The Role of Engineers in Insurance Claims

Increasingly, insurance companies are denying claims for loss and damage to homes and commercial structures on the basis of reports obtained from engineers during the course of adjusting the claim. In a typical scenario, a homeowner discovers that their roof has been damaged by a storm and reports a claim to their insurance company. The insurance company may send one of its own adjusters to inspect the property, or, in cases of widespread damage from storms, they may use the services of outside adjusters, often called “independent” adjusters to conduct the inspection. We have seen many cases where this “independent” adjuster inspects a loss and determines there is little or no damage, or that the damage they claim to see is less than the policyholder’s deductible, such that no payment is made to the homeowner.

The homeowner may then ask a contractor of their choosing to inspect the roof and prepare a report or estimate of what the contractor believes is storm-related damage, which is then sent to the insurance company with a request to reconsider. In our experience, it is often at this point that the insurance company will choose to engage the services of an engineering company to conduct its own “independent” and supposedly unbiased inspection of the insured property.

To be fair, if this engineering inspection results in payment of the homeowner’s claim, we are unlikely to learn about it. Homeowners who are satisfied with how their claim was handled and paid do not tend to hire a policyholder lawyer to review their case. But based on the cases we do see and handle, we have observed a pattern over the years, and it is not favorable to the insureds. In our experience, the engineering firm inspects the property, takes many photographs (but sometimes does not take photographs that actually depict what the homeowner or their contractor believes to be evidence of storm damage), and then prepares a report in which the engineer employs a definition of “damage” that does not appear anywhere in the policy of insurance, and based on that definition concludes that there is no “damage” to the structure. The insurer, relying on this “independent” report, denies the claim.

Insurers who deny claims based on a report like the one described above to deny an insurance claim are opening themselves up to a lawsuit for breach of the duty of good faith and fair dealing (“bad faith”) because they have essentially farmed out the claim handling to someone else who changes the rules (by changing the definition of “damage”) and uses this new rule to reach a particular conclusion. But what about the engineers themselves? Might they be subject to a suit by the homeowner if they know that their report is going to be used to deny a claim? What is the duty that a licensed engineer owes to the homeowner? After all, it was not the homeowner who hired the engineer in this hypothetical claim example. Does that mean the engineer can just say anything in a written report, knowing that the report will be used to deny an insurance claim?

This is a topic of much discussion among insurance practitioners and policyholder attorneys. The starting point for determining what the law expects from a licensed engineer may be the regulations with which they must comply. In Indiana, these include (but are not limited to) the following:

1. 864 IAC 1.1-11-4 Public Safety, Health, and Welfare
   • The engineer shall at all times recognize the primary obligation to protect the safety, health, and welfare of the public in the performance of professional duties. If the engineer’s professional judgment is overruled under circumstances where the safety, health, and welfare of the public are endangered, the engineer shall inform the engineer’s employer of the possible consequences and notify such other proper authority of the situation, as may be appropriate.
2. 864 IAC 1.1-11-6 Restricted Services for Assignment Outside Field of Competence
   • The engineer may accept an assignment requiring education or experience outside of the engineer’s field of competence, but only to the extent that services are restricted to those phases of the project in which the engineer is qualified. All other phases of such project shall be performed by qualified associates, consultants, or employees.
3. 864 IAC 1.1-11-7 Use of Seal Restricted
   • The engineer shall not affix the engineer’s signature and/or seal to any engineering plan or document dealing with subject matter in which the engineer lacks competence by virtue of insufficient education or experience, or to any such plan or document not prepared as described in 864 IAC 1.1-7-4.
4. 864 IAC 1.1-11-9 Professional Reports, Statements, and Testimony
   • The engineer shall be completely objective and truthful in all professional reports, statements, or testimony. The engineer shall include all relevant and pertinent information in such reports, statements, or testimony.
5. 864 IAC 1.1-11-12 Conflicts of Interest
   • The engineer shall conscientiously avoid conflicts of interest with the engineer’s employer or client, but, when unavoidable, the engineer shall forthwith disclose the circumstances to the engineer’s employer or client.
6. 864 IAC 1.1-11-13 Disclosure of Conflict of Interest
   • The engineer shall avoid all known conflicts of interest with the engineer’s employer or client and shall promptly inform the engineer’s employer or client of any business association, interest, or circumstances which could influence judgment or quality of services.
7. 864 IAC 1.1-11-20 Employment on Basis of Qualification and Competence
   • The engineer shall seek professional employment on the basis of qualification and competence in the proper accomplishment of similar work.
8. 864 IAC 1.1-11-22 Use of Name in Fraudulent or Dishonest Venture
   • The engineer shall not knowingly associate with or permit the use of the engineer’s name or firm name in a business venture by any person or firm which the engineer knows, or has reason to believe, is engaging in business or professional practices of a fraudulent or dishonest venture.

If your insurance claim has been denied by your insurance company based on the report of an “independent” engineer’s evaluation or report, you should seek legal counsel to determine whether your insurer has handled your claim fairly, and to determine what role the engineer may have played in the process.