Insurance is Needed to Maintain a Modern Society

Almost every business, every homeowner, every property owner lack sufficient assets to cover a contingent or unknown event, an accident, a tort lawsuit, a fire, or other casualty. Insurance, by spreading the various risks of loss among many, allows a business, property owner, or individual to cover the risks of loss and avoid bankruptcy.

“Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” [California insurance Code Section 22]

Since insurance is a contract of the utmost good faith insurance claims adjusters were created to assist the insured to present and prove a claim to avoid and recover from a casualty. It is the obligation of the insurance adjuster – acting for the insurer – to do nothing that will deprive the insured of the benefits of the contract of insurance. To do so, the adjuster must treat the insured fairly and in good faith and do so with the knowledge and experience necessary to act as a professional insurance adjuster.

If the insurance industry is to survive it must train and maintain a staff of professional insurance claims people, recognize that it is the claims person who keeps the promises made by the insurance policy, and that if those promises are not kept the insurer and the insurance industry will fail. No matter how many dollars of premium are collected by the insurer, if its claims people are not professional, the premiums collected will be insufficient to keep the insurer in business.

I started in the business of insurance 50 years ago. I was trained to be a professional claims adjuster and that training was an important component of my ability to become an effective, competent, professional insurance coverage lawyer and author. How that happened began in 1967 when I sought work after leaving my term with the U.S. Army.

The Creation of a Professional Insurance Adjuster

Fifty years ago, I had completed three years in the U.S. Army as a counter intelligence investigator and, seeking employment that allowed me to use the skills I learned, found work in the insurance industry. After a few interviews I was hired as an insurance claims trainee by the Fireman’s Fund American Insurance Company. I knew nothing about insurance although I had purchased insurance for my automobile. Like most people I had never read an insurance policy.

The Fireman’s Fund knew, back in 1967, that an insurance policy was a group of promises. It knew that it needed to keep each and every promise made by the insurance policy and that only an experienced, professional and excellent claims staff could keep those promises.

The Fireman’s Fund expected nothing of me other than an ability and desire to learn. They wanted me to become a professional insurance claims adjuster and, unlike most modern insurance companies, the Fireman’s Fund was willing to take the time and money to properly train me.

The Beginning of My Training

My first week on the job I was sat at a desk with a copy of a book by Paul I. Thomas called “Adjustment of Property Losses” which was, then, the bible of the claims industry. For my first week on the job, paid the munificent sum of $550 per month, I read the book. When I didn’t understand something, I was told to ask a supervisor who would take the time to explain to me the meaning of the comments made by Mr. Thomas in his text. The supervisor was patient and understood that I was totally ignorant about insurance and, if the training program was to be successful, it was necessary to take the time to educate me.

After spending the time to read all of the book, taking notes, asking questions, and learning about insurance claim handling I was put under the care of a working, experienced, workers’ compensation insurance adjuster and hearing representative. I spent a week with the adjuster visiting multiple scenes where a worker was injured. I also sat next to the adjuster who represented Fireman’s Fund at hearings before the Workman’s Compensation Appeals Board (before its name was changed to the Workers’ Compensation Appeals Board) while he argued facts and law to the WCAB judge. As a result, I received a basic understanding of what a Workman’s Compensation adjuster did.

The next week I was assigned to a property adjuster. I went with the adjuster to the site of dwelling fires, thefts, vandalism, and almost every other type of casualty that could befall a piece of real or personal property. I learned how an adjuster creates a scope of loss, how to measure and diagram a loss scene, how to calculate the amount of damage, how to deal with contractors, how to obtain true values of personal property and how to depreciate property to arrive at actual cash value.

My third week on the job I was assigned to a surety adjuster who explained to me, as we drove to job sites, how he was responsible for completing a freeway overpass after the contractor became bankrupt; what it was that he did to take over the business of the person for whom Fireman’s Fund stood as surety, and how the moneys paid were recovered from the insured and the security he posted to obtain the surety contract. I learned that a surety adjuster needed multiple skills including how to be a CEO, CFO, and job site manager of a construction site.

At the end of the third week I started my studies at a night law school where I was instructed about contract, tort, and real estate law. Knowing nothing about the law I was a blank slate and moved right into what I was learning when I was assigned to ride with a bodily injury adjuster who took me with him to meet with insureds who had been in accidents and injured a third party to gather the facts of the accident and determine if the insured, under the law of torts, was liable for the injuries of the third person. If he determined the insured could be liable he would immediately contact the injured person, take a statement, and then attempt to negotiate a settlement. If the claimant had retained a lawyer I sat with the adjuster as he met with the lawyer and tried to quickly reach a settlement. In those days contributory negligence was a total defense so negotiation was relatively easy since any negligence on the part of the claimant would be a total defense. If settlement was not possible then we would travel to a defense lawyer’s office and assign the defense to a lawyer on our approved list.

