Adjusting Property Claims

Why is there a First-Party Property Adjuster

The insurance adjuster is not mentioned in a policy of insurance. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions requiring the insured to, within sixty days of the loss, submit a sworn proof of loss. The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insured could reject the claim. If the insured submits a timely proof of loss the insurer could accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Insureds and insurers were not happy with that system since it seemed to run counter to the covenant of good faith and fair dealing. Most insurers understood that their insurers were mostly incapable of complying with the strict enforcement of the policy conditions. As a result, the insurance adjuster was created by the insurance industry.

“An ‘adjuster’ or ‘insurance adjuster’ is a person, co-partnership or corporation who undertakes to ascertain and report the actual loss to the subject-matter of insurance due to the hazard insured against.” As a result of its policy, an insurance company has a contractual obligation to pay its insured’s valid claim and, therefore, often dispatches one with special knowledge – the adjuster – to separate fact from fiction regarding a claim and obtain information to enable the insurance company to distinguish the valid claim from a claim for which the insurance company is not liable under its policy.

Some policies specifically state that the claimant must use his own judgment in estimating the amount of loss and that the assistance of an insurance adjuster is a “courtesy only” — the claimant must still send “a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it.”  As a general rule, “[w]hen an insurer gives its insured written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the insured to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy” [Stopani v. Allegany Co–op Ins. Co., 83 A.D.3d 1446, 920 N.Y.S.2d 559, 2011 N.Y. Slip Op. 2588 (N.Y. App. Div., 2011)]

Since the invention of the adjuster more than a century ago, the first person from the insurer that the insured meets when he or she suffers a first party property loss is the adjuster. The claim adjuster was invented to smooth the claims process and be certain that the insured receives the indemnity promised and performs a complete and thorough investigation to avoid fraudulent claims. As a result, every modern claims adjuster should know that it is his or her duty to aid the insurer in its obligation to fulfill the promises made by the policy of insurance and assist the insured in presenting his or her claim to the insurer.

An insurance adjuster is a person engaged in the business of insurance. Statutes define an adjuster as one who investigates losses on behalf of an insurer as an independent contractor or an employee of an independent contractor. An insurance adjuster is a special agent for the company and his powers and authority are prima facie coextensive with the business entrusted to his care, which is ascertaining and determining the amount of any claim, loss or damage payable under an insurance contract, and/or effecting settlement of such claim, loss or damage. The acts of an adjuster within the apparent scope of his authority are binding on the company without notice to the insured of limitations on his powers. [Old Republic Ins. Co. v. Von Onweller Const. Co., 239 So.2d 503 (Fla.App. 2 Dist., 1970)]

Although a special relationship exists between an insurer and insured because they are in privity of contract as an individual, the individual insurance adjuster is not in privity with the insureds based on their insurance policy wording. Thus, the employee adjuster does not owe a special duty to the insureds on which the bad faith tort could be based against the adjuster although actions of the adjuster can support a claim of bad faith against the insurer for whom the adjuster works. [Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032] In the absence of privity of contract, an insurance adjuster is not liable to an insured for a failure to settle a claim against an insured. [Dumas v. ACCC Ins. Co., 349 Fed.Appx. 489, 2009 WL 3358479 (C.A.11 (Ga.), 2009)]

An independent insurance adjuster is not liable to an insured for malfeasance when the insurer delegates to the adjuster the responsibility to handle the insured’s claim because the adjuster is not in contractual privity with the insured. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032 (Gruenberg) that held that an insurance adjuster and law firm hired to adjust claim were not liable for bad faith; Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 253, 84 Cal.Rptr.2d 799 (Sanchez) where an independent adjuster hired to adjust claim was found to owe no duty to insured.

However, in Texas, the Texas Supreme Court has determined that the “adjustment of claims and losses” qualifies as “the business of insurance,” thus making an adjuster a “person” under the Insurance Code. Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 132 (Tex.1988); Gasch v. Hartford Indem. Co., 491 F.3d 278, 282 (5th Cir.2007) that held that an insurance adjuster who services a policy engages in the business of insurance and therefore could be held individually liable under the Texas Insurance Code). [Esteban v. State Farm Lloyds & Aaron A. Galvan, 23 F.Supp.3d 723 (N.D. Tex., 2014)]

Imposed on the adjuster is an obligation to investigate the loss, interpret the policy wording, and apply the policy wording to the facts discovered in the investigation. A first party property adjuster must be educated, trained, experienced and ready to help an insured obtain the benefits promised by the insurance policy. The adjuster does not act as an attorney for the insurer. As a result, any effort to expand the work-product doctrine to include the work of the insurance adjuster prior to retention of counsel requires a deliberative and participative process to assure a careful balance between advocacy and truthfulness. The routine taking of statements by an insurance adjuster is work in the ordinary course of business which fails to qualify as work product. [Sorrells v. Cole, 141 S.E.2d 193, 111 Ga.App. 136 (Ga. App., 1965); Popina v. Rice–Steward, Not Reported in S.E.2d, 86 Va. Cir. 402, 2013 WL 8118663 (Va.Cir.Ct., 2013)]

The Idaho Supreme Court has indicated that statements made to an insurance adjuster are work product and protected from discovery. In Dabestani v. Bellus, 131 Idaho 542, 961 P.2d 633, 636 (1998), the Idaho Supreme Court agreed that a statement made to an insurance adjuster was protected as work product and free from discovery. The work product objection is the type that could be made during the deposition itself as questions are presented and do not prevent the deposition of an adjuster. [Boswell v. Steele, 348 P.3d 497, 158 Idaho 554 (Idaho App., 2015)]

To make certain that the adjuster’s work is protected by the work product doctrine it is necessary that he or she be instructed by counsel that the work is in anticipation of litigation with an explanation from counsel why it needs to be protected.

If litigation is not anticipated the adjuster, after being assigned a first notice of loss caused by fire, lightning, windstorm, hail, or any other peril not excluded by a direct risk of loss policy, must begin work to complete a thorough investigation. The adjuster must understand that it is his or her obligation to determine if the loss is one for which the insurer promised to provide indemnity; determine if the conditions of the policy have been complied with by the insured; and reach agreement with the insured as to the amount of loss and the amount of claim compensable by the policy.

© 2017 – Barry Zalma

This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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