Fiduciary Duties, Ethics, and Unfair Claims Settlement Practices
Where the duty comes from
An adjuster acts in a fiduciary capacity toward the insurer and owes good faith and fair dealing to claimants. That means no personal interest in the outcome, no referral fees from vendors or repair shops, no use of claim information for private gain, and no commingling of funds. Premiums and claim funds must be handled in trust; confidentiality of insured and claimant information is required, including under New York's privacy regulation.
The prohibited-practice list
Learn the conduct catalogued by §2601 and Regulation 64: misrepresenting policy provisions or facts; failing to acknowledge or act promptly on communications; failing to adopt reasonable investigation standards; refusing to pay without a reasonable investigation; failing to explain a denial in writing; failing to affirm or deny coverage within a reasonable time; making a settlement offer without intent to perform; offering substantially less than a reasonable person would believe the claim is worth; requiring unnecessary documents such as tax returns; using a release or check legend that misleads the claimant about the claim's scope; and threatening or coercing a claimant.
Related ethics rules: rebating or offering inducements to place business is prohibited; "twisting" and misrepresentation in sales are prohibited; adjusters must be licensed and may not exceed statutory fee caps as public adjusters; suspected fraud must be reported through the insurer's fraud-prevention plan and special investigation unit; and claim files and complaint records must be maintained and produced on regulatory examination.
Traps: a prompt denial can still violate the law if the reason is not stated in writing; a check marked "full and final payment" may not extinguish a disputed claim; and an adjuster's personal relationship with a preferred contractor is a conflict, even absent proof of harm.
Rule of thumb: ask whether the file would look fair to an outside reviewer - if the claimant cannot tell why the claim was reduced or denied, the file is deficient.