All adjusters are called upon to make good faith evaluations of loss. The obligation of all adjusters is to make certain that the policyholder receives the full amount of benefits owed under the policy. When disagreements occur over the value of loss, appraisals and umpires often become involved. The recent arrest of a public adjuster I posted about in Public Adjuster Arrested For Intentionally Inflated Fire Claim Denies Allegations, involves all these issues.

To give some legal context in the field of insurance, good faith opinions – even if mistaken – are not fraudulent. This longstanding law is probably best explained in J & H Auto Trim v. Bellefonte Insurance Company:1

This (holding) presents no danger that valuable rights will be lost by mere mistakes or errors in calculations, exaggerations in the amounts of the claims, or the assertion, even though doubtful, of coverage or other contentions as to all or particular items when these flow from the mistaken good faith judgment or opinion of the assured or his agents…. (T)he insurer must satisfy the heavy burden of establishing that the conduct complained of was done and was a willful, purposeful misrepresentation of facts having substantial materiality under circumstances to which the law would attribute the intention to defraud, that is, cheat, deceive and cause the insurer to do other than that which would have been done had the truth been told.

The arrested public adjuster relied on a licensed engineer, Hasan Arouri, of TLC Engineering. Arouri’s engineering report called for replacement of trusses in the attic and had photographs of damage on the underside of the roof. I suggest that readers look at the charred trusses in the photos and ask what a replacement cost insurance policy should do in such a damage situation. I bet most would say, “replace the trusses.”

Still, the matter went to appraisal and the Umpire, Jon Doan, apparently disagreed. Doan thought they should be repaired rather than replaced. Jon is a friend, the First Vice President of the Windstorm Network, and someone that I respect and have the highest regard for, as do many.

The public adjuster community is ablaze with understandable discussion about Jon Doan having a family relationship with the insurance company’s adjuster, Shawn Starbuck. Apparently, Doan was the replacement umpire for John Voelpel at the request of the insurance company’s appraiser. It has raised questions about the reason for the replacement and the appearance of a conflict of interest.

The Windstorm Insurance Network has an Umpire Code of Ethics. It states in part:

After accepting an appointment and while serving as an Umpire, a person should avoid entering into any business, professional, or personal relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality. For a reason- able period of time after the decision of a case, persons who have served as Umpires should avoid enter- ing into any such relationship, or acquiring any such interest, in circumstances which might reasonably create the appearance that they had been influenced in the appraisal by the anticipation or expectation of the relationship or interest. Existence of any of the matters or circumstances described in this paragraph C does not render it unethical for one to serve as an Umpire where the parties have consented to the Umpire’s appointment or continued services following full disclosure of the relevant facts in accordance with Canon II.

My understanding is that Jon Doan let the policyholder’s appraiser know of the family relationship with Shawn Starbuck, and the appraiser did not object. A lesson for all is to not get involved or agree with this type of conflict because no matter what, it is a “no win” situation for all. It leads to unfair speculation about the propriety of actions and decisions.

The amount of the award was $244,946. It would have been considerably higher if the trusses and roof areas been estimated as a replacement rather than a repair. While I like John Doan, I would be really upset with him and the panel if it were my building and I got stuck with “repaired” trusses that are obviously burnt rather than new trusses. Many that have looked at the photographs agree with me.

Part of the point of this post is that humans can have very passionate differences of opinion. While I might shake my head about Jon’s reasoning, he probably has some rationale for it. Of course, we always think our own view is right.

So let’s take a look at the numbers. The initial estimate by the insurance company’s adjusters was $73,249.21. The appraisal award of $244,946.00 is 334% higher than the insurer’s initial claim evaluation. The appraisal award for the building is 188% higher than the insurance company’s later retained expert estimate.

The appraisal award for the personal property was 630% higher than the insurer’s personal property payment. The appraisal claim submitted by the insured for personal property is only 188% higher than the appraisal award compared to the insurance company’s under evaluation of 630%.

I wonder if Jeff Atwater would demand an investigation into the reasons why and how the insurance company underpaid the claim if he knew of all the facts? Jeff Atwater once called for an investigation of QBE Insurance Company and its hardball claims tactics before being elected to the CFO position.

Since “the obligation of all adjusters is to make certain that the policyholder receives the full amount of benefits owed under the policy,” it raises the question of whether insurance company adjusters, claims managers, and others should be prosecuted for insurance fraud when they intentionally underpay claims through various ingenious methods. This rarely happens because it is almost accepted from the public that many insurance companies do these practices as normal business operations. “The authorities” and management of insurance companies seem only concerned with instances of overpayment, forgetting about customers being ripped off at the time of insurer performance.

This criminal case and story will be followed closely. There are reasons why the insurance industry wants to raise the “F” word. I will detail some of them and the problem of the culture it creates on Monday.

My son, Chase Merlin, is graduating this weekend from the University of Pennsylvania. I am very proud of him, and he is the first in the Merlin family to graduate from an Ivy League School. So, in honor of him and the founder of Penn, the Positive Thought for the Weekend is:

“An investment in knowledge pays the best interest.”
– Benjamin Franklin, Founder of the University of Pennsylvania


1 J & H Auto Trim v. Bellefonte Insurance Company, 677 F.2d 1365, 1372 (5th Cir. 1982).