State Testing Training

Adjusting Losses

Lesson 3 :

This is an easy lesson only few pages long. Adjusting losses expands on terms and starts to go in to what is needed to adjust claims.

Action:

ADJUSTING LOSSES

PROPERTY LOSSES

DUTIES OF THE INSURED AFTER A LOSS

NOTICE TO INSURER

In case a loss to covered property occurs, the insured must give prompt notice to the insurance company or their agent. In the case of theft, vandalism and malicious mischief, the insured must also notify the police. If credit cards or money transfer cards are stolen, the insured must also notify the issuing company.

MINIMIZING THE LOSS

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When the insured notices that a loss is occurring or has occurred, the insured must take necessary steps to protect his/her property from further damage. If needed, the insured must make reasonable and necessary repairs to protect the property from further damage. The insured must keep an accurate record of repair expenses.

PROOF OF LOSS

A proof of loss is a format document in which is insured signs and swears to the information contained in that document. Policies require this proof of loss to be submitted either 60 days after the insurance company request it or sometimes 60 days after the date of loss. The following information is to be provided on the proof of loss to the best of the insured’s knowledge and belief:

(1) The time and cause of the loss
(2) The interest of the insured and all others in the property involved and all liens on the property
(3) Other insurance which may cover the loss
(4) Changes in title or occupancy
(5) Specifications of damaged buildings and detailed repair estimates
(6) The inventory of damaged personal property, if any
(7) Receipts for additional living expenses incurred
(8) Evidence or affidavit that supports a claim under the Credit Card or Counterfeit Money Coverage

SPECIAL REQUIREMENTS

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The insurer can demand that the insured submit to an examination under oath while not in the presence of any other insured. This requirement is usually invoked when the insurer either suspects fraud or where there are inconsistencies with the claim being made.

PRODUCTION OF BOOKS AND RECORDS

At the insurer’s request, the insured is to provide records and documents and allow the insurer to make copies. Records and documents can include tax returns, receipts, deeds to property or properties, etc.

ABANDONMENT

The insurance company need not accept any property abandoned by the insured. In the event of a loss, the insurer reserves its option to salvage any property that it has paid for. However, the insured cannot insist that the insurer take the damaged or unusable property.

DETERMINING VALUE AND LOSS

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BURDEN OF PROOF OF VALUE AND LOSS

Insurance policies provide for general amounts of coverage on your property. In determining the proper amount needed to insure the dwelling property, the insurance company may ask the insured questions that relate to the construction, area and age of the dwelling. This procedure is used to determine an adequate amount of insurance for the dwelling. Proving that a loss occurred may simply require the presentation of the damaged property to the insurer. However, when the insured suffers a loss, the burden of proving the loss and the value of each damaged item rests with the insured.

ESTIMATES

Providing the value of the damaged property often involves the submission of receipts and/or estimates to support dollar amount claimed on the proof of loss. An insured with damaged to the dwelling might call a contractor to prepare estimates to submit to the insurance company.

DEPRECIATION

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Depreciation represents any loss in value due to numerous factors such as age, wear and tear, obsolescence, etc. Although many insurance policies provide for replacement cost coverage, certain criteria must be met prior to receiving replacement cost benefits. A typical policy will pay the actual cash value of damaged property until the repairs are actually made. Depreciation plays an important role in determining actual cash value. As discussed earlier in Chapter 2, actual cash value (ACV) is replacement cost minus depreciation.

SALVAGE

When an insurance company pays for a damaged item, technically, that damaged item becomes the property of the insurance company. As discussed earlier, the insured cannot abandon property to the insurance company. However, the insurance company may wish to salvage an item that sustained minor damage and put it up for auction to recoup a part of the amount paid for that item.

CLAIM SETTLEMENT OPTIONS

It is the insurance company’s option to either pay the loss according to the loss settlement provisions or actually replace to make repairs to the insured’s property. In certain cases where the insurance company suspects the instead of trying to profit from a loss, they might invoke their option to make the repairs instead of offering the insured a cash settlement.

