the fair and equitable manner required. There are those who believe that all of the factors can be fed into some computer and the software will pour out the absolutely correct answer. Perhaps in a few decades that's the way claims will be analyzed. There will be no need for human adjusters then. The computers will do it all, including calculation of the adjuster's unemployment check. But will it be ethical?
Ken Brownlee, CPCU, is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claims-adjusting textbooks. Opinions expressed are the author's.