April 14, 2021

Archives for December 2008

Government Slip-and Fall Claim Illustrates Double Standard of Tort Responsibility

Fairfax County, VA – coincidentally the area that I call home – is up in arms and crying “Ouch!” from the sting of the tort system. On January 31, 2005, Richard Thaxton was walking into court after a weekend snowstorm. Though county maintenance officials had just shoveled and salted the walkways.

But they missed a spot.

Thaxton – who had just had rotator cuff surgery two months earlier – slipped, fell and reinjured himself. So he did what any red-blooded American citizen would do. He sued the County government for $300,000, plus attorneys fees.

By a 6-4 vote, the Fairfax County Board of Supervisors decided to reject a proposed $100,000 settlement recommended by an independent mediator. The County was indignant that it could be found liable for having missed a spot and asserted the defense of sovereign immunity.

I must confess that such cases leave me conflicted. On the one hand, I think that the claim is ridiculous and that the County exercised reasonable care. In the event of a large settlement or award, I – as a Fairfax County taxpayer – stand to fund such a dubious settlement.

On the other hand, ever day businesses are held to these same standards and no sense of government outrage or injustice is offended. Governments always seems indignant at having to drink from the same bitter cup that they have prepared for the rest of us to take.

Legit slip and fall claim or snow job?

Nothing Succeeds Like Excess (Coverage) ….

Occasionally I am called to serve as an expert witness on insurance coverage disputes. A disproportionate number of them have involved matters of reporting to excess and umbrella carriers.

Well, maybe I should say matters of NOT reporting or late reporting to excess and umbrella carriers.

In one case, the policyholder did not report a general liability loss to an upper level excess carrier until a freaky trial result delivered a multi-million dollar plaintiff award. In truth, the first defense attorney had evaluated the case as having modest “legs” on liability, but the damages were significant. There was much dispute later over the wording of the excess policy CONDITIONS, as to whether it required reporting if the insured had reason to believe that the claim would never penetrate the excess.

In another case, a primary insurer failed to notify an umbrella carrier of a personal lines auto claim which – you guessed it – blew north of the primary limits. The primary’s adjuster made some quick phone inquires to the agent and broker, was told that they couldn’t locate an excess policy, and the adjuster then assumed there was no such coverage; this despite the policyholder’s insistence that he did in fact pay for coverage with a specific named umbrella carrier. Rather than report it on to the umbrella (“throw it up against the wall and see what sticks …”), the adjuster assumed that absence of evidence (“We can’t locate the policy…”) equals evidence of absence (“There is no umbrella coverage …).

In both matters, literally hundreds of thousands of dollars in legal and related fees could have been saved had the risk manager (in case #1) or the adjuster (in case #2), invested just five or ten minutes to draft a letter to the excess/umbrella carrier. Five to ten minutes!

A sound risk management – and loss reporting — adage is, “When in doubt, report it out.” There may be many reasons why insureds and primary carriers don’t do so. They may be too busy. They may have an oversight. They may be guilty of wishful thinking. They may have legit grounds to think it is a bogus claim. They may not want to come across as an alarmist. They may be worried that reporting a loss will cause the excess/umbrella to jack up the renewal premium. They may think the policy does not require them to. They may fear that the plaintiff’s demand will ratchet up once he learns of the added insurance limits. They may chafe at the prospect of some new upper layer insurer galloping in, nosing around and telling them to settle the case.

I understand all the reasons. Not all of them are flawed. Still, investing five to ten minutes to draft and send a letter to avert the huge risk of a coverage problem seems like a sound bargain to me. There is a huge upside (preserving coverage) versus a small downside (five to ten minutes of time).

Sounds like a good investment to me!

When they don’t invest the time, they are certainly providing full employment opportunities for coverage lawyers.

Jay Leno Gets Comic Relief from Insurance Claims

Jay Leno’s opening monologue on November 17th included two insurance jokes.

One poked fun at NBC. Leno said that, if the raging Los Angeles wildfires got too close to the NBC studios, audience members should do nothing to quell the flames because, “NBC needs the insurance money!”

He also observed that, after an LA-area disaster response simulation on November 14th, scientists had now figured out a way to give citizens 30-seconds of notice prior to an earthquake. “Of course,” Leno quipped, “that won’t give you much time to do anything but it will give State Farm enough time to cancel your policy!”

