November 16, 2018

Archives for June 2013

Risk Managers: Spoliation Prevention has Insurance Underwriting Implications, too!

[In recent weeks, we have briefly discussed aspects of evidence preservation and spoliation prevention, all from the context of claims handling, particularly but not exclusively in the arena of product liability claims area. This week, we shift the focus to building strong spoliation prevention and document retention systems that yield benefits and return on investment not just in the claim defense arena but also in the underwriting arena.]

E-discovery costs make product liability coverage more expensive. Increasingly, a disproportionate chunk of defense and claim costs for product liability is comprised of electronic discovery through discovery. It is not unusual or unheard of for companies to up to settle dubious product liability claims, simply because the crushing costs of prospective the discovery argued as so intolerable.

risk management

Dollars are dollars, and they can balloon an account’s loss ratio if the company must spend an inordinate amount of money because it is unprepared for electronic discovery, or has spoliation of evidence issues posed against it. These dollars can balloon an account’s loss ratio which, in turn, may impact the availability and pricing of financial protection in the form of product liability insurance.

The takeaway, therefore, is that companies with strong e-discovery, document- and evidence retention systems represent better risks.

One prime job duty of any risk manager is to evaluate and procure insurance protection at the broadest possible terms and at the lowest possible cost. One way to do this is to strengthen the company’s document preservation and spoliation prevention systems and to be able to present a compelling case to insurance underwriters that the risk manager’s company is a sound risk for the underwriter and insurance company. Underwriters are the gatekeepers who determine whether or not a company represents an acceptable risk and at what price.

Thus, we can increasingly expect insurers to probe and ask about systems that facilitate efficient e-discovery, thwart spoliation and maximize retention of evidence.

This will be part of any insurance company’s due diligence process in assessing the fitness and desirability of an account for insurance placement or renewal. Questions about document preservation systems and e-discovery preparedness could be on the insurance application, could surface in pre-underwriting reviews, or arise during discussions with underwriters.

Risk managers should be prepared by having strong systems in place and make a convincing case as to why you’re a GOOD RISK from this standpoint.  This may not necessarily be the current standard of care, but is an aspirational goal toward which companies and risk managers should strive.

Bottom line – your “fitness” on spoliation prevention not only helps in defending claims, it can help leverage better coverage price and terms. IT’S NOT JUST A “CLAIMS ISSUE”!!

5 Tips to Avoid Spoliation Claims against Insurers & TPA’s

Spoiling is not a good thing, whether we’re talking child-rearing or moldy cheese in the back of the refrigerator that needs cleaning. For insurer claim departments and claim administrators, the first-cousin of spoliation can become a stinky mess, even spawning errors and omissions claims.

Insurers and TPA’s expect to be in the claims business, but NOT as defendants in the docket box!

Risk Mgt

To avoid this scenario and manage the risk, here are five quick tips:

Tip #1 — GET THE PRODUCT or the evidence that is key to defending a claim or asserting subrogation!

Tip #2 — Document! If the evidence has gone into the possession of another party, keep documentation that the evidence has been moved into someone’s possession. Document the chain of custody! (That “someone” could be the insurer, the insured or some third-party.) Paraphrasing a popular bumper sticker, “Stuff Happens.” To avoid the operation of Murphy’s Law, though, best NOT to delegate this to a policyholder.

Tip #3 — Create a paper trail showing the mandate to hold and preserve the product.

Tip #4 – Protect it! Get it in an environment to shield it from degradation.

Tip #5 –Check in periodically to confirm. (Beware of Murphy’s Law!)

Insurers and third-party claim administrators can face liability for claims of spoliation. Such claims can be asserted by policyholders or even claimants in workers compensation cases (e.g., “You killed my viable third-party claim by mis-handling the evidence!) Part of risk management by claim operations is to avoid E&O exposures by having sound evidence preservation procedures which are followed to the letter.

That letter is far better than the one which begins, “Please be advised that we attach suit papers filed in response to your spoliation of evidence in the case of …”

Now, if you’ll excuse me, I’ve got to go clean out the fridge. There’s some funky Kung Pao Chinese takeout way back on the shelf that needs to be tossed…

Dispatches from Last Week’s DRI “Bad Faith & Extracontractual Liability” Conference

A few days ago, I had the pleasure of attending the DRI conference on “Bad-Faith and Extra Contractual Liability” at the Waterfront Westin in downtown Boston. About 300 attendees heard a panel of excellent speakers from Wednesday afternoon until Friday afternoon.

