Study 11 – Adjusters and the Claims Process

Two types of losses:

• First Party – referred to as ‘own damage or direct damage’ claims. These claims involve only the insured and the insurer.
• Third Party – is known as liability coverage. Claims arise from your legal obligation to others and involve someone or something that is not party to the contract.

Types of adjusters:

Telephone adjusters – salaried employees of insurers, adjust a large volume of claims that do not require face – to – face interviews. A telephone adjuster will speak with an insured get the details of loss then send an appraiser or a contractor out to assess the damage.

Staff adjusters – salaried employees of insurers who investigate, negotiate and settle claims. They will usually have the authority to settle claims up to a certain dollar limit.

Independent adjusters – work for many insurers on a fee basis. They are compensated based on the amount of time spent on a claim and usually have limited authority to settle claims on behalf of a company.

Public Adjusters – work on behalf of insured’s during a claim. They are paid a percentage of the insured settlement but are not permitted to operate in all provinces.

There are licensing requirements for all types of adjusters.

Adjusters functions: Interviewing insured’s, third parties, witnesses, police and other experts. They are responsible for investigating all details of a claim and establishing the cause of the loss. Then a value must be agreed upon with the insured who must prove the amount of loss. Detailed adjusters files are necessary for successful litigation.

Investigating a Loss

The Claims Manager or Superintendent is responsible for the functioning of an insurers claims department.

A loss is reported to the insurer. Coverage is confirmed. The claims is opened and assigned a claim number.  The claim is routed to the appropriate type of adjuster. The insurer must make a decision regarding the use of staff adjusters or independent adjusters. The decision will depend on the insurers stance regarding insurance fraud. The adjuster once appointed will verify the damage took place in the manner stated, verify the extent of the damage, keep the claims department informed. A claims examiner will be appointed for every claim. They will oversee that claim and work with the adjuster to bring it to a satisfactory conclusion.

Insured’s must be notified immediately if there are any questions about coverage. Estoppel – when a persons deeds or action cause another to draw a logical conclusion.  

Prescription periods are the amount of time that an insured has to present a claim. The Statute of Limitations sets out the length of time in which legal action must be taken.  A waiver is a voluntary relinquishment of a known right. A non-waiver agreement should be obtained when an insurer has any suspicions about some aspect of the loss but must investigate to confirm or deny them. A reservation of rights letter is written when an non waiver cannot be obtained.

Adjusters must report regularly to insurers on each claim. First reports are important because insurers must establish loss reserves for every loss as quickly as possible.

Settling a Loss

It is an insureds responsibility to prove the loss. They must prove that the proximate cause of the loss was an insured peril. The precedent for proximate cause is Scott v. Shepard, the ‘squib’ case. Proximate cause is the immediate and effective cause of loss or damage or the first event in an unbroken chain of events that results in a loss. The immediate cause is the last link in a chain of events and a remote cause is a cause which is not proximate. Adjusters will help the insured determine the amount of the loss. All policies stipulate how insurer’s liability will be determined. A release is signed to signify a claim has been satisfied. Salvage is what is left of a property after a loss. Subrogation is the right of an insurer to assume recovery rights after a loss has been paid. If more than one policy exists at the time of loss the doctrine of contribution provides for the equitable division of the loss.  Insurers must report certain loss statistics to various government and industry organizations.

Sample Exam Questions – Principles & Practices

Exam Questions Study 11

December 2001

1. A proof of loss is

1. relief from forfeiture
2. reservation of rights document
3. a special document required when dealing with late reported claims.
4. Statutory declaration with respect to a particular loss or claim

2. The time after which a cause of action ceases is known as the

1. expiry period
2. inception date
3. prescription date
4. statute of limitations

3. A reservation of rights letter

1. creates estoppel
2. is the equivalent of a non waiver agreement
3. is the voluntary giving up of a known right
4. may prevent the creation of estoppel

July 2001

4. A proof of loss is

1. A declaration to be made without prejudice
2. A document that an insured may be required to complete and sign detailing his claim
3. A form of non waiver agreement
4. The proof that the insured has to give that a loss has occurred

5. Which of the following is a true statement

1. a reservation of rights letter creates estoppel
2. an estoppel is a legal bar raised by a party’s own action
3. an estoppel is the equivalent of a non-waiver agreement
4. the use of the term “without prejudice” creates an estoppel

6. Which of the following is concerned with the time limit after which a cause of legal action ceases and       legal claim may no longer be pursued?

