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Use this summary to quickly review the learning objectives (LOs) for Study 1.
An adjuster investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements.
An adjuster represents the insurance company with respect to a claim on a
policy.
A public adjuster is an adjuster who represents an insured in the claims settlement process.
Loss adjusters must assess and evaluate the amount of damage and then apply the terms of the insurance policy—interpret the policy wording—to determine whether a loss is covered.
A claims handler takes the initial report of a loss.
A claims handler can perform any duty in the adjusting process, including taking the initial report of a loss, adjusting the loss, or handling the salvage or subrogation aspects of claims.
A claims examiner, as an employee of an insurance company, directs the investigations of staff adjusters and independent adjusters, reviews their reports, and approves claim settlements.
LO2
Describe the structure of civil law in Canada, the importance of the insurance contract to an adjuster, and the elements of a legally enforceable contract in the common law provinces and territories and Quebec.
Civil law concerning the private rights of individuals unfolds in two systems:
Common law system in all provinces and territories except Quebec
Civil Code of Québec in Quebec
Civil law as it applies to insurance claims is concerned mainly with the law of contract and the law of tort.
Claims are adjudicated according to the terms and conditions of the insurance policy contract.
Privity of contract is the term used in common law for the special relationship that exists between two parties because they have entered into a contract.
Under the common law, legal contracts have five elements:
Agreement
Capacity to contract
Consideration
Genuine intention
Legality of object
Under the Civil Code of Québec, legal contracts have four elements:
Consent
Capacity to contract
Cause of contracts
Object of contracts
LO3
Explain the three additional legal requirements that apply to contracts of insurance.
Three legal requirements apply to insurance contracts:
Principle of indemnity
Insurable interest
Utmost good faith
Insurance policies are based on the principle of indemnity:
Claim payments restore policyholders to the same financial position they were in immediately prior to a loss.
The concept that an insured will be reimbursed for his or her loss.
The insured must have a financial relationship to the property to be insured; that relationship is called an insurable interest.
The insured must show a financial interest in preserving the property.
There is an implicit obligation to deal in good faith in any contractual relationship.
In insurance, a tradition of utmost good faith, demanding a higher standard of honesty and trust from both parties, has evolved in the common law.
LO4
Explain the importance of representations in applying for insurance and the use of warranties to ensure their reliability.
A representation is a statement that an applicant makes to an insurer about the risk to be insured.
To establish if a representation concerned a material fact, the adjuster must obtain a statement from the underwriter that he or she would have declined the risk or negotiated different terms if he or she had known the representation to be false.
If an insured innocently believed a representation was true that was in fact false, the insurer can void the policy—but not after a loss occurs.
If a material change occurs during the policy term, the insured must promptly advise the insurer of the change.
A warranty is a promise made by an insured to maintain certain conditions of the risk during the term of the policy.
If the insured breaches a warranty, the insurer has grounds to void the policy from the date of the breach.
A promissory warranty promises not only that a fact is presently true but that it will continue to be true during the policy period.
An affirmative warranty states that a fact is true when the insurance policy is purchased.
LO5
Describe other legal considerations for loss adjusters, including remedies for breach of contract; waiver and estoppel; the requirement for a proof of loss form; loss mitigation; and subrogation.
When a breach of contract occurs, the injured party may do the following:
Sue for damages that resulted from the breach and also for reimbursement of the part of the contract that the injured party already performed.
Compel performance of the terms of the contract or ask to be released from further contractual obligations.
Ask for an injunction to restrain the other party.
A formal statement of facts about a loss—a proof of loss form—must be submitted to the insurer in a specified time period with a formal disposition of the claim.
The concepts of waiver and estoppel must be kept in mind when handling claims:
Waiver is the intentional relinquishment of a known right with consent or implied consent.
Estoppel is a bar created when someone by his or her action, or lack of it, indicates that he or she will not exercise a right he or she has.
The duty to mitigate damages holds true of any claim, even a third-party claim.
The right of subrogation passes to the insurer from the insured when a loss is paid.