Last month's article offered an overview of the provisions found in 19 states' versions of the Unfair Claims Practices Regulations. These regulations extend the deadlines to accept or reject a claim and/or waive the requirement for providing the claimant reasons as to why the insurer is seeking a time extension for the investigation, should evidence of fraud or arson be found. In this article, we will discuss claim handling in states where no such protections appear to exist. We will also discuss some general concepts regarding handling arson or fraud claims in both types of jurisdictions.
Certain basic guidelines, some of which will be outlined in detail, should assist an adjuster who is confronted with a suspicious loss — such as fire, theft, and vandalism — or a damage claim that appears to be intentionally exaggerated. In the states listed in the sidebar "Waiving Regulations," these become particularly important, given the tight time frames under which the adjuster must operate.
Early-Bird Strategies
It is imperative to begin the investigation immediately. In the case of a fire or other incident that will be investigated by either the fire service or the police, do not wait for a formal claim to be filed. By then, the scene will be contaminated and any evidence gathered is subject to impeachment. Also, depending upon the legal language in your particular jurisdiction, you may buy a few extra days if the clock does not technically begin ticking until the insured has filed a formal claim.
Cultivating a reference list of professionals on which you can rely is also important. When the need arises, you should be able to call upon origin-and-cause analysis experts, including electrical, chemical, and mechanical engineers. People experienced in building trades should be considered, as well as attorneys (for taking sworn statements and protecting evidence); professional photographers; and appraisers for personal property and structural evaluations.
Aside from building rapport with engineers, you also should develop good working relations with both fire service and police investigators. One caveat is to be certain that your coverage investigation stays focused on the insurance issues and is not taken over by the authorities for their own purposes. This can occur in several ways. Insurers will sometimes retain experts that local fire and police departments cannot otherwise obtain the funding to hire. The insured's obligations to turn over financial documentation to the insurer; allow repeated access to the premises after the incident; and give one or more sworn statements will often give an adjuster information that fire and police personnel — because of constitutional protections — could not obtain.
The crime that the police is investigating may bear little relationship to the actual claim for damages. For example, illicit drugs, storing and disposal of stolen property, or crimes of violence could be crimes the police are investigating. While many states provide immunity for insurance personnel who report potential insurance fraud to the appropriate agency, such protection will not exist for an adjuster who misuses the powers afforded by the insurance contract to support a non-insurance, fraud-related investigation.
Acting in Good Faith
Make certain that you have the complete insurance policy and all written materials that were sent to the insured to describe all duties assumed by the insurer. It's not uncommon to hear horror stories involving identity theft that results in misappropriation and misuse of personal financial information. Insurance carriers have begun to send their insureds letters containing broadly worded guarantees as to the protection of such information. These could impact the ability of the adjuster to share financial information learned in the investigation with other agencies or individuals.
Other general guidelines to keep in mind include the following:
- Anticipate that you will be pressured for a quick decision by the claimant, including threats to take the matter to the insurance commission. If the investigation begins promptly and everything is documented completely, then a trip to the commissioner's office should not be a major concern.
- While less interesting to a jury than arson, fraud is infinitely easier and less expensive to prove. Examine early and in great detail all of the personal property that is reported lost in the fire or theft. Many individuals who burn their property have a difficult time avoiding the temptation to add to the potential profit by exaggerating the quantity, value, age, and condition of lost items.
- As time passes and there is still work left to be done to determine the issues of causation or fraud, one must be careful to advise claimants that the investigation is not completed without misleading them. The consequences of intentionally misleading the claimant can range from loss of ability to assert the policy defense at a later coverage trial to the creation of a basis for a bad-faith claim. Neither is worth the risk.
Tim Lynch and Anne Bandle are insurance defense attorneys with Lynch and Associates in Anchorage, Alaska. They also are members of the Council on Litigation Management. They can be reached at 907-276-3222, tlynch@northlaw.com, abandle@northlaw.com, www.northlaw.com.
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