1. Onus of proof
2. Prescription
3. Proof of loss
4. Waiver

7. The proximate cause of a loss is

1. an insured peril
2. the effective link in a chain of events leading to the loss
3. the final link in the chain of events leading to the loss
4. the original link in the chain of events leading to a loss

8. On paying a claim to an insured, an insurer will have certain rights of subrogation. This means the insurer can

1. pursue the insured’s legal rights against any responsible party
2. recover from any other insurer that might also be liable
3. take over the salvage
4. tell the insured that it has met its contractual obligations and the insurance contract is now discharged.

April 2001

9. First party losses apply to the

1. property of person outside the policy under which they will be paid
2. property of the insured
3. property of the insurer
4. all of the above

10. The time after which a cause of action ceases is known as the

1. expiry period
2. inception date
3. prescription date
4. statute of limitations

1.  The proximate cause of a loss is

1. cause that sets a remote cause into action
2. last cause in a chain of events that results in the loss
3. immediate and effective cause of the loss
4. suspected cause of the loss

December 2000

2. Estoppel is a doctrine that prevents

1. a person from denying a previous statement
2. a person from making a new statement
3. an insured from denying any fact signed in a application
4. the repetition of previous statements

3. Which of the following is not a true statement? Prescription is

1. the time limit imposed on liability lawsuits
2. the time limit imposed on property lawsuits
3. the time limit imposed to bring a lawsuit
4. what the law states one should do.

4. Which of the following is NOT true of subrogation?

1. the right allows for a cause of action against a responsible party
2. it is the right of the insured
3. it is the right of the insurer
4. the right is transferred upon payment of a claim or assumption of liability by the insurer.

July 2000

5. Subrogation is:

1. contained in all contract of indemnity
2. the contribution an insured has to make towards the loss
3. the right to any salvage
4. the right of the insurer to take action against the insured in the case of fraud

6. Proximate cause is:

1. contained in all contracts of indemnity
2. the first cause in a chain of events leading to a loss
3. the final cause in a chain of events leading to a loss
4. the remote cause in a chain of events leading to a loss

7. A proof of loss is:

1. a document completed and signed by third parties when making a claim against their own insurer.
2. A document completed and signed by an insured when making a claim against their own insurer.
3. Always provided without prejudice
4. The same as onus of proof

8. Which of the following is concerned with the time limit after which a cause of legal action ceases and       legal claim may no longer be pursued?

1. Estoppel
2. Prescription
3. Waiver
4. Non-waiver

Essay Questions

December 2001

1.     (a) Contrast a warranty with a representation and give examples (5 marks)

(b) With respect to a property claim, the policy will usually pay the least of three amounts. What are these THREE amounts? (6 marks)

© Differentiate between independent adjusters and staff adjusters. 4 marks)

July 2001

1. With respect to the processing of insurance claims, describe the functions and responsibilities of each of the following:

1. Claims examiner (4 marks each)
2. Independent adjuster
3. Public adjuster
4. Staff adjuster
5. Telephone adjuster

April 2001

3. (a) It is said that the doctrine of salvage, subrogation and contribution reinforce the principle of indemnity. Explain each of these terms and by use of examples demonstrate the truth of this

statement. (15 marks)

(b) Contract a contract of indemnity with a contract of compensation (5 marks)

December 2000

2. Distinguish between EACH of the following items:

(a) Void Contract and Voidable contract (4 marks)

(b) First party and third party claim (2 marks)

© Proximate and remote cause (4 marks)

July 2000

4. (a) Distinguish between a first party loss and a third party loss.

Give an example of each (6 marks)

1. Distinguish between the roles of a staff adjuster, an independent adjuster and a

Public adjuster (9 marks)

(c) Explain the importance of loss reserves. (5 marks)

April 2000

5. (a) What is the purpose of a non-waiver agreement (5 marks)

(b) Explain the importance of setting loss reserves (5 marks)