The Claims Commandments

Claims Commandments

© 2017 – Barry Zalma

This series of fifteen claims commandments is an effort to provide direction to every person involved in claims handling for insurers and the public whose duty it is to fulfill the promises made by an insurance policy.

Claims Commandment I

Thou Shall Confirm Coverage

How to Confirm Coverage

When I was a young adjuster I worked for the Fireman’s Fund Insurance Company. Occasionally confused insureds and brokers would report to the Fireman’s Fund a claim meant for Fireman’s Insurance of Newark. The claim would often be adjusted and paid before anyone realized an error had been made.

When a loss or claim is reported to an insurance company the first task required of the insurer and its claim personnel is to confirm the existence of a policy. The task today is much simpler than it was when I was an adjuster where we had to pull out the actual underwriting file and review the daily report. Now, coverage can be confirmed by computer.

If the insurer’s computer system shows that a policy was in effect at the time the insured reported that a loss occurred the first step of confirming coverage was completed. Next, if available digitally, the entire policy must be accessed including the declarations page and all policy wordings, all endorsements and modifications to the standard policy language.

The claims person needs to have available a specimen of the policy as it would have been delivered to the insured so that it can be read, reviewed and understood to enable the claims person to explain the available coverages to the person(s) insured.

If the entire policy is not available electronically or cannot be recreated by the underwriting department the agent or broker should be asked to provide a complete copy of the policy to the adjuster. If the agent or broker does not have it a copy should be obtained from the insured.

Once the policy is obtained and available for review the claims person must read and understand the policy coverages and compare those to the wording of the policy to confirm that one of the policy coverages promises to indemnify the insured against the risk of loss of the type reported.

For example:

  • If the policy is a property policy that insures the insured against the risk of loss of a dwelling by fire, lightning, windstorm and hail, and nothing more and the insured reports a claim for damage caused by earthquake the existence of a policy is confirmed but the existence of coverage is not.
  • If the policy is a liability policy like a Commercial General Liability (CGL) policy and the insured reports that the mailman was bitten by the insured’s pit bull terrier during the policy period, coverage is confirmed. However, if the policy contains an exclusion for losses caused by dog bite or pit bulls, coverage is confirmed with a exclusion that might be applicable.
  • If the policy is a CGL and the insured reports he was sued for slander by a business competitor during the policy period coverage is confirmed and there is available defense under the “Personal Injury” coverage part.
  • If a policy is a National Flood Insurance policy in effect at the time that a water main breaks and floods the insured’s house, coverage is confirmed that the policy exists and a determination must be made to determine if the loss falls within the terms and conditions of the policy.
  • If a policy is a CGL and the insured reports he was sued for intentionally punching a business competitor in the nose, coverage is confirmed that the policy was in effect but questions must be answered to determine if there is evidence that indicates there was no intentional act or that the insured was acting in self defense, or some other other not intentional act.
  • What these examples show is that the existence of a policy can be confirmed and it can be easily confirmed that it was in existence at the time of the loss. What cannot be established from the loss notice and policy wording is whether the coverage applies to the loss that was reported.

Communications with the Insured

Once coverage is confirmed the claims person must read the policy and the initial written contact with the insured should advise the insured all benefits, coverage, time limits, or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by an insured.

The letter should include, as a bare minimum, information like the limits of liability of the policy, any deductibles or self-insured retentions, advice concerning any specific exclusions or conditions that apply to the facts established by the notice of loss, a written notice that a proof of loss is required within 60-days of the letter with an attached proof of loss form, a requirement for the production of necessary documents, a reservation of rights (if called for because of a potential coverage problem like an exclusion that might apply), and any other information the insured needs.

The claims person should also be prepared to supplement the initial letter whenever he learns of different facts or additional coverages available to the policyholder or the insured.

Failure to properly, and in writing, advise the insured of the policy provisions, the requirement for documents, the problems with coverage based on the initial report of loss, can place a claims person inadvertently in violation of the state’s fair claims practices statutes and regulations and expose the insurer to litigation for bad faith claims handling.

More Required

Confirmation of coverage requires more than simply checking a computer. It requires an understanding of the policy wording, the facts of the loss and the law of the jurisdiction to determine if coverage for a particular loss is available to the insured. Simply reading the loss notice, allegations in a lawsuit, and the policy is never enough.

