CAIA - Certified Automotive Insurance Adjuster Negotiation and Settlement Questions and Answers — Questions and Answers
Question 1: An adjuster is negotiating a third-party bodily injury claim with an unrepresented claimant. The claimant, who has fully recovered from minor soft-tissue injuries, is demanding a settlement amount that is five times the total of their documented medical bills. Which of the following is the most appropriate initial action for the adjuster to take?
- Immediately offer the policy limits to avoid a potential bad faith claim.
- Advise the claimant that they are required to hire an attorney to proceed.
- Systematically review the documented special damages and explain the basis for the company's valuation, while seeking to understand the claimant's perspective on their general damages. (Correct answer)
- Cease all communication until the claimant's demand becomes more reasonable.
Correct answer: Systematically review the documented special damages and explain the basis for the company's valuation, while seeking to understand the claimant's perspective on their general damages.
The adjuster's role is to negotiate in good faith by evaluating the claim based on its merits. This involves explaining the valuation of special damages (medical bills, lost wages) and engaging in a discussion to understand and value the general damages (pain and suffering). This approach is professional, transparent, and keeps the negotiation moving forward. Offering policy limits is inappropriate for a minor claim, advising them to get an attorney is improper, and ceasing communication could be seen as a bad faith tactic.
Question 2: When a claimant signs a 'full and final release' as part of a settlement agreement for an auto accident, what is the primary legal effect of this document?
- It only settles the property damage portion of the claim, leaving the bodily injury portion open.
- It serves as a receipt for payment but does not prevent future lawsuits for the same incident.
- It prevents the claimant from pursuing the at-fault party or their insurer for any and all claims, including unknown future complications, arising from that specific incident. (Correct answer)
- It allows the claimant to reopen the claim if their medical condition worsens within one year.
Correct answer: It prevents the claimant from pursuing the at-fault party or their insurer for any and all claims, including unknown future complications, arising from that specific incident.
A full and final release is a binding contract that extinguishes all claims related to a specific incident. By signing it, the claimant gives up their right to seek any further compensation from the at-fault party or their insurer for that event, even if new injuries or damages are discovered later. Partial releases exist for property damage only, but a 'full and final' release closes the entire matter.
Question 3: An insured's vehicle causes an accident resulting in injuries to three people. The insured has bodily injury liability limits of $50,000 per person / $100,000 per accident. The total value of the three injury claims is determined to be $150,000. What is the adjuster's primary duty in this settlement situation?
- Pay the first claimant who submits their demand up to the $100,000 per-accident limit.
- Settle with each claimant for one-third of the per-accident limit, regardless of their individual damages.
- Advise the claimants that the policy has been exhausted and no payments can be made.
- Attempt to negotiate a global settlement with all claimants that allocates the $100,000 per-accident limit in a fair manner to protect the insured from excess liability. (Correct answer)
Correct answer: Attempt to negotiate a global settlement with all claimants that allocates the $100,000 per-accident limit in a fair manner to protect the insured from excess liability.
When multiple claims exceed the per-accident policy limit, the insurer's duty of good faith is to protect the insured by attempting to get releases from all claimants within the available limit. This often involves negotiating a pro-rata or otherwise equitable distribution of the policy funds. A 'first-come, first-served' approach can leave the insured exposed to significant personal liability from the remaining claimants and can lead to bad faith allegations.
Question 4: In California, which of the following actions is required to finalize the settlement of a significant bodily injury claim on behalf of a minor?
- The minor must personally sign the settlement release.
- The settlement must be approved by a court in a process known as a 'minor's compromise.' (Correct answer)
- The settlement check must be made payable directly to the minor's parents.
- A second medical opinion must be obtained and submitted to the insurer.
Correct answer: The settlement must be approved by a court in a process known as a 'minor's compromise.'
Because a minor cannot legally enter into a binding contract, any settlement of their claim must be reviewed and approved by the court to ensure it is fair and in the child's best interest. This process is called a 'minor's compromise.' The settlement funds are typically placed into a blocked, interest-bearing account that the minor can access upon reaching the age of 18.
Question 5: Under the California Fair Claims Settlement Practices Regulations, once liability has been accepted and a settlement amount has been agreed upon, within how many days must the insurer generally make payment?
- 15 calendar days
- 40 calendar days
- 30 calendar days (Correct answer)
- 60 business days
Correct answer: 30 calendar days
The California Code of Regulations, Title 10, Section 2695.7(h) specifies that upon acceptance of a claim, the insurer must tender payment within 30 calendar days. The 15-day timeline relates to acknowledging a claim, and the 40-day timeline relates to the period for accepting or denying a claim after proof of loss is received.
Question 6: Which of the following actions by an insurer would most likely be considered an act of 'bad faith' in the settlement of a claim?
- Requesting medical records and bills to substantiate a bodily injury claim.
- Conducting a recorded statement with the claimant to understand the facts of the loss.
- Offering a settlement amount that is lower than the claimant's initial demand.
- Unreasonably delaying payment on a valid, clear liability claim where damages are known and undisputed. (Correct answer)
Correct answer: Unreasonably delaying payment on a valid, clear liability claim where damages are known and undisputed.
Insurance bad faith involves an insurer failing to uphold its duty of good faith and fair dealing. While requesting documentation, taking statements, and negotiating amounts are normal parts of claims handling, an unreasonable and unfounded delay in paying a valid claim is a classic example of a bad faith practice. This tactic can wrongfully pressure a claimant into accepting a lower settlement.
CAIA - Certified Automotive Insurance Adjuster Negotiation and Settlement Questions and Answers
An adjuster is negotiating a third-party bodily injury claim with an unrepresented claimant.
The claimant, who has fully recovered from minor soft-tissue injuries, is demanding a settlement amount that is five times the total of their documented medical bills.
Which of the following is the most appropriate initial action for the adjuster to take?