Claims Handling and Loss Adjustment
The claims lifecycle
Claims handling moves through notice/first report, verification of coverage, investigation, damage evaluation, negotiation, settlement or denial, payment, and subrogation or salvage recovery. The adjuster's first duty is coverage analysis: policy in force, insured and claimant status, covered peril, exclusions, conditions (notice, proof of loss, cooperation), and limits or deductibles. A classic trap is jumping to valuation before confirming coverage; questions reward sequencing.
Good-faith standards
Insurers owe duties of good faith and fair dealing. Bad-faith exposure arises from unreasonable delay, inadequate investigation, failure to explain denials, and unreasonable settlement demands. Statutory unfair claims practices acts list prohibited conduct. Reservation-of-rights letters preserve the insurer's position while investigation continues; a denial letter should state specific policy grounds. Prompt-payment statutes and interest penalties are commonly tested.
Valuation and adjustment
Replacement cost versus actual cash value (replacement cost less depreciation), agreed value, coinsurance penalties on property, and business income with a period of restoration all appear. Liability claims require reserving for both indemnity and defense, and the duty to defend can be broader than the duty to indemnify. Subrogation recovers from third parties; salvage reduces paid loss.
Worked example
A commercial building with an 80% coinsurance clause carries a $800,000 limit on a $1,200,000 replacement value. A $300,000 covered loss occurs. Required insurance is 80% x $1,200,000 = $960,000; the recovery is $300,000 x (800,000/960,000) = $250,000, less the deductible. Rule of thumb: always compute the coinsurance requirement before applying the limit.