Opinion ID: 1445904
Heading Depth: 3
Heading Rank: 2

Heading: The Discretion and Independent Judgment Requirement

Text: The undisputed evidence also leads us to conclude that MDAs satisfy the short test's second requirementthe exercise of discretion and independent judgment. 29 C.F.R. § 541.214(a). The old regulations devote pages to defining this phrase. They first explain that it involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. Id. § 541.207(a). The phrase also implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance. Id. That choice need not be final or otherwise immune from review; an exercise of discretion or independent judgment may consist of recommendations for action rather than the actual taking of action. Id. § 541.207(e). The regulations also caution against confusing true discretion and independent judgment with the use of skill in applying techniques, procedures, or specific standards. Id. § 541.207(b)-(c)(7). Employees who fit the latter description, whom the regulations describe as workers who grade, classify, or otherwise determine whether specified standards are met, are not exercising discretion or independent judgment for purposes of the administrative exemption. Id. § 541.207(c)(1)-(2). The plaintiffs argue that this description applies to MDAs, whom they characterize as mere fact finders whose responsibilities involve only the most basic component of the claims adjusting process. Though the old regulations are silent as to whether employees who adjust insurance claims exercise discretion and independent judgment, the Department of Labor (through agency opinion letters) and the circuits that have confronted the question generally regard claims adjusters as exercising sufficient discretion to trigger the administrative exemption. DOL Wage & Hour Div. Op. Ltr. FLSA2002-11, at 2 (Nov. 19, 2002) (Wage and Hour has long recognized that claims adjusters typically perform work that is administrative in nature.); see In re Farmers, 481 F.3d at 1119; Cheatham v. Allstate Ins. Co., 465 F.3d 578, 585-86 (5th Cir.2006); McAllister v. Transamerica Occidental Life Ins. Co., 325 F.3d 997, 1001 (8th Cir.2003). Codifying the Department's position, the new regulations explain that insurance claims adjusters generally meet the duties requirements for the administrative exemption. 29 C.F.R. § 541.203(a) (2006). Unlike the claims adjusters in the opinion letters and cases we have cited, however, MDAs do not themselves determine coverage or liability. They also do not negotiate with the claimant's attorney or make litigation recommendations. See id. We conclude these distinctions are not significant enough to take the MDAs outside the scope of the administrative exemption. In addition to performing the core duties of a claims adjuster, MDAs routinely use their discretion and independent judgment to make choices that impact damage estimates, settlement, and other matters of significance. 29 C.F.R. § 541.207(a). When MDAs inspect a vehicle for damage, they must exercise independent judgment to verify whether the actual damage is consistent with the claimed damage. In doing so, the MDA must evaluate whether the damage is likely preexisting, inconsistent with the alleged cause, or otherwise suspicious. The MDA must also be on the lookout for fraud when interviewing the claimant and any witnesses. These are judgment calls with respect to matters of significance; MDAs are using their knowledge and experience to distinguish covered damage from fraudulent or preexisting damage. While MDAs do not make final liability decisions, their assessment of the damage and its cause bear directly on the ultimate coverage determination. For example, at her deposition Roe-Midgett testified that if she noticed damage indicative of a collision with a deer as opposed to another vehicle, she would let the adjuster . . . know that they may need to look into it a littler further because there's a coverage difference. Roe-Midgett acknowledged that deer-vehicle collisions would be covered by the claimant's comprehensive rather than collision policy, which may carry different deductibles. She also explained that if she felt certain damage was preexisting, she would let the file handler know that this damage is not part of this claim because we don't pay for claims we do not owe. In other words, MDAs like Roe-Midgett make coverage recommendations to their superiors. The applicable regulations explain that decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action. 29 C.F.R. § 541.207(e)(1). The balance of an MDA's day-to-day responsibilities mirror the duties the new regulations attribute to exempt claims adjusters, namely: interviewing insureds [and] witnesses . . .; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; [and] determining . . . [the] total value of a claim. 29 C.F.R. § 541.203(a) (2006). That MDAs are not engaged in determining liability and making recommendations regarding litigation does not mean they are not claims adjusters as defined in the regulations. The Secretary of Labor has explained that section 541.203 identifies the typical duties of an exempt claims adjuster. 