Legal & Ethical Considerations in Insurance Adjusting Flashcards

An adjuster receives a gift from a body shop owner who regularly receives referrals. Accepting the gift most likely violates which ethical principle?

Answer: Conflict of interest / impartiality

Accepting gifts from vendors creates a conflict of interest that can compromise the adjuster's impartiality in claim handling and vendor selection.

A claimant with a legitimate total-loss claim is offered a settlement far below fair market value. Under which legal theory could the insurer face extra-contractual damages?

Answer: First-party bad faith

First-party bad faith occurs when an insurer unreasonably refuses to pay a valid claim, potentially exposing the insurer to damages beyond policy limits.

When an adjuster suspects staged accident fraud, what is the most appropriate immediate action?

Answer: Refer the matter to the Special Investigations Unit (SIU)

Suspected fraud must be referred to the SIU for investigation rather than acted on unilaterally by the line adjuster.

An insured's policy lapses due to non-payment two days before an accident. The insured later pays the premium. What coverage determination applies?

Answer: No coverage exists because the policy was lapsed at the time of loss

A lapsed policy provides no coverage for losses occurring during the lapse period; reinstatement generally applies prospectively unless the policy states otherwise.

Which of the following best describes the legal concept of 'material misrepresentation' in an auto insurance application?

Answer: A false statement that would have affected the insurer's decision to issue or price the policy

A material misrepresentation is a false statement about a fact that would have influenced the insurer's underwriting decision, potentially voiding the policy.

Under HIPAA, an adjuster requesting medical records related to an auto injury claim must:

Answer: Secure a signed medical authorization from the claimant before requesting records

HIPAA requires a valid, signed authorization from the patient before a third party (including an insurer) can obtain protected health information.

A claimant alleges whiplash but the adjuster finds video evidence showing the claimant performing strenuous physical activity post-accident. The adjuster should:

Answer: Preserve the evidence and refer to SIU for further investigation

Surveillance evidence must be properly documented and referred to SIU; unilateral denial without full investigation can expose the insurer to bad faith liability.