Insurance Post

Fair play


The fact that a relatively small number of loss adjusting firms control a significant slice of the UK market has many questioning their impartiality but, as Michael Weatherhead explains, it is possible to avoid conflicts of interest

A small number of adjusting houses command a significant part of the market and there is a perception that conflicts of interest are inevitable. This is partly because insurers have consolidated and inevitably find themselves on both sides of the fence. While that is unavoidable for an insurer, it is entirely avoidable for an adjuster.

There are different levels of conflict and different views as to when a situation does and does not involve a conflict of interest. The courts will, however, take a dim view of conflicts of interest and, if there is any level of conflict in a case before the courts, the adjuster will probably get into difficulties.

So, what is the difference between a conflict of interest and a dual interest? A role of dual interest is where an adjuster is acting for the insurer of a landlord and tenant to determine quantum; that is, there are issues to determine between the landlord and tenant but this would not be regarded as a conflict of interest.

There is no privileged information in a dual interest situation - it is simply an interpretation of clauses in a lease. If there were issues of possible liability for each other's losses, then that is a conflict as the adjuster is party to privileged information arising from cause investigations, which is likely to be known by only one of the parties.

Conflicts of interest

Adjusters can generally act for contractually related parties relative to the determination of quantum without a conflict of interest, as this is a similar role to a mediator. However, where there is a recovery action between insured parties, the same adjuster or adjusting company cannot act without having a conflict of interest.

In HRH Prince Jeffri Bolkiah v KPMG, it was held that a conflict of interest arises where confidential information is held in respect of a client and that information might or would be relevant to another client.

There is nothing legally preventing a firm of adjusters taking on losses where there is a conflict of interest. The Chartered Institute of Loss Adjusters' charter requires only that all interested parties are notified and agree. Often the agreement is given with a reassurance of 'Chinese walls' - but how effective is this?

The House of Lords was not impressed by KPMG's version in the above case, and took the view that there should be a presumption that information would move within a firm. A robust system requires physical separation of the locations where information is kept; isolation of computer systems; training and education to ensure all staff are familiar with the procedures; a compliance officer to monitor the system and a clear disciplinary code for breaches.

A robust regime can be set up but it is only something that you might expect where frequent conflicts arise. For most adjusters, these are infrequent matters and the arrangements are likely to be ad-hoc or at best a paper procedure.

All adjusters want as much business as they can get but is the profession doing itself any favours by accepting such instructions and, in some cases, fighting a desperate rearguard action to retain both? There is certainly no benefit to insurers or insureds for their adjuster to have a conflict. At best, nothing will come of it; at worst, one of the parties' interests will be compromised. If the only party to benefit from a conflict of interest is the loss adjuster, why is a conflict tolerated?

Conflicts of interest mostly arise with adjusters' commercial connections. Having accepted an instruction, an adjuster is then approached by another client and accepts instructions there as well. Often, this conflict is not initially known but soon it becomes clear and the adjuster faces a dilemma. Which instruction was received first? Which is more lucrative? Can it keep both?

Adjusters ought to be considering whether anyone's interests suffer if they take both instructions and whether their clients are best served if they decline one. Insurers, brokers and corporate entities should consider carefully what possible benefit there is in using conflicted adjusters. What is the alternative? Obviously, to instruct another firm of adjusters.

In the case of the Buncefield explosion, it was suggested there was insufficient adjusting capacity to avoid conflicts. This is not true - there is an over-capacity in the adjusting market, the very thing that prompts the competition for fees and the willingness to take on conflict situations.

Some adjusters may feel that refusing an instruction will damage relationships but there are many examples that suggest the contrary. Teceris recently took instructions from insurers of a document storage facility. Subsequently, it declined instructions from insurers of several corporate clients for lost documents, as it was privy to information relative to the cause investigations.

Landlord and tenant

One declined client was impressed with its integrity but less impressed with the alternative adjusters that were also considering accepting instructions from the liability insurers of the storage company. Nor were the clients endeared to the adjusters acting for Teceris' landlord's insurers when it was discovered they had also accepted instructions from the liability insurers of a company possibly responsible for the spread of fire. This was particularly so, as Teceris had previously been approached to share the findings of cause investigations with them on the basis that there was no conflict between landlord and tenant.

The loss adjusting profession needs to get its house in order or it risks damaging its reputation for integrity and impartiality. The CILA should take the lead here and provide its members with guidelines as to where conflicts may arise and how to deal with them.

Such guidelines would discourage adjusters from becoming involved in conflicts of interest relative to cause investigation, in particular, and the quantification of losses for injured and responsible parties. If there is a reason such a conflict cannot be avoided, then the levels of control of information within an adjusting firm - which the adjuster is required to meet as a minimum - should be specified and complied with.

Michael Weatherhead is a partner and head of technical best practice at Teceris corporate and complex adjusting

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