Who knew that insurance claims provides so much comic relief?

Even in Claims, It's Sometimes WHO You Know, Not What You Know …

We’ve all heard the expression, “It’s not what you know it’s who you know.” In the realm of claims adjusting, this was recently illustrated by the Washington, DC transit Authority. Seems that former Washington, DC Mayor Marion Barry sits on the Board of Directors for the Washington Metropolitan Area Transit Authority (WMATA), the subway and bus system that runs in the nation’s capital. Allegedly, a Metro bus collided with, damaged and then drove off from Hizzoner’s private passenger car recently.

A full month after the alleged accident, the ex-Mayor telephoned in and filed his property damage claim with WMATA. There were no witnesses to the collision and the bus driver allegedly involved knew nothing about it. Nevertheless, the Transit Authority fast-tracked Barry’s claim and ended up paying him over $3000 in reimbursement for damage to his car.

Keep in mind that this is from a bureaucracy which normally could not find its own posterior if you spotted them two hands. The Metro system is replete with complaints of broken escalators, random service, late and overfilled trains, and incredibly poor response to derailments and power outages. The Authority just cannot get its act together.

Nevertheless, it acted with incredible alacrity in processing a property damage claim which, asserted by any other private citizen, would have probably been laughed out of the proverbial ballpark. If Joe Q. Citizen had phoned in a unwitnessed property damage claim one month after the date of the alleged accident, doubtlessly it would have been a case of denied liability. The poor claimant would have been lucky to receive a form letter denying his or her claim, months after the loss report.

Of course, both the ex-Mayor and the Transit Authority staunchly deny that politics or pull had anything whatsoever to do with the remarkable speed with which the claim was processed.

It just goes to show that, even in the realm of claims — or perhaps especially in the realm of claims — it’s not just what you know but who you know!

Coping with the “R” Word … and it’s not Risk

It’s “R” as in recession.

Many economic pundits predict that the American economy will drift into recession in 2008. Others believe that the economy is already in one. Put aside temporarily whether they are right or wrong. (One pundit once said that, if you took all the economists in the world and laid them end-to-end, they would still point in every direction…).

Assuming the Cassandra’s are accurate, we can speculate on six areas of impact for claim professionals:

  • Tough economic times might produce an uptick in insurance claims, as folks with marginal claims have a heightened financial incentive to collect from insurance
  • Increased insurance fraud, for the same preceding reasons. (Perhaps a favorable time to be positioned in an SIU)
  • Less economic growth may equal lower sales which, in turn, lower insurance premiums. This might increase pressure on insurers to squeeze expense ratios by trimming claim staff and foregoing referrals to outside TPA’s
  • Companies may belt-tighten and view a full-time risk management job as a “frill,” eliminate the job and outsource the role to their insurance broker
  • Possible spike in workers compensation and employment practices claims if companies enact sizable workforce layoffs
  • Claim managers may be under greater pressure to “rank and yank,” shedding departments and staffs of performers viewed as marginal or lacking in growth potential

What other “claim fallout” do you see from an economic recession?

Another follow-on question is, how can savvy claim professionals “recession-proof” their own jobs and careers? We will tackle that issue in a forthcoming blog post.

Claim Adjusters Too Risk-Averse???

Andrew Kaufman is a medical malpractice defense attorney with Kaufman Borgeest & Ryan in New York City. Recently, he authored a provocative article in the monthly newsletter of the Professional Liability Underwriting Society, perhaps better known as PLUS. The article was titled, “Behavioral Finance: What lessons can be learned by the insurance claims professional.”

One point made by Kaufman is that claims people tend to be exceedingly risk averse and this creates a bias toward settlements, generous settlements, and a reluctance to take cases to trial. Kaufman argues that the “potential fear and embarrassment of reporting an unanticipated loss to one’s superior can, on occasion, create a level of anxiety in the attorney and claims representative that is statistically unjustified. One can imagine how multiple layers of management may serve to magnify this phenomenon.”

Kaufman suggests that claims people are quicker to forget their victories and successes then that they are to forget setbacks and defeats. Because of the potential of having to report an adverse jury trial outcome to one’s boss or supervisor, a subtle but powerful momentum exists to eliminate any risk of trial by settling cases. Let me emphasize that Kaufman is not indicting or criticizing claim adjusters here. He is simply making behavioral observations.

