Legal & Ethical Considerations in Insurance Adjusting Flashcards

An insured files a claim for a vehicle damaged in a flood, but the adjuster discovers the policy excludes flood damage. The insured pressures the adjuster to approve the claim anyway. What is the adjuster's ethical obligation?

Answer: Deny the claim per policy terms and document the exclusion clearly

Adjusters must apply policy terms objectively regardless of pressure, documenting exclusions clearly and communicating the denial in writing.

Which legal doctrine holds that an insurer must give equal consideration to its own interests and the policyholder's interests when making coverage decisions?

Answer: Duty of good faith and fair dealing

The duty of good faith and fair dealing (implied covenant) requires insurers to balance their interests with those of policyholders in all claim decisions.

A claimant's attorney sends a demand letter with a policy-limits settlement offer and a 30-day deadline. Ignoring this deadline without justification could expose the insurer to what liability?

Answer: Bad faith liability exceeding policy limits

Failing to respond to a reasonable policy-limits demand within the deadline can constitute bad faith, exposing the insurer to liability beyond policy limits.

Under the Unfair Claims Settlement Practices Act (UCSPA), which behavior is specifically prohibited?

Answer: Denying a claim based on a policy exclusion

The UCSPA prohibits compelling policyholders to sue by making unreasonably low offers when liability is clear, among other unfair practices.

An adjuster handling a UM/UIM claim discovers that the at-fault driver actually had coverage. What is the correct ethical course of action?

Answer: Close the UM file and refer the insured to the at-fault insurer

When liability coverage exists, the UM/UIM claim basis dissolves and the insured should be redirected to pursue the at-fault party's insurer.

Which action by an adjuster would most likely constitute insurance fraud?

Answer: Documenting damage that was not present to increase the claim payout

Documenting non-existent damage to inflate a claim payout is a form of insurance fraud, which is a criminal offense.

A policyholder refuses to provide a recorded statement. Under most standard auto policies, what is the insurer's right?

Answer: Invoke the cooperation clause and potentially deny the claim after notice

Most policies include a cooperation clause; after proper notice and opportunity to comply, persistent refusal can support a denial based on breach of policy conditions.