BCCA ADDRESSES ROLE OF ADJUSTER

While most insurance professionals understand the role of an independent adjuster in co-ordinating the repair of insured property, the vast majority of insureds do not. This is often due to a lack of meaningful communication between insurer and insured about how the claims process works. Hoelzler Construction Ltd. v. Seidler, a recent decision of the BC Court of Appeal, illustrates how misunderstandings in this regard can lead to protracted and avoidable litigation.

The Defendants, the family Seidler, owned property which was damaged by fire. Their insurer appointed an adjuster to assist with the process of repairing of the insured property. The Plaintiff, Hoelzler Construction Ltd., was hired to effect the necessary repairs and reconstruction. However, before the work was completed, a dispute arose between the Seidler's and Hoelzler. As a result the dispute, Hoelzler was unable to complete the project and ultimately sued to recover monies it alleged were owing for labour and materials. As part of that lawsuit Hoelzler alleged that it had a contract with the Seidler's and that the adjuster had acted as the Seidler's agent for the purpose of entering into said contract. Hence, it argued, the Seidlers were liable to pay the balance of the contract amounts due.

At trial the Court agreed , holding that the adjuster had implied authority to act as the Seidler's agent in hiring Hoelzler to do the work. Therefore, based on the law of agency, there was a contract directly between the Seidler's and Hoelzler under which Hoelzler was entitled to sue.

The Court of Appeal upheld the trial judge's finding that an agency relationship existed between the Seidler's and the adjuster. In coming to this conclusion, the Court noted that the policy of insurance issued to the Seidler's was one of indemnity, under which the insurer had no obligation to directly undertake the repairs. Thus, the adjuster had a dual role: to quantify (on behalf of the insurer) the amount of the loss payable under the terms of the insurance policy and to facilitate (on behalf of the insured) the repair. The Seidler's, however, remained in ultimate control of the process: they approved the scope of repairs; they acquiesced to the adjuster soliciting bids on their behalf from interested contractors and they were not obliged to accept any bids submitted.

It is interesting to note that the Court did not discuss, nor does it appear to have been raised by either party at trial or on appeal, the insurer's right to elect to repair pursuant to statutory condition 13 (found in section 126 of the Insurance Act). Under that condition,an insurer, instead of making a payment to the insured, may repair, rebuild, or replace the property damaged or lost by giving the insured written notice of its intention so to do within 30 days after receipt of the proof of loss. Although the Court of Appeal stated that there was "no legal foundation" for the insurer to authorize the adjuster to contract with Hoelzler, if the insurer had elected to repair, there would in fact be such a legal foundation. In many situations, depending on how the independent adjuster actually intervenes in the repair process, there may be room to argue that it was the insurer, not the insured, who made the contract with the construction company and who is therefore liable for the amounts due (and indeed, for any deficiencies inthe repair itself).

Had the Seidler's better understood the process in which they had become involved, it is doubtful that this litigation would have ensued (at least not with respect to the issues which formed the basis for the suit). Insurers and adjusters alike should consider providing insureds with an "information sheet" early on in the claims process to avoid such unfortunate situations. As well, of course, the use of appropriate documentation (particularly authorisations signed by the insured), is to be recommended.

If you have any questions about the decision or any other insurance matter, please contact Valerie Dixon (telephone 604-891-7743 e-mail vsd@cwilson.com) or any other member of the Clark Wilson LLP Insurance Practice Group.