So what do you think? Do reporting structures within claim departments create biases toward settling cases so that adjusters and claim handlers can avoid the stigma of having to report an aberrant result to upper management? Have we become so risk averse in not wanting to be associated with a corporate setback that there are subtle but powerful incentives to over reserve and over evaluate cases to justify higher settlements that would avert the risks of trial? What could insurance companies and claim departments do to remove such a stigma and enable greater but well reasoned risk-taking on the part of the claims staff?

All provocative questions suggested by Kaufman’s article in the March 2008 issue of the PLUS Journal.

The Few, The Proud, The … Adjusters?!

I’ve always said that claim adjusters were like the Marines of the insurance industry. Marines represent the country’s “tip of the spear,” translating highfalutin policies into real action.

Similarly, it falls to the claims people on the front lines to translate those lofty marketing assurances and policy provisions into concrete service.

Now, it turns out that the Marines and insurance adjusters may have more in common than I ever thought. A recent article in the Los Angeles Times (“Marines Act as Paymasters to Afghans”) (http://www.latimes.com/news/nationworld/world/la-fg-helmand6-2008jul06,0,5963950.story) describes how the Marines in Afghanistan are reimbursing Afghanis for property damage and business interruption occasioned by fighting the Taliban.

The article quotes Marine 1st Lieutenant Shaun Miller as saying that paying claims was not exactly what he signed up for when he became a leatherneck. At times, he says, he feels like an . . . insurance adjuster!

Marines playing claims adjuster in Afghanistan raise a number of interesting case-handling issues, none of which are likely addressed in any of the Insurance Institute’s Associate in Claims texts:

· What kind of receipts are acceptable in processing a herdsman’s business interruption claim from destroyed poppy fields that would have yielded him a profitable drug crop?

· If you pay for a killed goat, do you value the loss on an ACV or replacement cost basis?

· In the event of a “total loss” of the goat, is there salvage value in using the goat’s remains for a dinner roast?

· Has ATLA (or, excuse me, Lawyers for Civil Justice, or whatever they call themselves this week) set up a branch near Kabul to make sure that the Marines abide by fair claim practices?

For now, these will have to be rhetorical questions. Adjusters may occasionally find themselves in tough situations, but none so tough as those faced by the brave Marines in Afghanistan and elsewhere who must add “claims adjuster” to their repertoire of professional skills!

My Fellow Americans ….Is there an "Adjuster's Candidate"??

Which Presidential candidate stands to improve the lot of claim adjusters? Is one of the am “Adjuster’s Candidate”? Seriously, I don’t pretend to know. Nor should any of the following comments be seen as an endorsement for one candidate over another, not that such imprimatur would sway anyone’s vote. However, we can hazard some projections on how political issues might align with adjusters’ interests.

One issue that engages many claims people is tort reform. Adjusters toil in the vineyards of the tort system every day. For them, it is not some ethereal policy debate. Adjuster have to open their company’s checkbooks regularly because of the tort rules, and often end up feeling – rightly or wrongly – that those rules are stacked against the adjuster and for the claimants and their lawyers.

Historically, Republicans have been more congenial to reforming the liability system. By contrast, Democrats tend to see tort reform as a guise for pro-business interests and a way to shortchange consumers. Plus, the personal injury bar is historically a huge financial contributor to Democratic candidates.

One problem with this stereotype is that, against the backdrop of economic crisis and foreign policy challenges, it is unlikely that either candidate is going to be focused on tort reform as a burning domestic policy issue. Further, Sen. Barack Obama was a supporter of the Class Action Fairness Act. Amidst all the domestic and foreign policy hot potatoes, it is difficult to see any type of tort reform legislation getting much traction. This, coupled with the growing public image of big businesses getting government bailouts, throwing a tort reform “bone” to big business will not win any politician brownie points.

Bottom line: adjusters should not expect any Federal movement on tort reform in the near future.

This may be a good news/bad news situation, though. Should tort reform become a relatively dead issue and liability claims proliferate in a tough economy, more claims might portend a higher demand for claim personnel. View it as a Full Employment Act for Adjusters!

