BY PETER R. KENSICKI
THE DILEMMA: an adjuster has estab- lished an honest opinion of a claim with the maximum indemnity value
in the range of 80 percent of policy limits.
an offer of settlement within that range has
been rejected—with a lawsuit filed instead
of a counteroffer. the adjuster believes
defense costs, in addition to the highest
value of the settlement range, will exceed
policy limits. ethically, should the adjuster
offer policy limits to try to settle the claim
without incurring projected defense costs?
The Industry Responds: Claims professionals immediately recognized additional information would be necessary for a final
ethical decision. among the information
respondents wanted to know were: 1) Is this
a first- or third-party claim? 2) Was the suit
filed because of a statute of limitations or as
a practice of the claimant’s attorney? 3) how
close was the offer to the upper end of the
settlement range? 4) Is it a bodily injury or
property-damage claim? 5) What are the potential “bad faith” implications of the claim?
answers to these questions naturally
affect the ethical response of the adjuster.
For example, most states impose a higher
duty on insurers when the insured is also
the claimant. and filing a claim to meet a
statute of limitations is a significantly different situation than a claimant filing to
force a greater offer.
therefore, if the settlement range was
“wide” and the offer was at the low end of
the range, the claimant may be signaling
his or her belief the offer is low. Similarly,
it would be typical for a settlement range
to be wider in a bodily-injury claim, with
its inherent subjectivity, than a property-damage claim that can be estimated with
greater precision. Finally, the jurisdiction
and reputation of the claimant’s counsel for
filing an amended complaint alleging “bad
faith,” and its associated costs, are a factor.
despite the noted need for more information, most respondents were willing to offer
A Question Of Ethics: Add Defense
Costs To Settle A Claim?
E OVERALL THE VAST MAJORITY of those responding generally believe that, ethically, defense costs
should not be included in any decision of an adjuster assigned to a claim.
generalized opinions as to the ethical duties
to consider defense costs. an oregon ad-
juster writes, “ethically the adjuster should
pay what is owed on a claim.” a former risk
manager notes, “the adjuster should make a
fair and equitable offer based on the loss and
not ‘low ball’ the other party.”
an Illinois producer comments, “the ad-
juster ethically must pay the claimant the
correct amount due as a result of the loss.
Policy limits have nothing to do with the
‘correct amount.’” another responder opines,
“the adjuster should abide by the terms of the
policy and adjust the claim in the same man-
ner if the loss were 20 percent of the limit.”
From a Georgia adjuster: “In theory, the
cost of litigation should not be considered
when evaluating the merits and value of a
claim. doing so artificially increases the val-
ue of all similar claims.” a Florida consultant
warns, “Care must be taken not to confuse
ethics with money. ethics is ‘doing the right
thing’ and is not measured in dollars. Filing
of a suit is not justification for departing
from solid ethics in adjusting a claim.”
other comments note that the general answers above apply to the adjuster assigned
to handle and value the claim. there may
be a myriad of reasons why supervisors,
managers or executives may decide to
‘overpay’ the claim that are outside the
value of the claims.
In these cases, the majority of respondents stated “overpaying” is a business
decision with no ethical implications.
the d.C. attorney, for example, gives this
down-to-earth consideration: “
Pragmatically, defense costs are a consideration, but
that is not the adjuster’s job. once a fair
evaluation is made, it becomes the supervisor and attorney’s job to assess the overall
impact of the lawsuit on the claim.”
a noted insurance educator states, “I’m
not convinced this question poses an ethi-