Ethical and Legal Responsibilities of Adjusters
What this domain tests
The adjuster’s legal duties and ethical obligations: good faith, confidentiality, conflicts of interest, and fair claim handling.
Core duties
- Good faith and fair dealing: insurers and adjusters must not unreasonably delay or deny benefits. Bad-faith exposure can arise from unreasonable conduct, not merely a wrong coverage decision.
- Fiduciary and authority limits: settle only within granted authority; never commingle claim funds or claim personal expenses.
- Confidentiality and privacy: protect personal, medical, and financial information; share only with those who need it for the claim.
- Conflicts of interest: disclose relationships with repair vendors, investigators, or claimants; do not accept undisclosed referral fees or gifts that could influence handling.
- No legal advice: explain policy provisions and the claim process, but do not tell a claimant what their legal rights are or draft legal documents.
- Fairness and nondiscrimination: apply the same standards to all claimants; document objective reasons for differing treatment.
- Idaho standards: Idaho Code §41-1329 makes misrepresentation, unreasonable delay, and failure to investigate unfair claim settlement practices.
Worked example
A represented claimant demands the policy limit and asks the adjuster whether to sue. The adjuster should not give legal advice. Instead, the adjuster confirms representation, communicates through the attorney, evaluates liability and damages, and documents the evaluation. If the demand exceeds authority, the adjuster refers it to a supervisor. The adjuster may explain coverage and settlement options but cannot advise the claimant on litigation strategy.
Traps that cost marks
Giving legal advice; communicating with a represented party after notice of representation; hiding a conflict; treating a demand as a coverage decision; and documenting opinions as facts.