Editor's Note: This is the third article in a six-partseries on adjuster ethics.

Logically, for an insurance company and its representatives tobe ethical, they must believe in and practice theprinciple of indemnification. That is what insurance is all about:restoring to wholeness the first- or third-party person(s) who hassuffered a loss covered within the policy contract.

“To make whole” those who have suffered loss is not alwayspossible; the adjuster cannot restore a family member killed in anauto accident, or redeem a home blown or washed away in a storm ordestroyed in a fire. These are gone forever, but within the termsof the policy contract, the adjuster's ethical duty is to come as close tothe principle of indemnification as possible.

However, indemnification has a reverse side; the insuredhas paid a premium, but the contract he or she receives isconditional and limited. There is often a deductible, or the policycovers only “actual cash value,” hence depreciation and bettermentmust be considered. In liability, there will be a dollar limit, andcomparative (or contributory) negligence of any third party must beconsidered. How can an adjuster keep all of these factors in mindand achieve true “indemnification”? A settlement by the UnfairClaims Practices Acts, must be “fair and equitable” when liabilityis “reasonably clear.” It must be fair to both sides, the insurerand the insured or third-party claimant. Overpayment andunderpayment are not indemnification.

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Using imagination

As a claims manager I was often amazed at how little imagination(or ingenuity) many adjusters displayed. Many seemed to see theirrole as if they were a human computer. Some property adjusters“knew the price of everything and the value of nothing!” Manyliability adjusters seemed to lack any empathy at all with aninjured insured or claimant. Where was their humanity? Sure, “totallosses” 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 intort claims. Most states recognize “comparative negligence,” eitheron a pure or modified basis. Previously under the first, anynegligence by the third party totally barred a claim. But under thenew rules (where contributing negligence over 50 percent may bar aclaim in a modified negligence state, or each party's negligence,even 1 percent, must be factored into the settlement) for any typeof loss the adjuster must make a calculation of each party'scontribution 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, andapportion that negligence into the settlement.

This cannot be done without imagination. Imagine a multi-carintersection accident where none of the witnesses agree as to whathappened and none of the drivers will admit fault. Third partiesdon't have to, although insureds must be honest with their owninsurer's adjuster. The adjuster must figure out this mayhem.

Thousands of dollars depend on his or her getting it right, butif the adjuster can't come up with the solid evidence showing whodid what, it is likely that expensive litigation may ensue. Theseused to be called “jury issues,” because if the adjuster didn'tfigure it out, a jury somewhere would. The last thing an adjusterwants is to ask a jury or judge to decide.

An adjuster without the intellect, intelligence, information andthe imagination to put it all together and determine the properallocations cannot indemnify in the fair and equitable mannerrequired. There are those who believe that all of the factors canbe fed into some computer and the software will pour out theabsolutely correct answer. Perhaps in a few decades that's the wayclaims will be analyzed. There will be no need for human adjustersthen. The computers will do it all, including calculation of theadjuster's unemployment check. But will it be ethical?

Ken Brownlee, CPCU, is a former adjuster and risk managerbased in Atlanta, Ga. He now authors and edits claims-adjustingtextbooks. Opinions expressed are the author's.

Related: For adjuster ethics, the “I's” haveit!