Canadian Underwriter

Adjuster’s fine halved on appeal in a replacement cost dispute over a tractor

April 15, 2021   by David Gambrill

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A Manitoba insurance adjuster has been fined for failing to carry out instructions from an insurer to inform a claimant about how to replace their tractor under the terms of the insurer’s Limited Waiver of Depreciation.

The adjuster, Douglas Boyd Friesen, argued before the province’s insurance regulator, the Manitoba Insurance Council, that he had assumed the insurer had already told the claimants that they had to buy a new (and not a used) replacement tractor under the terms of the waiver.

He said he could not be found guilty of failing to notify his clients about the policy when he knew for a fact that the insurer had told the claimants about the policy directly. What’s more, he argued, he did not have the authority to second-guess the insurer’s coverage or determine the issue of coverage.

Council ruled that the adjuster should have carried out the insurer’s instructions to inform the claimants himself. In doing so, it noted the insurer had used a shorthand way of informing the claimants about the policy — a term the adjuster would have understood, but that the claimants did not.

Initially, council fined the adjuster $1,000. But it sliced the fine in half after a hearing, in which the council found the claimants were trying to bypass the adjuster to talk to the insurer directly.

“Council agrees there was much direct contact between the complainants and their insurer,” the council wrote in its decision, released in March. “The complainants were clearly trying to bypass the licensee [adjuster]. The insurer should not have indulged the complainants.

“Council is sympathetic to the predicament these circumstances presented to the licensee. It is for this reason that council, despite the distinct breach aforesaid by the licensee, has reduced the fine and costs assessed from what were originally intended.”

The dispute turned on what the claimants could claim for a replacement tractor under their insurance policy’s Limited Waiver of Depreciation.

In November 2018, the claimants had a fire loss that destroyed their tractor.

Two times over the next month, the insurer emailed the adjuster a copy of their Limited Waiver of Depreciation wordings so that the adjuster could familiarize himself with the coverage.

In December 2018, the insurer approved a payment to the claimants of $74,000, representing the actual cash value of the tractor.

By email dated Jan. 9, 2019, the insurer told the adjuster that the maximum amount payable under the Limited Waiver of Depreciation would be the tractor’s original purchase price of $99,320.

A week later, the insurer sent an email to the adjuster instructing him to send a letter to the claimants. The insurer’s email to the adjuster stated: “I would simply advise the insured that further payments on tractor would require replacement of tractor and indicate maximum payable (up to $99,320.00 original purchase price).”

In January 2019, without speaking to the adjuster, the claimants purchased a used 2010 tractor valued at $50,000, which was $24,000 less than the insurer’s $74,000 settlement amount. The claimants were under the impression that the insurer would be sending them a cheque for $25,320 — representing the balance between the actual cash value payment and the $99,320 maximum allowable under the policy — which the claimants would apply to their replacement tractor loan.

The adjuster argued before council that the insurer had explained how the coverage worked in communication directly to the insureds. But council found that when the insurer did mention the policy wording to both the claimants and the adjuster, “replacement” was the term used, not “replacement with a new tractor.”

“At various points in communications with the [claimants] and with the [insurer], the insurer used the word ‘replace’ when it meant ‘replace with new,’” council wrote in its decision. “The licensee would have understood this abbreviation. The complainants manifestly did not.”

Council ruled that by not telling the claimants about this directly, as instructed by the insurer, the adjuster had therefore broken Section 1 of the Code of Conduct, which states: “The Adjuster Shall…provide full disclosure to the insured of coverage for which the policy must respond…”


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