69 Fed. Reg. at 22144 (emphasis added). As such, the regulation does not require the adjuster to perform each and every activity listed. In re Farmers, 481 F.3d at 1129. We recognize section 541.203(a) is not meant to confer a blanket exemption for claims adjusters. DOL Wage & Hour Div. Op. Ltr. FLSA2005-2, at 2 (Jan. 7, 2005). We are required to conduct a case-by-case assessment to determine whether the employee's duties meet the requirement for exemption. 69 Fed.Reg. at 22144. Because the undisputed evidence here establishes that MDAs spend most of their time in the field investigating, estimating, and settling auto damage claimsunsupervised and up to their $12,000 limit of authoritywe conclude that their duties involve the exercise of sufficient discretion and independent judgment to come within the scope of the administrative exemption. The plaintiffs counter that MDAs are so constrained by CCS's adjusting manual and estimating software that there is no room for independent judgment. But independent judgment is not foreclosed by the fact that an employee's work is performed in accordance with strict guidelines. Kennedy, 410 F.3d at 374-75; Cheatham, 465 F.3d at 585. Moreover, MDAs have the leeway to deviate from the adjusting manual provided they document their reasons for doing so, authority that itself connotes discretion and independent judgment. Moreover, the use of computer software does not itself imply a lack of independent judgment or discretion. Kennedy, 410 F.3d at 375; In re Farmers, 481 F.3d at 1130; Cheatham, 465 F.3d at 585. While MDAs use a software program to guide their preliminary estimates, they do not use a computer to (1) detect possible fraud or damage inconsistent with the claim; (2) communicate with body shops to obtain part and labor costs below those generated by the software; (3) determine whether and what parts to repair instead of replace; (4) explain the estimate to the claimant; or (5) settle a claim within their prescribed settlement authority. As with the adjusting manual, MDAs may override the estimating software in certain instances. The adjusting manual and the estimating software are most accurately characterized as tools that channel rather than eliminate the MDAs' discretion. See Kennedy, 410 F.3d at 374. The plaintiffs further contend that MDAs simply draw on their skill and experience in inspecting damage and estimating repair costs. They are correct to the extent that appraisers who merely inspect damaged vehicles to estimate [repair costs] . . . are guided primarily by their skill and experience and thus are not exercising discretion and independent judgment. In re Farmers, 481 F.3d at 1128 (quoting DOL Wage & Hour Div. Op. Ltr., at 1-2 (Feb. 18, 1963)); see also 29 C.F.R. § 541.207(c)(1); DOL Wage & Hour Div. Op. Ltr. FLSA2005-2, at 2-3 (opining that junior-level claims adjusters who primarily conduct scripted interviews over the telephone apply their skills and knowledge rather than exercise their discretion and independent judgment). But the MDAs do far more than just appraise damage. They also investigate the claim, check for fraud, decide whether to repair or replace parts, negotiate with body shops, and settle claims up to $12,000. MDAs thus are not mere appraisers; appraising damage is included among many duties MDAs perform in the course of adjusting auto damage claims. We could find no appellate cases or opinion letters in which a claims-processing employee with similar responsibilities to the MDA's was found to be nonexempt. All the appellate cases involving claims-processing employees have arrived at the same conclusion we have reached here. See In re Farmers, 481 F.3d at 1132 (addressing automobile damage adjusters); Cheatham, 465 F.3d at 585-86 (addressing adjusters who handled liability claims for bodily injury and damage to property); McAllister, 325 F.3d at 998, 1001 (addressing a claims coordinator). So have a number of district court cases. See, e.g., Jastremski v. Safeco Ins. Companies, 243 F.Supp.2d 743, 746, 758 (N.D.Ohio 2003) (addressing a senior claims representative); Palacio v. Progressive Ins. Co., 244 F.Supp.2d 1040, 1049 (C.D.Cal.2002) (addressing a claims representative). The plaintiffs cite only three district court cases in support of their argument that MDAs do not exercise discretion and independent judgment. The first, In re Farmers, 336 F.Supp.2d 1077 (D.Or.2004), was overruled on appeal, 481 F.3d 1119. The second relied on the overruled In re Farmers decision to such an extent that it too is unpersuasive. Robinson-Smith, 323 F.Supp.2d at 25 n. 7 ([T]he Court finds the reasoning of . . . [ In re Farmers ] to be persuasive.). The third case, Reich v. American International Adjustment Company, involved auto damage appraisers who had no settlement authority and whose sole responsibility was to determine the cost of repair. 902 F.Supp. 321, 324 (D.Conn.1994). In contrast, MDAs have settlement authority up to $12,000, and the record establishes that they routinely exercise this authority. The average payout is relatively small (Roe-Midgett's average payout was $1724 per claim from January through November 2002), but nothing in the regulation suggests that `smaller claims' . . . should be treated differently. In re Farmers, 481 F.3d at 1133. In sum, the district court properly concluded the MDAs were exempt administrative employees.