CAIA Legal & Ethical Considerations in Insurance Adjusting 2 — Questions and Answers
Question 1: 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?
- Approve the claim to avoid conflict
- Deny the claim per policy terms and document the exclusion clearly (Correct answer)
- Escalate to management and let them decide
- Offer a partial payment as a compromise
Correct 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.
Question 2: Which legal doctrine holds that an insurer must give equal consideration to its own interests and the policyholder's interests when making coverage decisions?
- Subrogation
- Res judicata
- Duty of good faith and fair dealing (Correct answer)
- Indemnification principle
Correct 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.
Question 3: 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?
- Subrogation claim
- Bad faith liability exceeding policy limits (Correct answer)
- Coverage rescission
- Regulatory license suspension only
Correct 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.
Question 4: Under the Unfair Claims Settlement Practices Act (UCSPA), which behavior is specifically prohibited?
- Requesting a recorded statement from the insured
- Compelling insureds to litigate by offering substantially less than owed
- Denying a claim based on a policy exclusion (Correct answer)
- Requesting medical authorization from the claimant
Correct 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.
Question 5: An adjuster handling a UM/UIM claim discovers that the at-fault driver actually had coverage. What is the correct ethical course of action?
- Continue the UM claim since the file is already open
- Disclose the discovery and coordinate with the insured's counsel
- Close the UM file and refer the insured to the at-fault insurer (Correct answer)
- Apply subrogation and keep the UM file open concurrently
Correct 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.
Question 6: Which action by an adjuster would most likely constitute insurance fraud?
- Reserving a claim above the likely settlement value
- Documenting damage that was not present to increase the claim payout (Correct answer)
- Requesting an independent appraisal on a disputed loss
- Denying coverage for a pre-existing condition
Correct 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.
Question 7: A policyholder refuses to provide a recorded statement. Under most standard auto policies, what is the insurer's right?
- Immediately deny the claim for non-cooperation
- Request that the refusal be documented and proceed without it
- Suspend the investigation until the statement is provided
- Invoke the cooperation clause and potentially deny the claim after notice (Correct answer)
Correct 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.
CAIA Legal & Ethical Considerations in Insurance Adjusting 2
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?