Perhaps that is one silver lining that merits bipartisan support.

Does Speed of Claim Processing Correlate with Customer Satisfaction?

At one point during the movie Top Gun, Tom Cruise’s character – Maverick – turns to his fighter pilot buddy Hondo and yells, “I feel the need for speed!”

Claim adjusters may merely climb into the cockpits of their company cars instead of an F-15, but many still feel the need for speed. They feel it from bosses, from corporate service standards, from policyholders, claimants and attorneys.

Does faster claim service correlate with heightened customer satisfaction? A question on a LinkedIn discussion group among P&C Claim Professionals got me thinking on this topic.

The type and texture of the claim may dictate greatly the correlation between speed of processing and customer service. For example, if it is a straightforward first-party property loss, speed and customer satisfaction may directly correlate.
The insurer that can handle that claim in 24 hours or so will likely get high marks from me in customer service and satisfaction.

If I am a commercial policyholder facing a complex third-party property claim with time element features and find that my adjuster, in the interests of speed, has settled a claim in three days I may be tempted to think I got screwed because the adjuster
(a) did little or no investigation and/or
(b) over-paid the claim to slam the file shut quickly.

The context of the claim may a factor in correlating speed vs. customer service; in some instances, those factors may be inversely related. It’s tempting to give a lawyerly “It depends” answer to the question. Depending on the type of claim, though, adjusters could say “Speed Thrills” while others could accurately say, “Speed Kills.”

Faster is better … except when it’s not.

Reserving Coverage Rights does NOT Equal "Bad Claim Service"!

“Quinley” is an Irish name and my descendants doubtlessly hailed from Hibernia. My Irish acted up as I scanned the results of a recent Greenwich Associates study on claim service. Perhaps I was the only reader doing a double-take recently, reading the Business Insurance article of 12/10/07, “Claims Service Quality Varies Widely: Study.” On one level, this would seem to be a dog-bites-man story. The fact that there is variation amongst claim service quality by carrier is no more surprising than, say, underwriting expertise varies by company or investment management savvy, etc. Tell me something I don’t know. This is akin to headlines reading,

“Gravity Causes Objects to Fall to the Ground”
“Stocks Vary on Return and Yields”
“Britney Enters Rehab Again”

Thank you for delivering this hard-hitting news!!

But that is not what got my Irish up.

The article quotes an anonymous construction risk manager as pointing to one piece of evidence for lamentable claim quality the fact that commercial insurers “are quick to issue reservation of rights letters on some claims.”

Say what? The innuendo here is that such letters are invariably groundless, a claim which is unsupported at best and ridiculous at worst. Sending a reservation of rights letter is not tantamount to poor claim service. In many complex construction losses, legit coverage issues abound. Insurers are justified in notifying policyholders regarding the existence of coverage questions. Courts stand ready to “nail” insurers on waiver and estoppel if they do not meticulously reserve rights. Further, many states have exacting time guidelines within which insurers must reserve rights, lest they be estopped. If they fail to reserve promptly, they may be forced to cover gray area – or even uncovered – claims. Ultimately, the costs of such claims are passed on to the insured.

Sending a reservation of rights letter is no more bad claim service than submitting a gray area claim makes one a “bad” policyholder. Doubtlessly there are instances of specious reservation of rights letters. There is also no doubt instances of farfetched coverage tenders by insureds who are “fishing” for coverage that they knew they never really had or paid for. There are doubtlessly instances of sloppy brokering which leave risk managers exposed to perils which they thought were insured.

The reflexive notion that reserving coverage rights quickly signals “bad claim service” strikes me as ridiculous. It does underscore, however, that insurers could do a better job in making sure that such letters do not rub policyholders the wrong way. For example, claim reps could give the insureds an advance heads-up by phone call to discuss and explain what they were doing and why. They could do the same with the broker. They could emphasize the time requirements they have which force them to reserve rights in the face of incomplete information. They could make the letters’ tone more conversational and less legalistic. These are ways to soften but not emasculate the import of reservation of rights letters.

If foregoing the exploration of potentially valid coverage defenses is the price of good claim service, I submit that price is too high. Claim reps should look at other ways to “sell” the reservation of rights so that insureds will not reflexively assume it represents an effort to evade coverage.

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