Civil Claim Settlement Talks Involving Third Parties and Insurance Company Adjusters: When Should Lawyer Conduct Standards Apply?
Jeffrey A. Parness
Northern Illinois University - College of Law
St. John's Law Review , Vol. 77, p. 603, 2003
Operating on behalf of insurance companies, adjusters have long facilitated settlements of civil claims. Adjusters work both before and during lawsuits to help resolve differences between the companies and company insureds, thus engaging in first-party adjusting. Adjusters also facilitate pre-lawsuit and post-lawsuit civil claim settlements between their companies and those harmed by company insureds. Such third-party adjusting and first-party adjusting are quite distinct. They raise different issues regarding the application of professional conduct or civil procedure standards governing lawyers to nonlawyer adjusters.
Some important questions about applying lawyer standards to adjusters in third-party settings have been resolved, as in the areas of the unauthorized practice of law and the mandatory attendance of adjusters at settlement conferences in pending civil actions. Resolutions here demonstrate serious conflicts over the general applicability of professional conduct and civil procedure standards, prompting the need for more comprehensive study.
In examining third-party adjusting, a central question should emerge: When should insurance company employees be governed by the standards governing lawyers who facilitate civil claim settlements for their clients? Those who find the question bizarre need only consider the 2002 Washington Supreme Court decision in Jones v. Allstate Insurance Co. There the court found that some insurance company adjusters dealing with unrepresented third parties must abide by certain lawyer standards on truthful representations. They can also look to the Court of Appeals for the Eleventh Circuit 1991 decision in In re Novak, where the court found that a nonparty insurance adjuster, as well as the lawyer for the insured, could be compelled to attend a pretrial conference to discuss possible settlement of a third-party claim against an insured/client.
In approaching issues involving the application of lawyer standards to insurance adjusters, distinctions seem necessary between authorized and unauthorized legal practice acts; between pre-lawsuit and post-lawsuit conduct; between conduct before and after attorneys have been retained; between the regulatory authority of legislatures, courts, and administrative agencies; and, between post-lawsuit activities that occur within and outside of courthouses.
After briefly reviewing Jones and Novak, the paper explores other settings involving possible use of lawyer standards for third-party adjusting, including ex parte communications, privileged conversations, work product, settlement authority, and good faith negotiation. The paper urges that courts as rulemakers, legislatures, and administrative agencies should all have some voice in determining how adjusters should act and whether adjusters should abide by lawyer standards. The paper concludes that, at times, laws should treat differently comparable third-party actions by insurance adjusters and lawyers and ends with a call for more comprehensive inquiries into lawyer standards and third-party adjusting.
Number of Pages in PDF File: 22
Keywords: Civil Procedure, Insurance, Settlements, Adjusters, Settlement Conferences
Date posted: April 23, 2008