It can be one frightening experience on top of another.

First, the insured suffers a major property loss. Then, as the settlement process begins, they learn that their insurance company is lining up a small army of professionals from many different fields to assist the carrier in settling the claim. The insured wonders if they should hire their own experts and not surprisingly, the first person they ask for advice is their agent or broker. Very quickly the insured’s claim dilemma also becomes a dilemma in client relations for the producer!

Before we explore a solution to both of these problems, it’s important to understand how the practice of involving outside experts in claim settlements has evolved.

Times Have Changed

Not so long ago, virtually all major property insurance claims were handled by senior general adjusters possessing the significant depth in education and training required to handle such claims. Whether working independently or for the insurance company, these adjusters were given substantial authority with which to get the job done. Thus equipped, they were well prepared and positioned to make the important decisions necessary for a prompt and equitable resolution of the claim.

But times have changed—and so has the insurance industry. The highly trained general adjuster is becoming harder to find. What’s more, the turnover of adjusters has increased dramatically, bringing less-experienced adjusters—who operate with much less authority—into the decision-making process. As a result, settlement decisions are being made at various levels by company claims managers and/or review boards who have no actual “hands on” experience with the losses being adjusted. Needless to say, they have no direct contact with the insured.

The industry’s response to this condition has been to rely heavily on outside experts to support the field adjuster. While using these experts in a support capacity is in itself nothing new, the manner in which they perform their services today differs greatly. These outside professionals are no longer called upon by the field adjuster to support his or her decisions. Instead, in many cases the field adjuster is instructed by his or her superiors as to which experts to use. These experts often have the freedom of dealing with the insureds directly, subsequently producing reports that are sent directly to the field adjuster’s superiors. The reports can come from different experts without any overall coordination in the field. For example, the machinery expert’s report might be sent in absent any interaction with that of the building expert or accountant. Each may have different estimates of the time required for repairs.

The difference, of course, is that the adjuster in the field has very little if any control over—or opinion affecting—the reports created by the experts. Yet he or she is the one left to sort these all out with the insured!

The list of experts who might be called in to help settle a loss is as endless as the variety of issues and opinions that could arise in any given case.
The following list identifies some of the experts typically used by insurance companies and insureds:

Accountants
Appraisers
Architects
Attorneys
Civil Engineers
Contractors
Construction Estimators
Construction Managers
Disaster Recovery Specialists
Electrical Engineers
Forensic Accountants
Mechanical Engineers
Public Adjusters
Salvors
Structural Engineers
Testing Laboratories

Obviously, most insureds do not have such specialists in house, and the cost of hiring them outside can be high. It goes without saying that most insureds do not have the financial resources of the typical insurance company, and even those that do have not made budget allowances for such costs. Very often the insured expects that these costs—which they wouldn’t have incurred had it not been for the loss—should be paid by the insurance company.

All of this puts the broker or agent in a difficult situation. In almost all cases, he or she has to explain to the insured that their policy does not cover the costs of the experts the insured might hire. The result can be the serious crisis in client relations we mentioned at the outset, triggered by the client’s fear that without supporting data from their own experts, they will be at a distinct disadvantage when it comes to negotiating their claim with the insurance company.

A Solution

Fortunately, there may be a solution, and it lies in an endorsement to the insurance contract which specifically addresses the “costs of adjustment” not otherwise covered in the policy. Various insurers have taken slightly different approaches to this coverage. Here are several examples: One insurance company has added a limited version of such an endorsement as part of the coverage extensions to its Portfolio policy. The extension covers only those expenses incurred by the insured to prepare the inventory and other data necessary to file a proof of loss, with a 10 percent or $10,000 (whichever is less) limit. The provisions, however, specifically exclude all other costs incurred to prepare or submit the claim. Although this provision strictly limits the expenses it covers, the limit possibly could be extended by additional endorsement. Another endorsement sometimes found is entitled Claims Adjustment Expenses and states, “It is agreed that all claims adjustment expense incurred by the insured will be allocated on a pro rata basis among those parties in the payment of a loss.” This endorsement is very broad and arguably covers expenses for all experts on our sample list except attorneys. (Attorneys’ fees are generally recognized as unrecoverable in insurance claims or in litigation unless they are specifically addressed in the contract or by statute.)

Still another endorsement, which offers broad coverage but which also protects the insurer because of its more restrictive language and dollar limitations, is called the Cost of Inventory, Appraisal or Adjustment endorsement. It reads as follows:

“In consideration of an additional premium included, coverage under this policy is extended to cover any cost of inventory, appraisement, adjustment and preparation of loss data, not to exceed $50,000, in connection with any claim covered under the policy. It is understood and agreed that the insurance granted under this endorsement is intended to cover any and all costs as mentioned above which the insured deems necessary, in the event of loss, and it is further understood and agreed that insurance under this endorsement is not subject to the average clause, if any, contained elsewhere in this policy.”

If a broker or agent is able to endorse a particular policy to cover the costs of hiring experts, language similar to the third example is preferable. It is clearer as to what types of expenses are covered, and both the insured and the insurer know up front what the dollar limits of exposure to the costs are. The size of the limits can be adjusted depending upon the risk being underwritten, however, changing the categories of experts to be covered is not advisable.

• Endorsements like the ones discussed here can benefit both the client and the agent or broker. The client has the confidence of knowing that should a loss occur, they will be able to hire the outside experts they will need to present their case as thoroughly and convincingly as the insurance company will present its own. And at the very outset of their relationship with the insured, the agent/broker eliminates the danger that someday he or she could be in the uncomfortable—or even account-threatening—predicament of having to explain to the client that their policy does not cover the costs of hiring potentially crucial expert counsel.

From both perspectives, these endorsements are an effective way to solve the “expert” dilemma!

	Drew D. Lucrell, Esg., CPPA is an employee of Adjusters International in Seattle, Washington.