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The majority of courts that have considered the question of whether an independent insurance adjuster can be held liable for negligence to policyholders arising from the administration of claims have rejected the cause of action of adjuster negligence. Until recently, 13 jurisdictions had found that insurance adjusters did not owe independent duties to policyholders (Alabama, Arizona, California, Florida, Mississippi, Missouri, Nevada, New York, North Carolina, Pennsylvania, South Carolina, Texas and Vermont).

These courts have identified five principal reasons in rejecting an independent tort: (a) lack of contractual privity; (b) general public policy consideration; (c) imposing an independent duty would create conflicting loyalties; (d) the adjuster is controlled by the insurance company; and (e) the cost of imposing a duty outweighs the benefits.

Recently, the number of jurisdictions rejecting adjuster negligence has grown. In 2014 the Vermont Supreme Court rejected adjuster negligence as an independent tort and, more recently, in 2015, the U.S. Seventh Circuit Court of Appeals, interpreting Indiana law, found that Indiana would find that claim adjusters owed no legal duty to insureds.

In Murphy v. Patriot Ins. Co., 106 A.3d 911 (Vt. 2014), the Vermont Supreme Court rejected an independent tort for adjuster negligence. The Vermont Supreme Court found that the rejection of an independent negligence tort was consistent with the holding of a majority of courts that had considered the issue. Those courts had found that the relationship between the insured and the insurer was defined and governed by the insurance policy and its accompanying implied covenant of good faith and fair dealing. Recognizing that the relationship between insurer and insured was fundamentally contractual, defined and governed by the contract provisions in the insurance policy and the covenant of good faith and fair dealing therein, the Vermont Supreme Court held that a negligence claim can exist only if there was a duty independent of any contractual obligation. Because there was no compelling policy or other basis for imposition of an independent, extra-contractual negligence duty, and because there was no contractual privity, the Court rejected an independent tort of adjuster negligence.

More recently, in Lodholtz v. York Risk Services Group, Inc., 2015 WL 542815 (7th Cir. 2/11/15), interpreting Indiana law, the Seventh Circuit U.S. Court of Appeals predicted that under Indiana law a claim adjuster owed no legal duty to the insured. The Lodholtz Court recognized, as did the Murphy Court in Vermont, that the majority of courts had rejected an independent negligence tort against insurance adjusters. The Court found that an insurance adjuster was the agent of the insurer and not the insured and, therefore, there was no direct relationship with the insured absent a direct contract with the insured. The adjuster’s duty was solely to the insurer and not to the insured. This conclusion comported with the general principles of Indiana agency law under which found that an agent (the insurance adjuster) was not liable for the actions taken on behalf of the principal (insurance company). The Court noted that its decision comported with the logic underlying insurance liability in Indiana. In Indiana, insurer liability for negligence was premised on the unique nature of insurance contracts. Because the insurance adjuster was not a party to the contract, the only adjuster liability was premised on the adjuster’s contract with the insurance company and not the insured and was therefore limited to the insurance company. The Court concluded that the relationship between the adjuster and the insured was sufficiently attenuated by the insurer’s control over the adjuster to be an important factor that militated against imposing a further duty on the adjuster being owed to the insured. Because the adjuster was not a party to the insurance contract, the adjuster was not subject to any implied covenant of good faith and fair dealing owed to the insured.

The Murphy and Lodholtz decisions bring the majority of courts rejecting an independent tort of adjuster negligence to 14. It is likely that number will continue to grow.

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Protect your home with a strong policy. Call Prestige Insurance Group, Inc. at (305) 969-8776 for more information on Miami home insurance.

(Article courtesy:Steven Plitt via Claims Journal)
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