Business guru Peter Drucker wrote in
a 1981 Forbes article, “There is only one
ethics, one set of rules of morality, one
code — that of individual behavior in
which the same rules apply to everyone
alike.” Is that what “ethics” are, a “code …
of individual behavior” applicable to everyone alike? It sounds good. It’s reasonable, at least democratic. But is it true?
Are ethics absolute, as Drucker seems to
imply, or situational? Do the same ethics
apply to an atheist as to an Amish farmer?
Or can they be different?
The Ethical Dilemma
Adjusters face ethical issues every day.
Good and Bad Faith
A claim may be suspicious. Should we
report it to the police or our special in-
vestigation unit? We catch an insured or
claimant in an exaggeration or misstate-
ment of what we know to be true. Should
we enforce the “misrepresentation” clause
in the policy and deny the otherwise valid
claim? We are to deal with insureds “in
good faith,” but what exactly is “faith,”
good or otherwise? Belief in what we
can’t see, like pain? Or is it something
more than that? There is a difference be-
tween “good faith” and “blind faith,” and
blind faith is not necessarily the same as
‘bad faith,” a subject that seems to garner
a lot of attention in claims ethics classes.
Many law books have been written on
the subject, and many defense attorneys
make a living defending insurers accused
of committing the sin of “bad faith.”
Back in the 1960s, adjusting was seen
as implying a “fiduciary” duty — one of
“utmost good faith,” the same level as ap-
plied to trustees, executors or guarantors.
When one represents another in a trans-
action, that representative is a “fiduciary.”
Yet over the last five decades the concept
has gotten watered down. Adjusters, ex-
cept in a few states where the courts have
upheld the fiduciary principle of insur-
ance contracts in dealing with third par-
ties, the standard has been reduced to
only that of fidelity — honesty and full
faith, not utmost good faith. It takes mal-
feasance, not just misfeasance or nonfea-
sance, to find the insurer and its adjuster
liable for bad faith in most states today.
Remember that NAIC Model Unfair
Claims Settlement Practices Act discussed
in the first part of this series? Those are
rules that, for the most part, are simply
common sense. But the one that has gotten the most attention from the courts
is the one that makes it a violation, if
committed as a general business practice,
“Not attempting in good faith to effectuate prompt, fair and equitable settlement
of claims submitted in which liability
has become reasonably clear.” Talk about
an ethical pitfall! How often must such
a practice occur before it is considered
“general”? One state insurance department found that just once was enough,
and suspended the adjuster’s license.
How much “attempt” is sufficient? Is it
sufficient to just send a letter and wait?
Or should we go to an insured’s home
and knock on the door? How prompt is
“prompt”? Today, tomorrow, next week?
“Fair and equitable” to whom? The insured? The claimant? The insurance
company? “Equitable” means “even,” a
perfect balance between two sides, the
insured and the insurer. It means we can
neither over-pay nor under-pay a claim,
for that would be unfair and inequitable.
And how “reasonably clear” must liability
be? In third-party claims liability is often
cited by adjusters as “clear” or “probable,”
“possible” or “doubtful.” Is that reasonably clear enough?
At one time a number of states’ courts
held that the duty of “good faith” on the
part of insurers applied to both first and
third parties. Most have repented of their
misdeed and apply the duty now only to
first-party claims (such as failure to set-
tle with a third party within the policy
limits, exposing the insured to additional
damages), yet a handful (just one or two)
still will hold the insurer liable for bad
faith to a third party. But that’s another
story. Suffice it to say that claim adjusters
— whether licensed or not and whether
representing an insurer or a self-insured
entity, and whether handling a first- or
third-party claim — needs to act ethi-
cally at all times, to the best of his or her
ability. Like Walter in Double Indemnity
(see Part 1) adjusters are a judge and jury,
cop and father confessor all in one. Each
situation is different.
Fraud is real, but there had better be
proof that will hold up in court. Crime
requires proof beyond the shadow of a
reasonable doubt. Civil cases require only
a preponderance of the evidence. Judge,
but judge cautiously.
As the company risk manager I received
a call one day from an adjuster in another
state who had a dilemma. He had taken a
statement (not a sworn one) from a third-party claimant in which he had asked if
she had ever suffered a previous injury.
She said she had not. But when he ran
an Index Bureau report on her, she had
made a similar claim several years earlier.
Therefore she had lied. Should he report
her to the police for insurance fraud?
I suggested that he really had no evidence of fraud that would stand up in
court and if he reported it and they
hauled her away to jail in front of her
three screaming children and showed it
all on the evening news, it would be bad
news for the adjuster and the insurer if
she was not convicted. Who can say? She
might have forgotten the prior injury, or it
may have had nothing to do with the new
claim. Or she might have been a fraudulent crook. We’ll never know if her two
plus two was intended to equal four or
something else. The SIU guys said I was
wrong — she should have been charged
with fraud and gone to jail. But it is like
Aristotle suggested, ethics are “conflicts
Ken Brownlee, CPCU, is a former
adjuster and risk manager based
in Atlanta, Ga. He now authors and
edits claims-adjusting textbooks.
Fraud is real, but there had
better be proof that will hold
up in court. Crime requires
proof beyond the shadow of a
reasonable doubt. Civil cases
require only a preponderance
of the evidence. Judge,
but judge cautiously.