Article on umbrella and excess liability insurance coverage.
Both insurers and insureds call on claims adjusters, accountants, and attorneys for help with claims. Generally speaking, however, the claims adjusters, accountants, and attorneys that offer their services to insurers are distinct from those that offer their services to insureds. The majority of claims specialists offer their services exclusively to either insurers or insureds, rather than to both. The discussion that follows briefly describes these experts, outlines the services that they can provide, and identifies the situations in which insureds and insurers typically elect to use their services. (For a listing of claims specialists, visit the claims section of the Resource Directory.)
Specialists Used by the Insurer
Insurers virtually always use at least one type of claims specialist in the handling of every claim: claims adjusters. Depending on the particulars of each claim, the insurer may also elect to use insurance claims accountants and attorneys.
Staff and Independent Adjusters
Insurers use two different types of adjusters to investigate and settle claims: staff adjusters and independent adjusters. Staff adjusters are employees of the insurer; they adjust claims only for the insurer that employs them. Independent adjusters, on the other hand, are separate business firms that offer claims-adjusting services to insurers for a fee. Staff adjusters receive a salary from the insurer, whereas independent adjusters usually charge insurers for their services on a time-and-expense basis.
Insurers vary with respect to their use of staff versus independent adjusters. Some use staff adjusters exclusively, while others use independent adjusters exclusively. Still others use both, depending on such factors as the location of the loss and the type of claims expertise needed. An insurer may engage an independent adjuster on a case-by-case basis, to handle particular claims, or may designate an independent adjuster to settle all claims of a certain type or size or all claims under a particular policy. There are a number of large, well-known independent adjusting firms. There are also a number of small independent adjusting firms, many of which are operated by former employees of the very large firms.
Regardless of whether the insurer uses a staff adjuster or an independent adjuster to handle a given claim, the role of the insurer's adjuster is to determine the following.
The cause of the loss
Whether the policy provides coverage for the loss
The extent of property damage
Which items should be repaired, which items should be replaced, and what should be done with the damaged property
The cost to repair or replace the property
The amount that the insurer should pay the insured
The insurer's adjuster can also advise the insured on what steps to take to prevent further damage and to minimize the loss, and, if requested, direct the insured to firms that can provide the necessary cleanup and repair services. In performing all of these tasks, the adjuster involves experts from other fields, if necessary.
Insurance Claims Accountants
For large, complex claims, especially those involving business interruption and extra expense losses, insurers often hire accounting firms to calculate the estimated loss and to evaluate the insured's calculations. Typically, the accounting firms that insurers use are "boutique" accounting firms that are devoted entirely to insurance claims accounting for insurers. These firms, sometimes referred to as forensic accounting firms, do not do other types of accounting work, and they do not make their services available to insureds.
Of course, insurers sometimes also involve attorneys in property claims. Insurers typically involve attorneys in property claims when there is some question as to whether the loss is covered, to provide guidance as to whether the claim should be paid or denied, and to prepare for a court battle if one is expected. If arson or some other type of fraud is suspected, it is advantageous for the insurer to have the attorney direct the investigation, because the information gathered is then protected by attorney-client privilege. The same is true of property losses that may have been caused by a third party. In such cases, the insurer may involve an attorney in anticipation of a later subrogation action against the third party. The insurer may elect to use a staff attorney, particularly for coverage opinions. Often, however, an outside firm is engaged. Although there are exceptions, most attorneys that make their services available to insurers do not make them available to insureds (and vice versa). Attorneys usually charge insurers for their services on a time-and-expense basis, although graduated percentage-of-recovery fee schedules are sometimes used in connection with sizeable subrogation actions.
Specialists Used by Insureds
Although it is not required, the insured may also elect to engage claims specialists to assist in settling a commercial property claim. Reasons often cited for an insured's decision to hire a claims specialist include the following.
In a claims situation, the insurer and the insured have naturally opposing interests. The insurer's interests are generally best served by making payment of the least possible amount, whereas the insured's interests are generally best served by receiving payment of the greatest possible amount.
Since the insurer has a claims specialist representing its interests, the insured needs a claims specialist representing its interests to be on equal footing with the insurer.
Hiring a claims specialist allows the insured's personnel to continue to focus on business operations, rather than spending their time on achieving a satisfactory insurance settlement.
Agents and Brokers
Agencies and brokerage firms of all sizes usually can be counted on for help in resolving coverage disputes for their clients, since they specialize in arranging coverage. The availability of other types of help depends largely on whether the insured's agent or broker has someone with extensive claims handling experience on staff. The major national brokerage firms generally have experienced claims specialists on staff to assist their clients with claims. Many of these specialists have the expertise to guide the insured through the recovery process and to help the firm's management determine and then achieve their post-loss priorities, even when there is no disaster recovery plan to follow. (One such seasoned professional describes this part of his job as "creating the client's contingency plan after the fact.")