My first month as a trainee only required me to observe, listen, and say nothing until I was alone with the training adjuster who was ready to answer all the questions that came to me.

I thought I was ready to work as an adjuster. Fireman’s Fund, correctly, disagreed. They had me sit for a month at a desk with experienced adjusters and supervisors for another month listening and learning.

The Home Office Training School

I was then told that I was required to travel to San Francisco to attend the Fireman’s Fund Home Office Training School. It was difficult for me because I would miss some evening law school classes, but earning a living with a new wife and soon to have a child on the way, I made do and flew from San Francisco to Los Angeles to attend some, but not all of my evening classes.

I was amazed when I reached the classroom in the Fireman’s Fund Home Office building. I was given a large three ring binder that was the text for the training and included, if I recall accurately:

• Homeowners policy wording.
• The California Standard fire policy.
• A Comprehensive General Liability Insurance Policy form.
• An automobile liability policy.
• An automobile comprehensive and collision policy.
• A jewelers block policy.
• A personal articles floater policy.
• A warehouseman’s policy.
• A motor truck cargo policy.
• A surety bond.
• A banker’s blanket bond.
• Multiple endorsements.

In addition to the policy forms that we were instructed to study when we reached our hotel rooms after class the text, borrowing from the Thomas book, also included:

• Instructions on the parts of a structure.
• Details on how a frame dwelling is constructed.
• Details on different types of roofing materials.
• Details on different types of wall covering.
• Uses of lath and plaster.
• Use of Sanitas (a smooth white thin cloth wall covering that was placed over the plaster) to cover lath and plaster and allow smooth paint surfaces without cracks.
• Use of wall paper and how to evaluate the amount needed to cover a wall.
• Details on types of outside surfaces including stucco, brick, stone, etc.
• How fires start.
• How to detect the use of accelerants to destroy property by arson.
• How to write an estimate for repair or replacement of damaged property and calculate the amount of loss using books containing construction unit costs.
• Details on the parts of an automobile and how to evaluate the parts needed to repair an automobile after an accident.

The course included a large section on tort law, negligence, contributory negligence, and how to determine liability and complete an investigation into a third-party liability claim. This included:

• The basic law of negligence.
• The basic law of intentional torts.
• The basics of a liability claims investigation including:
  • Taking a recorded statement of the insured and claimant.
  • Taking a written statement of the insured and claimant if they refuse to be recorded.
  • The use and operation of the disk recorder that we would be required to take with us for the purpose and how to save the plastic disks upon which the statement was recorded.
  • Visiting the scene of the accident and documenting the scene with:
    • photographs,
    • hand drawings,
    • use of a measuring wheel to obtain accurate measurements for a scale drawing of the accident scene.
  • How to secure physical evidence.
  • The use of experts including:
    • Engineers,
    • Professional photographers, and
    • Accident reconstructionists.
  • How to find witnesses.
  • How to conduct a thorough claims investigation.

The course then spent a great deal of time on investigation techniques. I had been trained by the Army in such techniques but the course provided me with reminders of various techniques available and how to apply what I had learned as a counter-intelligence agent, to insurance claims investigation.

The last week was spent studying contract law and how to interpret and apply the terms, conditions and limitations of the insurance policy that applies to the claim investigated.

Throughout the month of training – even before the tort of bad faith had become a serious issue – I, and my fellow trainees, were taught incessantly that the insurance policy was a contract of the utmost good faith and that, although we were only to pay claims that the policy agreed to pay, it was our obligation to conduct an investigation seeking how to pay a claim and not how to deny one. We were to deal fairly with insureds and claimants and to do nothing that would deprive the insured of the benefits of the policy issued to the insured.

More Training

After completing the Home Office Training School program and two months of law school I was certain I was ready to be an adjuster and allowed to work to adjust claims. Again, I was wrong. Fireman’s Fund insisted that I was properly trained before I was allowed to deal with an insured.

I spent two more months with experienced adjusters in the field learning more about what an adjuster does and being allowed to deal with parts of a claim, take a statement from an insured or a witness, and watch as the experienced adjuster resolved the claim. I was surprised that he had a checkbook and could write a check on his own to resolve a claim without seeking authority from someone else.

My investigation skills were honed and directed toward insurance issues rather than the requirements of the U.S. Army, and taught how to gain information needed to resolve a claim.

Finally, after months of training, I was allowed – under close supervision – to deal with minor claims over the telephone. I would handle low impact, minor injury accidents, small kitchen fires, thefts of two or five items. Before I could agree to settle a claim that I had investigated over the telephone, I needed to meet with my claims supervisor, explain the results of my investigation and evaluation of the claim, and obtain approval of my recommendations.