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PAYMENT AND DISCHARGE

According to policy provisions, two criteria must be met in order to receive payment. Most policies provide for the payment of claims 30 to 60 days after the insurance company receives the insured’s proof of loss and reaches an agreement with the insured. Also, if there is an entry of a final judgment of an appraisal award (judgments and appraisals will be discussed later).

COVERAGE PROBLEMS

DOCTRINES OF WATER AND ESTOPPLE

Legally speaking, courts have given great prominence to the doctrines of Waiver and Estoppel when deciding insurance cases. A Waiver is generally defined as the voluntary or international relinquishment of a known right. For example, the policy may provide for the insurer’s right to demand an
appraisal within a certain time frame. If not demanded, the right is waived. The law recognizes two kinds of waiver: express and implied. An express waiver occurs when the insurer or its representative knowingly gives up a known right under the insurance contract. By comparison, an implied waiver may result from some act of neglect on the part of the adjuster.

The adjuster should have a clear understanding of these doctrines and their implications. For example, when an adjuster believes that an insurer is not liable for a loss, her or she must avoid acting in a manner that could waive any defense that the insurer may have. As another example, from time to time, losses occur that the policy does not cover but that the insurer will, nevertheless, pay on grounds of equity or by business policy. While it is
the privilege of an insurer to make express waivers when it appears expedient to do so, an adjuster is not so privileged and should avoid all acts of waiver except those that the insurer instructs the adjuster to perform.

Estoppel is an equitable principle to the effect that if one intentionally or unintentionally creates the impression that a certain fact exists and an innocent party relies on that impression and is damaged as a result, the guilty party may be legally prohibited (estopped) from asserting that fact does not exist. For example, if an adjuster deals with an insured in a way that suggests the loss is covered when it is clearly excluded and the insured detrimentally relies on such assurances, the insurer may then be estopped from denial.

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DEALING WITH COVERAGE DISPUTES

NON-WAIVER AGREEMENT

A non-waiver agreement is to advise the insured that any actions taken by the insurance company to investigate the cause of loss or in determining the amount of loss is not intended to waive or invalidate any conditions of the policy. An insured may resist or even refuse to sign this agreement.

RESERVATION OF RIGHTS LETTER

A reservation of rights letter serves the same as a non-waiver agreement, but it is in letterform. A reservation of rights letter should list the specific reasons why the insurance company is reserving their rights. Also, they serve to allow the insurance company to raise other coverage issues if they become known later in their investigation. A reservation of rights letter does not require the signature of the insured. These letters are usually sent certified mail with a “return receipt requested” so the insurance company has evidence of receipt by the insured.

DECLARATORY JUDGEMENT ACTION

In a declaratory judgment action, the insurer requests a court to review evidence which supports a denial of a claim and holds that there is no liability under the policy.

CLAIM ADJUSTMENT PROCEDURES

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ADVANCED PAYMENTS

Advance payments are frequently requested by the insured after a loss to pay for emergency expenses. With homeowner’s policies, the insured that suffered a fire loss might need money for clothing and temporary housing. In commercial or business policies, the insured may need to replace machinery in order to resume operations. However, the insurance company must proceed carefully when advancing money since this advance could be perceived as a waiver. One solution to this possible waiver is to have the insured sign an advanced payment receipt. This receipt states that the insurer has neither accepted nor denied the claim and payment is being advanced on a good faith representation of the claim. Also, the advance payment receipt would contain elements of a reservation of rights letter.

DRAFT AUTHORITY

An insurance company adjuster usually the authority to make payments for claims up to a certain amount. This is called “draft authority”. Depending on their tenure, this amount can differ greatly. A supervisor or management person must approve any amount in excess of the draft authority.

