Loss adjusters are at the heart of the initial investigation of an insurance claim and they play a crucial role in gathering evidence on behalf of insurers. Given the importance of this stage, which can set the tone for all future dialogue with insurers, it is essential that a party representing the insured is aware of the role played by the adjuster, his rights and obligations, and what can be done to protect a vulnerable policyholder pressed to respond to a detailed investigation immediately following a significant loss.
The role of the loss adjuster
The role of a loss adjuster is to provide support and guidance in the event of a claim, usually acting on behalf of insurers. The adjuster’s duty is to investigate the cause of a loss, confirm that the policy conditions and warranties have been observed and make preliminary enquiries into the nature and probable extent of the claim which the policyholder will be submitting.
Although many adjusters now also act for policyholders (and indeed intermediaries), historically the relationship with Insurers has been a symbiotic one. Similarly, reference to the observance of policy conditions and warranties highlights the established nature of the adjuster’s role, which is to collate evidence required to determine policy liability. This is particularly relevant when viewed in the context of the evidential burden which falls upon insurers and insured.
The burden of proof
The burden of proving that the loss was caused by an insured peril is on the insured. It is not necessary for him to prove precisely how the casualty occurred, but he must show that the proximate cause falls within the perils insured against. For example, he will discharge the burden under an all risks policy if he can show that the loss occurred accidentally.
Thereafter, it is for insurers to bring themselves within any exception relied upon or to prove a breach of warranty or condition precedent. Hence the role of the adjuster, as agent for the insurers, is in part to identify and collate the material that will discharge that evidential burden.
Send down the ferrets!
So how should an insured respond to an aggressive investigation led by an adjuster who wants to “open up the drains and send down the ferrets”?
Much will depend upon the factual circumstances of each case, and some illustrative examples are set out below, but in theory the terms of any response will be governed by a mixture of contractual provisions, statute and common law principles.
Most policies of insurance include a general condition which, in the event of a loss, obliges the insured to co-operate fully with any investigation undertaken by the insurer, and to provide such information as the insurer may reasonably require, whether in the form of documentation or through interviews with employees or contractors. Even in the absence of an express provision in the policy, a corresponding requirement arguably arises as part of the insured’s continuing duty of good faith.
Similar, if less detailed, principles apply to insurers and therefore also to agents acting on their behalf. In addition to the requirement of good faith (which applies to insurers just as it does to the insured), ICOB 8.1 states that when dealing with a claim the insurer must handle claims “promptly and fairly” and provide “reasonable guidance to help a policyholder make a claim and appropriate information on its progress”.
Reasonable and fair
What is clear is that the key principles governing the conduct of both parties are those of reasonableness and fairness, at least up until the commencement of proceedings (thereafter the parties are bound by the rules governing the conduct of litigants set out in the Civil Procedure Rules).
How these principles are then applied in the context of investigating a claim is likely to turn on the facts of each case, but ultimately it is a matter of applying common sense and asking: is what is being requested of the insured fair and reasonable? If it is not, what makes it unfair and unreasonable? More importantly (given that a blank refusal is likely to be counterproductive and lead to accusations of a failure to co-operate), what can be proposed that placates insurers while at the same time protecting the interests of the insured?
Thus, by way of illustration, an investigation into a claim which is so intrusive as to impede the insured’s ability to conduct its business (for example, because it requires the closure of a site or the absence of management and key staff for extended periods at the same time) is arguably unreasonable and unfair. The insured would be entitled to object and request some form of modification to the procedure.
Likewise, an interview conducted moments after the loss (after a serious fire or personal injury, say, when the relevant witness may be upset and disorientated) can also be unfair if what is being discussed is not what the witness saw, but detailed information on procedures for compliance with policy conditions and warranties. In these circumstances, it is perfectly reasonable to insist that the witness has the opportunity to rest and compose himself before the interview is conducted.
Interviews and witness statements
Interviews and witness statements, and the circumstances under which they are conducted and obtained, are a source of much friction between adjusters and the insured.
The following examples illustrate what an insured might reasonably insist upon or, if needs be, object to, when responding to an adjuster’s request:
- In the absence of any compelling reason against it (for example, because the interviewee objects or there is some reason to suppose that he might be intimidated as a result) it is always reasonable to request that a representative of the insured such as a broker, loss assessor or solicitor is present during interviews.