DRI

Information overload is always the peril at conferences like this. I heartily recommend this conference to any claims person, although the attendance was heavily weighted toward defense attorneys and in-house counsel for insurance companies. I’m guessing that I was one of few non-lawyers attending the conference.

Despite the information overload, I will share ten quick impressions and “nuggets” from the conference, in no particular order of importance:

1. Bad faith hellholes. The toughest states for insurers in terms of bad faith are Florida, California and Washington State.

2. Roll the dice more! Houston lawyer Chris Martin (Martin Disier Jefferson & Wisdom) gave a riveting presentation on winning bad faith cases, imploring insurers to take more of these cases to trial, arguing that insurers were unduly cautious and afraid.

3. Trade secrets in Claim Manuals? Really? If you fight the production of Claim Manuals and the like based on trade secret arguments, prep your claims people to explain what secret and proprietary information is actually in such documents.

4. No “game-day” depo prep for adjusters! Prepping the adjuster for his or her deposition is NOT something that should be left to the morning of the event.

5. Small but growing storm clouds. A “growing minority” of courts are finding bad faith even in the absence of coverage .

6. Eroding policies = eroding good faith? Defense-within-limits policies pose interesting (and volatile) bad faith potential. Takeaway: keep the insured informed of defense cost erosion and manage the legal fees sensibly!)

7. No easy wins for policyholder attorneys. Policyholder lawyer David White of Boston said, “good” bad faith cases are relatively rare and hard to win. Even of the plaintiff wins, two-thirds are reversed on appeal.

8. Watch the Claim Manager’s ears. “The odds of a punitive award correlate directly with the redness of the claim manager’s ears during deposition..” ~David White

9. Preparation pays off. Chicago lawyer Rick Hammond (Johnson & Bell) insists that “Most bad faith cases are usually won or lost long before trial starts.”

10. From Facebook to Bad Faithbook? Social media use in claims-handling will become a new wrinkle in bad faith cases in the future, according to Lancer Insurance Company’s Paul Berne.

As a final thought, if you want to guarantee that attorneys will stay until the bitter end of a conference, hold your Ethics presentation until the very last session. Many attorneys must have a certain minimum number of hours of annual ethics CE as part of their ongoing requirements.

I will be writing more on the DRI Conference for a forthcoming issue of CLAIM magazine, so stay tuned!

Invest in Evidence Preservation CE for Adjusters to Thwart Spoliation Risks

Insurance companies and third-party plaintiff administrators work in the realm of risk and risk management. Often, however, they can become oblivious to the risks which they themselves face.

Invest in Training

It’s like the proverbial cobbler’s children who ran around barefoot. Charity not only begins at home, but so does sound risk management when it comes to insurance companies and claim administrators.

One of the risks that they face is the risk of evidence spoliation. To guard against inadvertently destroying or altering evidence, which could be key to a piece of civil litigation that is the subject of insurance, carriers and claim entities should invest in adjuster training. They should sensitize adjusters to the perils of spoliation of evidence and, more importantly, invest time periodically promoting sound/best practices for evidence preservation.

Training can take many forms: periodic claim department meetings, case studies, checklists and resources in electronic form, internal webinars, “brown bag” lunch-and-learn sessions, periodic outside guest speakers.

Companies should see training as not just a cost but rather an investment. Moreover, they should view such training as an ongoing process, not a “one-off” phenomenon, not something that you do once, check off of a checklist, and then feel that you have done all there is to do.

Failure to invest in adjuster training on spoliation can create its own costs and liabilities. Companies should not assume or presume that adjusters are attuned to this risk. To paraphrase a bumper sticker, “Stuff happens” and unthinking adjusters can get themselves in situations where they inadvertently discard a key piece of evidence or fail to take reasonable steps to ensure that key evidence is preserved by someone else.

This evidence may involve a component of an automobile involved in an accident, a key piece of evidence in a fire cause and origin investigation, or a household product that caught fire and triggered a product liability claim. Bungling evidence preservation can create insurer liabilities: claims of negligence, bad faith, etc.

Thus, spoliation prevention policies, procedures and education are part of an insurer’s own risk management plan. Further, having sound practices to thwart evidence spoliation enhances subrogation opportunities and thereby stems financial leakage! This can create one of the few times where the Claims department can be a source of incoming funds. When this happens, it helps to blunt the “usual” knock on claim units that we’re “cost centers” and a “Black Hole” that costs money but never generates any!

The take-away: make spoliation prevention and evidence preservation sensitivity training and best practices training an integral and recurring part of continuing education programs for adjusters and claim staff. It is an investment which can repay itself many times over!

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