After a year of close supervision, I was granted some small discretionary authority and allowed to resolve claims on my own without first obtaining approval from the supervisor.  I was expected, however, to consult with the claims supervisor or claims manager whenever I was uncomfortable with the claim or what was needed to resolve a claim.

I’m Finally an Official Claims Representative

After a year on the job and a thorough review of my training period I was determined to be a fully trained adjuster and given a business card showing I was a Fireman’s Fund Claims Representative. For the next year I worked chained to a desk dealing with first and third-party claims and adjusting and investigating them by telephone. I used location based telephone directories to identify independent witnesses by telephoning neighbors and businesses near the accident or loss location. Remember, there were no computers, no GOOGLE, no MapQuest, no cell phones. Everything was done in person or by telephone.

I was good at what I did and my law school training gave me tools that the experienced adjusters did not have.

Fireman’s Fund made me a field claims representative. I was given a company car, a ladder, a portable Edison Disk Recorder – for statements – a tape measure and a wheeled devise for measuring large sites, and assigned to adjust claims and become part of the professional claims staff.

I had been a professional investigator during my Army career I was able to schedule my time efficiently.  As a result of my experience and law training I was able to resolve more claims, efficiently and fairly than my colleagues. I learned, with the help of a professional reconstruction contractor, how to estimate damages and prepare a complete scope of loss that could be followed by any reconstruction contractor. I overcame my fear of heights by climbing on roofs to determine whether the damage was caused by wind, rain, old age or, in at least one case, a racoon.

Regardless of my experience and competence I, and my employer, expected that I would continue my training every day I was employed. I would study the Fire, Casualty and Surety Bulletins (FC&S), legal opinions from coverage counsel, reports on new case law that was important to the claims business, and everything I learned in law school as it related to my work. I had available the school’s law library to do research needed to deal with a claim I was working.

As a fully trained and experienced adjuster I was given mostly a free hand to resolve claims and was sufficiently proficient and effective until I passed the California Bar Exam and became a lawyer.

Modern Adjuster Training

The 2017 hurricanes and wild fires have made it clear that there is a shortage of experienced and professional insurance claims adjusters.  For the last decade or two insurance companies have attempted to increase profits by cutting back on expenses. As a result, home office training schools, like the one I attended, have been shuttered and are almost non-existent. Training programs like mine are as rare as snow in Palm Springs, California. Young college graduates are hired and sent out as insurance adjusters with little or no training. Experienced and professional adjuster like those I learned from, have been laid off or fired to save their salaries and replaced with recent college graduates who can be retained for half as much money.

Removing experience claims personnel, closing down adjuster training programs, and limiting the amounts paid to the claims staff, increased the profits of the insurers for the short term. Insurance, however, is not a short-term business. It is gauged, not on a quarter of a year but a quarter of a century. Insurers must think in the long term, not short-term gains.

Excellence in Claims Handling

The promises made by an insurance policy are kept by the professional claims person. Keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoiding litigation.

Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy claimant satisfied with the results of his or her claim will never sue the insurer. Young, inexperienced, untrained adjusters make serious mistakes, offend the claimant, and drive the claimant to a lawyer who will sue the insurer seeking both contract and tort damages including punitive damages.

Claims where an insured or claimant is represented by counsel costs more to resolve than those where counsel is not involved. Prompt, effective, professional claims handling saves money for both the insured and the insurer. The professional claims person fulfills the promises made when the insurer sold the policy quickly, fairly and efficiently.  The inexperienced, unprofessional, untrained adjuster will deny a claim based on a poor reading of the policy, will fail to properly investigate, or will not recognize a fraudulent claim, all to the extra and unnecessary expense of the insurer.

When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Money saved on the expense side of the ledger will be overcome by the expense of defending lawsuits seeking contract, tort and punitive damages. The shareholders of the insurer will quickly question why they invested in the business of insurance. Insurance company management will lose their jobs and wonder why they ever became involved in the insurance business. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business that must, like all other businesses, make a profit to survive. Those insurers without a professional claims staff must change—this time for the better—if it is to survive as a profit making business.

Insurance is not a charity. Insurers who have done so must rethink the firing of experienced claims staff and reductions in training to save “expense.” Only with an excellence in claims handling program and philosophy can an insurer avoid charges of breach of contract and the tort of bad faith.

The excellence in claims handling philosophy requires the maintenance of insurance claims professionals who:

• can read and understand the insurance policies issued by the insurer.
• understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
• are competent investigators.
• have empathy, and recognize the difference between empathy and sympathy.
• understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
• understand how to repair damage to real and personal property and the value of the repairs or the property.