- Any person being interviewed whose first language is not English should be entitled to have an interpreter present and should be provided with a translation in their first language of any statement taken from them before they sign it.
- A witness should always be informed of the purpose of the interview.
- A witness whose statement has been taken down by a third party should always have adequate time to consider a typed, draft version of the statement before signing it, and to make any amendments if necessary. Significant amendments should be recorded onto the typed body of the statement and not simply added in manuscript form (which often leaves the deleted section legible). It is not unreasonable for a witness to consider a draft statement over the course of a few days.
- It is reasonable for adjusters to require that an interview is recorded – a recording has the potential to speed up the claims process and eliminate ambiguity. However, for that same reason an insured is reasonably entitled to advance notice that interviews will be recorded and, where notice is given, to some form of agenda for the meeting.
- In recorded interviews especially, it is also reasonable for an insured to request the opportunity to confirm an answer before giving it, to qualify any answer about which he is not completely certain and to request that he is provided in advance with copies of documents likely to be referred to in the course of the interview.
- No matter how confidential an interview purports to be, the insured cannot be compelled to disclose information he would not be required to disclose by virtue of his duty of disclosure to insurers. For example spent convictions under the Rehabilitation of Offenders Act 1974.
- The relationship between insurers and insured is that of contracting parties, not policeman and criminal. Accordingly, all interviews should be conducted in an appropriate environment and in a manner consistent with that relationship. It is therefore reasonable to insist that interviews do not go on for an excessive period of time and that breaks are taken. It is also reasonable to terminate an interview if it is conducted in an aggressive manner, although the reasons for doing so should be stated and recorded.
- An interview should not be used as a fishing expedition and no witness should be required to speculate on matters which are not within their own knowledge or expertise.
Controlling the interview process
In addition to protecting the insured’s position in respect of individual interviews, thought should be given to the process by which employees of the insured are selected and contacted for interview, particularly when dealing with large organisations with sizeable workforces. Such organisations are unlikely to appreciate adjusters making random approaches to their employees because of the potential disruption it may cause.
However, all employees (and most sub-contractors) are under a general obligation to comply with the reasonable instructions of an employer and, unless exceptional circumstances apply, it will rarely be the case that an insured cannot arrange for interviews when requested to do so.
It is reasonable in these circumstances to require that all requests for interviews are submitted to HR or to the individual appointed to liaise with the adjuster during the course of the investigation. If it is not obvious, the reason why a particular employee has been selected for interview should also be requested.
For that reason, it is reasonable and sensible from the outset for an insured to appoint a suitably senior person from within its organisation, or alternatively an appointed assessor, to respond to all requests from an adjuster, and for the adjuster to be advised of that fact and the reasons for it. Provided the insured’s procedures in this regard adhere to the principles of reasonableness and fairness, it is difficult to see what objection an adjuster could have to such an approach and not expose himself to the accusation of fishing or acting unreasonably.
Controlling the flow of information
Controlling the interview process is just part of the general need to control the flow of information passing between insurer and insured, not with a view to preventing the disclosure of unhelpful material, but simply because a structured approach to the provision of documents speeds up the investigation process and avoids duplication. By contrast, the piecemeal supply of information from different sources tends to produce more questions than it answers, causing unnecessary delay and frustrating both insurer and insured.
Sometimes it can be a difficult balance between protecting the interests of the insured and maintaining an appropriate degree of reasonable co-operation, particularly when personalities clash and the inquisitorial nature of the adjuster’s role appears unnecessarily confrontational. However, applying the following basic principles should help to avoid those situations:
- Advise the insured beforehand of what to expect
- Keep the principles of reasonableness and fairness to the forefront
- Avoid blank refusals and instead take a proactive approach to the supply of information
- Emphasise procedures, not personalities
If you would like more information on any of the points discussed or any other insurance matter, please contact Roger Franklin of the Insurance Litigation team at Edwin Coe LLP, using the details below.
Head of Insurance Litigation
Edwin Coe LLP
t: +44 (0)20 7691 4044