Should the Insurance Adjuster Be Sued? Steve Badger Says “No” But Some Say “Yes”

I received an email alert from LinkedIn that Steve Badger mentioned me in something he wrote. You never know what good ole Badger may write. So, a few days ago, Badger was writing and complaining about a policyholder lawyer (nothing new about that) stating:

A policyholder attorney in the Valley has decided to no longer sue the insurance company for unpaid claims, but instead he is just suing the Texas adjusting firm and adjuster. That’s right. He is not suing the insurance company that issued the policy but just the people who adjusted the claim.

I often do not check my social media for days. Indeed, I personally think it is a trap for our egos and a big waste of time otherwise spent on productive efforts such as working on our clients’ cases, having human interaction with our family and friends, or doing what is “hard,” as discussed in Saturday’s post, The Public Adjuster Hero—Being a Great Public Adjuster Serving the Policyholder Is Hard.

So, after hearing that he suggested I was in agreement with a post he wrote based on my silence, I wrote:

Sorry. I did not read it. After I do, I will get back with you.

Now that I am back to work following an endearing Father’s Day, which included a brunch with my father, my children, and my grandchildren, I can say that I have written on this topic on more than one occasion. In “Can The Individual Adjuster Be Sued For Statutory Bad Faith? Can The Adjuster Be Sued In Colorado?” I made the following observations:

Following a speech about claims ethics and claims practice lawsuits, one of the questions I get asked is whether the insurance company’s adjuster can be sued for bad faith. The answer is that it depends on the state law. But I often ask the question—’Why do you want to sue the individual adjuster when the adjuster is already an agent of the insurance company?’

Some policyholder attorneys will tell me they sue the in-state adjuster to avoid the conservative and insurance company-friendly federal court. I personally do not do this….

Some argue that by holding the individual accountable for wrongdoing, it helps prevent the bad conduct. This argument is valid.

In the vast majority of states, the adjustment of an insurance claim is a non-delegable duty. This means that whoever is appointed to adjust the loss has agency authority for the insurance company. If that adjuster acts in bad faith, the insurance company has acted in bad faith.

…

The insurance industry showed up en masse with six amicus parties successfully arguing against allowing the individual adjuster to be sued. The insurance industry would love the law to be that wrongdoing insurance companies can never be held accountable for their actions except for the payment of the contract.

For all who get upset, emotional and argumentative about Steve Badger, Matthew Monson or any other respected insurance company defense attorney arguing in court or the court of public opinion that the insurance adjusters should not be sued, give me a break. That is their job. Re-read the last two sentences from the above quote—the insurance companies and their adjusters do not want to be held accountable for anything that is extra-contractual.

You are wasting your time and effort to convince them to publicly admit that punitive damages, consequential damages, jail time, or anything of the sort is appropriate for those individuals and their companies who are responsible for their slow-paying, float-paying, wrongful denying, expert buying, report changing or anything that they do wrong. In this light, the insurance industry acts like an organized group of crooks who lobby the legislature to be free of laws that have any impact on their otherwise illegal and wrongful stealing of money from their own customers. They want the lone penalty to be the amount that is owed on the contract.

The policyholder attorney making the arguments complained of by Badger has every right to zealously represent his client the way he best sees fit. The argument is not unethical and is fairly novel based on technical and literal language of the Texas statutes. Badger and his colleagues are just upset and whining that they were unsuccessful in convincing a trial judge that such a legal strategy is not allowed under Texas law.

The national law on this topic has been unsettled for a long time and varies significantly from jurisdiction to jurisdiction. An excellent 34-page article written in 1987 by insurance defense attorney Rich O’Donnell, Imputation of Fraud and Bad Faith: The Role of the Public Adjuster, Co-Insured and Independent Adjuster, 1 noted the following:

The questions discussed in this paper are fairly precise. Unfortunately, the answers are not. The answers vary greatly from jurisdiction to jurisdiction because they are based on legal principles which vary greatly from jurisdiction to jurisdiction. In addition, many of the ultimate answers turn on the exact language of particular policies and/or particular statutes. Precise answers are provided when they are available but, due to the relatively limited length of this paper, its object is to identify the critical issues rather than to provide specific answers for each jurisdiction.

Public adjusters and policyholders should also take notice of this article. Given their claims of expertise and position in the claim as the policyholder’s representative, public adjusters are trusted to act within the confines of legal and ethical standards. However, the relationship between public adjusters and policyholders introduces a layer of legal complexity and accountability, particularly when public adjusters commit acts of misrepresentation. Misrepresentation in this context refers to any false statement or deceitful conduct by the public adjuster aimed at enhancing the claim benefits unjustly. This could range from intentionally overstating the damages to fabricating, withholding or altering documentation related to the claim.

The crux of the legal issue arises when these misrepresentations are potentially imputed to the policyholders, regardless of the policyholders’ direct involvement or knowledge of such actions. The imputation of such actions depends on whether the public adjuster was acting within the scope of their authority as defined by their contract or as obligated by statute. The article argues that if a public adjuster acts within their scope of authority, their actions—including any misrepresentations—can legally bind the policyholder. This concept is rooted in the principle of agency law, which holds principals (in this case, policyholders) responsible for the acts of their agents (public adjusters) when these agents act within the bounds of the authority given to them.

The article highlights that the misrepresentations of a public adjuster can indeed be imputed to the insured under certain conditions and in certain jurisdictions. Brian Goodman, the General Counsel of the National Association of Public Insurance Adjusters (NAPIA), noted this concern about the need for detailed accuracy by public adjusters and avoidance of misrepresentation claims by insurers in his presentation at the 2024 NAPIA Annual Conference.

For all adjusters, which includes company, independent, and public adjusters, you may get sued with all kinds of claims and for various reasons—some legitimate and many not. Even if you are not liable, the cost of defending yourself with qualified legal counsel can be staggering. My suggestion is that all adjusters carry significant malpractice insurance with broad grants of coverage because the issues raised by Steve Badger in his LinkedIn article are not going away any time soon. They are complex and apply differently depending on circumstances and varying state laws.

Thought For The Day

Do good, be honest, and not only will you be hired again and again, but you will sleep well too.
—Richard Branson

1 Richard K. O’Donnell, Imputation of Fraud and Bad Faith: The Role of the Public Adjuster, Co-Insured and Independent Adjuster, 22 Tort & Ins. L.J. 662 (Summer 1987).