Claim Investigation: Practice Questions & Explanations

Claim investigation is the systematic gathering of facts to determine coverage and value. Key questions to answer: (1) What happened? — the cause of loss, sequence of events, parties involved; (2) When and where? — date, time, location relative to policy period and territory; (3) Is the loss covered? — does it fall within an insuring agreement and not within an exclusion; (4) What is the extent of damage? — physical inspection, expert opinions, repair estimates; (5) What is the value? — replacement cost, actual cash value, depreciation, market value; (6) Is anyone else responsible? — third-party liability for subrogation; (7) Is fraud suspected? — red flags requiring further investigation. Investigation methods: interview the insured and witnesses; inspect the property or scene; photograph and document; review documents (police reports, medical records, business records); consult experts (engineers, contractors, medical professionals, fire investigators); review the policy and applicable law. The adjuster must be impartial — neither rubber-stamping every claim nor presuming fraud. Investigation must be completed timely; unreasonable delays can constitute bad faith.

A Reservation of Rights (ROR) letter is sent by the insurer when coverage is uncertain — when the insurer must investigate and possibly defend a claim but has not yet determined whether the loss is actually covered. The letter formally notifies the insured: (1) The insurer is investigating and may provide a defense (for liability claims) or repair/payment (for first-party claims) under the policy; (2) The insurer is doing so without waiving any coverage defenses; (3) If investigation determines the claim is not covered, the insurer reserves the right to withdraw and deny coverage. Why used: in liability claims, the insurer often must provide defense even if coverage is uncertain (the duty to defend is broader than the duty to indemnify); without an ROR, the insurer might be deemed to have waived coverage defenses by providing defense. The ROR keeps the coverage question open while investigation proceeds. After investigation: insurer may pay/defend fully, deny coverage entirely (then file declaratory judgment action if needed), or settle with reservation. Improper or untimely RORs can themselves be bad faith. The insured may want their own attorney (sometimes paid by the insurer) given the conflict of interest the ROR creates.

Insurance fraud costs the industry tens of billions annually and increases premiums for all policyholders. Adjusters are the first line of detection. Common red flags: (1) Implausible or inconsistent loss description — story changes, details don't match physical evidence, timing doesn't fit; (2) Suspicious policy timing — new policy or increased coverage shortly before loss (especially for total loss claims); (3) Financial pressure — recent bankruptcy, foreclosure, job loss; the insured may need cash; (4) Prior claims history — multiple similar claims, suspicious patterns across different insurers; (5) Lack of supporting documentation — no receipts for valuable items, no photographs of property, no police report for theft; (6) Claimant behavior — overly aggressive about quick settlement, unwilling to provide documentation, refusing examination under oath, threatening or intimidating; (7) Physical evidence inconsistencies — burn patterns don't match accidental ignition, theft scene doesn't show forced entry, damage inconsistent with described cause; (8) Witness issues — only family members witnessed, witnesses contradict each other, witnesses not available; (9) Suspicious provider relationships — same medical clinic, body shop, or attorney appearing in multiple claims. Red flags alone don't prove fraud — they trigger further investigation. The adjuster should: document the red flags; conduct additional investigation; consult SIU (Special Investigations Unit); be diplomatic with the insured; not accuse without evidence. Fraud convictions can result in prison time, restitution, and loss of insurance forever.

Examination Under Oath (EUO) is a formal investigative tool authorized by most property insurance policies. The insurer can require the insured to appear at a designated time and place, take an oath to tell the truth, and answer questions about the claim. The proceedings are recorded by a court reporter; transcripts are evidence. When used: typically when fraud is suspected, coverage is uncertain, or significant claim issues need clarification. Less common than recorded statements (informal interviews); EUOs are more formal and often used when initial investigation raised concerns. EUO process: (1) Insurer sends written demand specifying time, place, and topics; (2) Insured must appear (refusal can void coverage); (3) Insured can have attorney present and may want their own court reporter; (4) Insured may invoke 5th Amendment for criminal-related questions but doing so may also void civil coverage; (5) Production of documents typically required; (6) Testimony recorded and used to evaluate claim. The EUO right is one of the most powerful investigation tools available to insurers but must be used in good faith — frivolous or harassing EUOs can themselves be bad faith. Insurers must allow reasonable time for preparation, provide notice of topics, and conduct the EUO appropriately. The insured should consult counsel before an EUO, especially if fraud is implied.

WATER DAMAGE CLAIM INVESTIGATION requires systematic fact-gathering to determine COVERAGE and CAUSE. The adjuster's investigation steps: (1) INSPECT the property: examine the damaged area (walls, flooring, ceiling, contents); document with photographs and measurements; assess extent of water migration (moisture readings); (2) EXAMINE THE SOURCE: inspect the failed pipe or fixture; assess condition (old, corroded, frozen, improper installation, or sudden break); plumbing failures may be sudden and accidental (covered) or the result of long-term corrosion/neglect (potentially not covered or a maintenance exclusion applies); (3) DETERMINE CAUSE: sudden vs. gradual damage is a critical coverage distinction; SUDDEN AND ACCIDENTAL (covered under most homeowners policies): burst pipe from freezing; sudden rupture from pressure; GRADUAL DAMAGE (often excluded): slow leak over months; seepage; inadequate maintenance (e.g., allowing pipes to freeze due to not heating the home); (4) DOCUMENT DAMAGE: identify and itemize all damaged materials and contents; take moisture readings (determine drying scope); (5) VERIFY TIMELINE: when did the homeowner notice the damage? Does anything suggest the damage occurred over an extended period rather than suddenly? Weather records for freeze events if burst pipe from cold; (6) CONSULT EXPERTS: a licensed plumber's opinion may be needed for complex causes; water mitigation specialist for remediation scope; (7) REVIEW POLICY: check coverage, exclusions (seepage, flood, mold if pre-existing), deductible, and coverage limits. COMMON ISSUES: mold from water damage may be a separate coverage issue; flood is excluded from standard homeowners (requires separate flood insurance — NFIP); subrogation potential if a plumber improperly installed the pipe.

The claims investigation aims to establish the facts needed to handle a claim fairly and accurately: what happened (the cause and circumstances of the loss), whether the policy in force covers the loss (and any exclusions or conditions that apply), who or what was responsible, and the extent and value of the damages or injuries. The adjuster gathers evidence — such as the loss notice, photos, documents, statements, and expert reports — to reach a supported conclusion. The goal is a correct, fair determination, not to deny claims reflexively. Understanding the purpose and scope of the claims investigation is core content for the adjuster exam.

An examination under oath (EUO) is a formal investigative tool in which the insured is questioned under oath — typically by the insurer's attorney, with a court reporter present — about the details of a claim. Many policies contain a provision requiring the insured to submit to an EUO as a condition of coverage when requested. EUOs are generally used in larger, complex, or potentially questionable claims where the insurer needs sworn testimony to complete its investigation. The insured's cooperation with a properly requested EUO is usually a policy condition. Understanding the EUO as a sworn-testimony investigative tool is standard adjuster content.

A reservation of rights letter is a notice an insurer sends to an insured when there is a question about whether a claim is covered. It informs the insured that the insurer will investigate and may proceed to handle or defend the claim, but is reserving its right to deny coverage later if the investigation establishes that the loss is not covered under the policy. This prevents the insurer from accidentally waiving coverage defenses by acting on the claim, and it keeps the insured informed rather than misled into assuming coverage is admitted. Issuing a reservation of rights when coverage is uncertain is an important claims-handling practice. Understanding its purpose is standard adjuster content.