A Proposal to Create Claims Professionals

To avoid claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers must maintain a claims staff dedicated to excellence in claims handling like the old Fireman’s Fund where I learned about insurance. By so doing they will not avoid all conflicts with insureds, claimants and Departments of Insurance, but they will avoid most. The professional adjuster recognizes that they are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy fairly and in good faith.

To create a claims staff dedicated to excellence in claims handling every insurer must, at least:

• Find and hire as many insurance claims professionals as are available.
• Be ready to pay a fair salary, with benefits and a company car, to the professional adjusters on staff.
• If professionals are not available, the insurer must train all members of the existing claims staff to be insurance claims professionals.
  • If not available in the company obtain training from:
    • local colleges,
    • Insurance training organizations,
    • Insurance web based training,
    • Text books,
    • The FC&S Bulletins, and
    • The CPCU Society and other insurance organizations.
• Training each member of the claims staff annually on the local fair claims settlement practices regulations.
  • Training can be obtained from local independent insurance adjusting firms, independent law firms, and on line.
• Using sufficiently knowledgeable people to supervise each claims handler closely to confirm all claims are handled professionally and in good faith.
• Explaining to each member of the claims staff the meaning of the covenant of good faith and fair dealing and that it is the philosophy of the insurer that every claim be handled in such a manner that nothing is done to deprive the insured of the benefits of the policy to which the insured is entitled.
• Demanding excellence in claims handling from the claims staff.
• Being ready to dismiss any claims handler who fails to treat every insured with good faith and fair dealing.

If any experienced claims professionals exist on the insurer’s staff, the insurer must cherish and nurture them and use their experience and professionalism to train new claims people. Do not refuse reasonable requests for an increase in salary and lose the adjuster to an independent adjusting firm or a law firm.

To keep the professional claims staff operating efficiently and in good faith they must be honored with increases in earnings and perquisites.  The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling and must be ready to publicly and quickly fire those who do not provide excellence in claims handling.

When the claims staff is made up of claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling, litigation between the insurer and its insureds will be reduced exponentially.

Those insurers who decimated their professional claims staff to save expense must recognize that there is no quick and easy solution to the lack of a professional claims staff providing excellence in claims handling. The training takes time; learning takes longer, and the insurer must be willing to take the time needed to train claims people by spending the time Fireman’s Fund spent on me.

The excellence in claims handling program requires thorough training providing each member of the claims staff with a minimum of the following:

• How to read and understand the contract that is the basis of every adjustment, including but not limited to:
  • The formation of the insurance policy.
  • The rules of interpretation.
• Tort law including negligence, strict liability in tort, and intentional torts.
• Contract law including the insurance contract, the commercial or residential lease agreement, the bill of lading, non-waiver agreements, proofs of loss, releases and other claims related contracts.
• The duties and obligations of the insured in a personal injury claim.
• The duties and obligations of the insurer in a personal injury claim.
• The duties and obligations of the insured in a first party property claim.
• The duties and obligations of the insurer in a first party property claim.
• The Fair Claims Practices Act and the regulations that enforce it.
• The thorough investigation:
  • Basic investigation of an auto accident claim.
  • Investigation of a construction defect claim.
  • Investigation of a non-auto negligence claim.
  • Investigation of a strict liability claim.
  • Investigation of the first party property claim.
  • The recorded statement of the first party property claimant.
  • The recorded statement or interview of a third-party claimant.
  • The recorded statement of the insured.
  • The red flags of fraud.
  • The SIU and the obligation of the claims representative when fraud is suspected.
• Claims report writing.
• The evaluation and settlement of the personal injury claim.
• How to retain coverage counsel to aid when a coverage issue is detected.
• How to control coverage counsel.
• How to instruct coverage counsel on the issue to be resolved.
• Dealing with a plaintiff’s lawyer.
• Dealing with personal injury defense counsel.
• Dealing with insurance coverage counsel.
• How to retain and obtain information from experts needed to resolve a claim.
• The evaluation and settlement of the property damage claim.
• The Appraisal process.
• Arbitration and mediation and the claims representative.

Conclusion

I have spent 50 years in the business of insurance and do not regret a single moment of my career. By writing, lecturing and conducting webinars I have attempted to help insurers and their claims staff become professional and provide excellence in claims handling. I am concerned that the lack of professional claims personnel will make it impossible for the insurers to deal with the hurricanes, wildfires, and other catastrophes because they don’t have available a sufficient staff of professional claims handlers.

Adjusting claims can often be difficult and emotionally draining on those insured. Catastrophes multiply the difficulty and emotions, requiring a professional claims handler to avoid disputes. Lack of adequately trained and experienced claims handlers can result in a windfall to the policyholders lawyers. Perhaps, if insurers are hurt sufficiently they will understand the need for acquisition, training and maintenance of a staff of professional claims handlers ready to provide excellence in claims handling.

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© 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 http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://zalma.com/zalma-books/

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The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.