Claims specialists of this caliber can also guide the insured's staff in preparing a thorough and effective proof of loss for the claim. The classification of a given expense can make a difference in the amount paid by the insurer, so this kind of expert claims assistance is extremely valuable. For instance, the cost of providing pizza and soft drinks to employees working nearly around the clock to hasten the insured's recovery will probably be reimbursed as a loss mitigation expense—but only if the documents submitted to the insurer explain how incurring this cost contributed to the loss recovery. Note, however, that even when the agent or broker can provide truly expert claims assistance, the responsibility for actually preparing the documentation required for loss payment normally rests with the insured.
Many agencies simply are not large enough to have an experienced claims specialist on staff. In that case, the agent's usual role is to notify the insurer of the loss, put the insured in touch with the insurer's claims representatives, stay in touch with both the insurer and the insured to ensure a smooth process, and attempt to intervene on the insured's behalf if it appears that the client's claim may be unjustifiably denied.
As a rule, there is no separate, identifiable charge for claims assistance that the agent or broker provides. It is considered a normal account service and is contemplated in the agent's fee or commission.
Insurance Claims Accountants
Sometimes insureds turn to accounting experts for assistance with a claim, just as insurers do. Some insurance claims accounting firms offer a full range of claims adjusting services, as follows.
Investigating the cause and extent of damage
Determining what repairs are needed
Obtaining estimates on the cost of repairs
Assembling any documents needed to prepare a proof of loss
Preparing the insured's proof of loss
Negotiating with the insurer on the settlement
In practice, however, these specialists are seldom involved in straightforward, direct-damage-only losses. Their specialty is handling very complex claims, particularly those that involve business interruption and extra expense losses, because of the need to quantify and document the financial loss suffered by the insured. Accordingly, insureds often elect to use an insurance claims accountant to handle the business interruption and extra expense portion of the loss only. In these instances, there may or may not be other claims specialists involved in other aspects of the claim.
Whether the involvement of an insurance claims accountant is warranted depends on several factors.
The complexity of the claim and the degree of difficulty in quantifying the insured's loss
The availability of a claims specialist on the agent's or broker's staff to instruct the insured's accounting staff in preparing the documentation required for a complex business interruption claim
The qualifications of the insured's accounting staff
The amount of time the insured is willing to have these individuals spend on preparing the insurance claim
Whereas insurers use "boutique" insurance claims accounting firms that provide services only to insurers, insureds use either the business insurance division of a public accounting firm or a "boutique" insurance claims accounting firm that provides services exclusively to insureds. There are relatively few "boutique" accounting firms that offer their services to insureds. Insurance claims accountants typically charge for their services on a time-and-expense basis.
In connection with commercial property claims, insureds typically hire attorneys to contest the denial of a claim or a settlement offer that is deemed unacceptable. Attorneys may also be involved when there are injuries in connection with the property damage or when there is damage to property of others. Finally, the insured may elect to hire an attorney to handle a commercial property claim that involves a pollutant release or some other potential violation of regulatory rule or law. In such situations, it may be advantageous to have the attorney hire investigators to gather the facts, because the information is then protected by attorney-client privilege. As previously mentioned, most attorneys that make their services available to insurers do not make them available to insureds (and vice versa). Although percentage-of-recovery fees are sometimes encountered, attorneys working on commercial property claims usually charge insureds on a time-and-expense basis.
Public adjusting firms offer claims-adjusting services exclusively to insureds, rather than to insurers. Once engaged, public adjusters usually handle the insured's claim from start to finish. They investigate the cause and extent of damage, determine what repairs are needed, get estimates on the cost of repairs, assemble any documents needed to prepare a proof of loss, prepare the insured's proof of loss, and negotiate with the insurer on the settlement. Public adjusters usually receive a stipulated percentage of the insured's loss recovery (up to 10 percent) as compensation for their services. In marketing their services, public adjusters generally assert that the increased loss recovery that they can secure for the insured will more than cover their fees.
Public adjusters are known for their zealous efforts to secure the most favorable loss settlement possible for the insured. Unfortunately, however, there have been incidents of fraudulent conduct on the part of some public adjusters. Consequently, public adjusters as a group do not enjoy a favorable reputation. Insurers generally scrutinize claims submitted by public adjusters much more carefully than others. Also, an insured that elects to hire a public adjuster may find that the agent's or broker's claims representative is unwilling to be involved in the claim.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.