EXECUTION OF RELEASES

A release is usually executed in situations where the insurance company negotiated a compromised claims settlement and wishes to relieve themselves of further obligations to that claim.

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SUBROGATION PROCEDURES

An insurer, who pays a covered claim, in turn, has the right to seek payment from a third party responsible for the loss. As an example, a roofer applies new shingles to the insured’s roof and one week later the roof leaks causing a covered loss. The insurance company will pay the claim. However, the insurance company may seek to be subrogated to the rights of the insured. This provision of the policy also requires the insured to
cooperate with matters relating to the effort of the insurance company to allow them to re-coup this money from the responsible party. If the insurance company invokes this option, a subrogation receipt will be submitted to the insured for signature.

ALTERNATIVE DISPUTE RESOLUTION

APPRAISAL

Almost all party policies have a condition that provides a method for resolving disputes involving the amount of loss. Either the insured or the insurer can invoke the appraisal provision. The wording differs slightly depending on the policy. Each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will then choose an umpire within 15 days. If the two appraisers cannot
agree on the umpire, the insured or insurer may request that a judge of a court of law in the state where the residence premises is located make the choice. The appraisers will separately set the amount of loss and if they agree on the amount of the loss will submit that amount to the insurance company. If they fail to agree, they will submit their differences to the umpire. An agreement between any two will set the amount of loss. Each party will pay their own appraiser and will bear the other expenses of the appraisal and umpire equally.

ARBITRATION

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If irreconcilable differences arise as the amount of loss or a claim is unjustly denied the insured might seek a resolution through the courts. In Pennsylvania, attempts to resolve disputes of this nature are presented in Arbitration. Arbitration panels are comprised of three attorneys hearing testimony from all parties. The panels are often required to make decisions on coverages as well as the amount of the loss. The arbitrator’s decisions can be appealed by either side. The case would then proceed to trail.

COMPETITIVE ESTIMATES

When a covered loss occurs, the insurance company adjuster will normally visit the insured’s property to inspect the damages, take notes and scope the loss in order to prepare an estimate. To aid in the process, insurance companies use a pricing index that lists the cost to repair the damages. After the adjuster itemizes the costs, it is submitted to the insured as an offer of settlement. In many cases, the insured has secured an estimate
from a contractor that is much higher than the offer of settlement. One way to resolve the differences in amounts would be to have the insured secure additional contractor estimates. This would assist in determining if the first contractor’s estimate was inflated. Other options would include the insurance adjuster hiring a contractor to inspect the damages and prepare an estimate based on what he would charge to make the repairs.

NEGOTIATION

Negotiation is an important part of the adjustment process. The insurance adjuster should not insist that his opinion as the costs of repairs is the maximum amount that will be offered as a settlement. On the other hand, the insured should not rely on an over inflated estimate. The insurance adjuster should make a “good faith” attempt to reach a compromise that both sides can agree to.

BASIS FOR INSURER AVOIDANCE OF PERFORMACE

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While there may or may not be express policy provisions, there are conditions under which the insurer will not be required to perform upon the happening of a covered event. Insureds will not be permitted to profit by intentionally causing damage to their own property.

Insurance is not enforceable to support illegal purpose. This dose not mean that coverage is void if there is any illegal aspect involved in a loss and gray areas may occur. For example, if an insured had coverage on a boat that sank because of a heavy load of marijuana being smuggled in the country, the insurer clearly would have no responsibility to perform. But, if a freighter sinks and it is found that a seaman had stashed drugs to
smuggle in and sell, with no complicity on the part of the boat owner, it would not be a basis for claim denial.

STANDARD ADJUSTING FORMULAS

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The following formulas and examples are supplied:

1. Roofing – measured by the “square”—width length of rafters of both sides, divided by 100 equals the number of “squares”.
Example: 50 feet long times 20 foot rafters is 50 x 40 (20 x 2) = 2000 square feet divided by 100 = 20 squares. There are three (3) bundles of shingles to a square. In this example, the total bundles of shingles to do the roof are 60 bundles, i.e. 20 “squares” x 3 bundles.

