Federal Courts Continue To Find Claims Adjusters Exempt

by BakerHostetler

We have previously discussed how, over the past 10+ years, courts have increasingly recognized that insurance claims adjusters are exempt under the Fair Labor Standards Act (FLSA). The recent cases of Estrada v. Maguire Ins. Agency, Inc., 12-cv-604 (E.D. Penn. Feb. 28, 2014) and Locke v. Am. Bankers Ins. Co. of Florida, 12-cv-1430 (E.D. Cal. May 19, 2014), further reflect this trend and that insurance adjusters are properly exempt even if they are assigned “relatively simple” claims and/or use detailed job aids and computer software as part of their claims adjusting work.

In Estrada, the plaintiff worked as an insurance claims examiner and handled “relatively simple, low-cost automobile claims,” which consisted largely of auto accidents involving only one vehicle and small amounts of damage. The plaintiff alleged that he was misclassified as exempt under the FLSA and moved for conditional certification. The employer moved for summary judgment.

The court made short work of the plaintiff’s argument that he was a non-exempt “production” worker, noting that claims adjusters perform an essential task of an insurance company – processing claims – and that every Circuit court that has considered the argument has reached the same conclusion.

The court also rejected the plaintiff’s argument that his primary duties did not involve the exercise of discretion and independent judgment, but rather he performed “clerical work” and was made to follow a strict step-by-step process that removed any meaningful discretion. The court found that even if insurance adjusters are required to follow such a rigid process, they are still exempt if they engaged in discretionary tasks occasionally. The court found that the plaintiff’s own testimony and claims notes proved that he exercised such discretion in performing tasks such as interviewing insureds and witnesses, inspecting property damage through pictures, evaluating coverage, providing coverage recommendations to supervisors, determining liability through application of comparative negligence, and settling low-value claims.

The court therefore found that the plaintiff was “plainly and unmistakably” an exempt administrative employee and, therefore, denied the plaintiff’s conditional certification motion and granted the employer’s motion for summary judgment.

In Locke, the plaintiffs were property insurance adjusters who investigated insurance claims.  For small value claims, the plaintiffs made coverage decisions.  On higher level claims, they were forwarded along to someone else. The plaintiffs alleged that they were essentially “claims robots” who had virtually no discretion. Instead, they alleged that they had to follow the employer’s strict claims procedures and use employer’s claims adjusting software, which reduced their role to low-level fact finders who merely confirmed that the software information was consistent with the claimed damages. The plaintiffs sought a collective action under the FLSA and employer moved for summary judgment.

The court granted summary judgment for the employer in a fairly lengthy, detailed opinion in which it provided a thorough review of relevant claims adjuster case law and regulations. However, perhaps most interesting for employers is the fact that while the court found it “clear” that the employer published a substantial amount of “material instructing its adjusters what to do and how to do it,” it rejected the argument that this made them non-exempt. Instead, the court reasoned that it would be the “rare company” that did not implement such detailed materials, especially in an industry so highly regulated as insurance. The same thing was true for employer’s use of automated claims adjusting software. Instead, the court found it determinative that none of these job aides “remove[d] plaintiffs’ independent judgment in the initial investigative stages” and that the plaintiffs still had “the ultimate responsibility to gather the facts and put them together and either determine or make a recommendation as to most every aspect of the claims process.” On June 19, 2014, the plaintiff appealed the decision to the Ninth Circuit. We will follow this appeal and pass along any meaningful updates.

Insurance claims adjusters have been the target of numerous FLSA collective actions and state law class actions over the past dozen years, but as these cases demonstrate, courts are increasingly rejecting the most common arguments raised by the employees and holding that they are performing administrative exempt work.

Bottom Line: Courts continue to find that, regardless of whether they handle “low-level” claims, follow detailed guidelines or use automated claims adjusting software, insurance claims adjusters are administratively exempt when they conduct coverage investigations and make recommendations regarding coverage and/or liability.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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