2. Shingles – the average exposure of shingle to weather is 5”

3. Siding – measured by the square – length time height on all four sides of the house.
Example:
Front and back – 50 x 18 = 900 x 2 = 1800
Sides – 28 x 18 = 504 x 2 = 1008
Gable ends 28 x 10 = 280 x 1 = 280
The total square footage is 3088. 3088 divided by 100 = 31 squares

4. Soffit and Fascia – measured length x width on soffit and length only of fascia.

5. Counter tops – measured by the linear foot.

6. Carpet – measured length x width = square footage divided by nine (9) = square yards. Sometimes, carpet is figured by the square foot. Keep in mind that carpet is manufactured and sold in 12’, 13’6” and 15’ widths.

7. Wallpaper – height x length = square feet. Wallpaper is packed in double rolls, American double rolls contain approximately 72 square feet and European double rolls contain approximately 66 square feet. Pattern matches can vary from 0” to 48”.

8. Gutters and Leaders – measured by running (linear) feet.

9. Concrete – measured by the cubic yard. A cubic yard is 3’ wide x 3’ long x 3’ deep = 27 cubic feet or one cubic yard.

10. Furnace – the size of the unit is determined by the area requiring heat. The number of square feet determines the BTU’s required. This can also be “zoned”.

11. Window and Doors – measured by height and width of the opening.

12. Insulation – figure by the roll. Measured by number of feet by width

13. Cabinets – measured by the linear feet.

14. Sheet Vinyl – measured by the square yard. Length x width divided by the nine (9). Some retailers and manufacturers are deciding if this should be changed to square feet.

15. Vinyl Tiles – measured by the square foot. Length x width = square footage.

16. Hardwood flooring – measured by the square foot. Length x width = square footage.

17. Paint – measured by the square foot. Height x length equals total square footage. Most paint manufactures recommended 300 square feet per gallon, one coat, be used as guideline.

18. Stucco ceiling – measured by the square foot. Length x width equals square footage.

19. Brick – measured by the square foot to be covered. Standard count is seven (7) bricks per square foot and 5 bricks for “modular” styles.

20. Shutters – goes by the size of the window opening, both width and height.

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Additional Information

• Risk is defined as the exposure to or uncertainty of loss.
• Risk exposures may be classified as either as pure risk and speculative risk.
• Insurance may be described as the spreading of risk by the collection of premiums to finance future losses.
• All of the following are essential elements of an insurable risk premium costs must be affordable, losses must be predictable and the law of large number must apply.
• All of the following are true of insurance it is a method of spreading risk from one to many, insurance is the only method utilized to manage risk and it involves the pooling of premiums to pay future losses.

The purchase of insurance to protect an asset is an example of a risk financing technique. An insurance company domiciled in your State is considered domestic. An association of subscribers which insures one another and is managed by an attorneyin-fact is called a reciprocal Association.

An insurance company domiciled outside the United States would be considered alien. All of the following are characteristics of the law of agency it is the legal relationship that exist when one acts for another, it is a fiduciary relationship consisting of a principle and an agent and when an agency is legally formed, the agent binds the principle to their actions.

• A social organization which sells insurance is a fraternal Organization. Apparent authority is the type of authority that the public perceives the agent has based upon the agent’s actions.
• A direct Writer insurance company sells its policies through employees who are licensed as agents.
• Negligence may be described as failure to exercise the care that a reasonable or prudent person would under similar circumstances.
• An insurer reduces its losses through salvage.
• The following definitions describe friendly fires fire or glow deliberately ignited, that stays in its intended confines.
• All of the following are true of hostile fires it is fire that escapes its intended confines, an example would be the fire damage caused when a log rolls from a fire place and it is not specifically defined in the Standard Fire Policy.

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