Conclusion

The first and foremost duty of a claims person is to confirm coverage. It is a beginning of claims handling and cannot, on its own, fulfill the obligation to confirm coverage before the adjustment begins.

Claims Commandment II

Thou Shall Always Conduct A Thorough Investigation

Investigation is a search for truth. It is an art form where facts are established. It has been defined by the state of California, for example, as follows:

“Investigation” means all activities of an insurer or its claims agent related to the determination of coverage, liabilities, or nature and extent of loss or damage for which benefits are afforded by an insurance policy, obligations or duties under a bond, and other obligations or duties arising from an insurance policy or bond. [California Code of Regulations, 10CFR2695.2(k)]

Notice provisions in insurance policies serve the important function of allowing the insurer the opportunity to make a timely and thorough investigation of the insured’s claim. American States Insurance Co. v. National Cycle, 260 Ill. App. 3d 299, 310-11, 631 N.E.2d 1292, 197 Ill. Dec. 833 (1994); Twin City Fire Insurance Co., 266 Ill. App. 3d at 7.

Courts will not subject an insurance company to a choice between liability under a bad-faith-failure-to-investigate theory for publication of a denial of coverage without an adequate investigation, and liability for a constructive denial imposed after it has conducted a more thorough investigation that confirms an earlier determination of no coverage, on the theory of delay coupled with a wrongful intent. Rather, courts required that an insurer complete a thorough investigation before it makes a decision with regard to a claim for defense or indemnity under an insurance policy. Initial conclusions based on a bare reading of a law suit or initial investigative interview are not enough.

Although an insurance company is entitled to make a thorough investigation to determine whether there is coverage under its policy of insurance, the company acts at its peril in refusing to defend its insured in that, if it is subsequently determined that the company erroneously denied coverage, the company will be liable for damages for breach of its agreement under the policy. Therefore, insurers should conduct their thorough investigation as soon as possible and if a defense is required before the investigation can be completed provide a defense to the insured under a reservation of rights.

When an insurer denies or delays payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability, the insurance company will not be liable in bad faith even though it may be liable for breach of contract. One court gave the following instruction to a jury:

                        In determining whether or not an insurance company had a genuine dispute as to whether or not a loss was covered, you may consider among the following: (1) Whether the insurance company was guilty of misrepresenting the nature of the investigation; (2) Whether the insurance company adjusters and investigators lied during their depositions or to the insured; (3) Whether the insurance company dishonestly selected its experts; (4) Whether the insurance company experts were unreasonable; and, (5) Whether the insurance company failed to conduct a thorough investigation.” [McCoy v. Progressive West Insurance, Co., 90 Cal.Rptr.3d 74, 171 Cal.App.4th 785 (Cal.App. Dist.2 02/04/2009)]

An insurer has a duty to conduct an appropriate and careful investigation prior to making a decision on a claim. However, if after conducting a thorough investigation of the facts and circumstances giving rise to a claim, the insurer can reasonably conclude that the claim is debatable or questionable, a there can be no bad faith even though it refused to pay the claim incorrectly.

How to Conduct a Thorough Investigation

The investigative interview is a structured conversation between a trained and experienced interviewer and an person who has no training in the interview. It is not an interrogation. It is not the stuff of spy films, police investigations, or prisoner of war camps. Interviews happen everywhere. Interviewing is performed by almost everyone. Since interviewing is an art the most effective interview is one performed by someone with knowledge of the art.

Investigation to gather information is an artistic endeavor. The art is supplemented with scientific technique obtained from criminal investigators and professional psychologists but is performed by individuals without thinking about what it is they are doing. The art of the investigation must be honed until it becomes second nature much as a skilled typist does not think where to put his or her fingers while typing.

The art of uncovering the truth by a professional draws heavily from the police sciences. The police science of interrogation draws heavily upon human nature and the skills of the conversationalist. Because the interrogation is formal, in a confined space and conducted by a person in authority like a police officer or a lawyer examining a witness under oath in court, the techniques used are more formal and controlled than an insurance investigation.

Insurance investigators are compelled to get the information they need by intelligence, wit, skill and experience. They put people at ease. The skill of the professional causes the person being investigated to want to give information to the investigator. The most important skill of the professional is to cause the person being investigated to want to give information to the professional that the professional needs.

To conduct a thorough investigation the claims investigator should, at a minimum, the following:

  • Read the loss notice and policy of insurance.
  • If a lawsuit has been filed read the lawsuit in conjunction with the policy wording.
  • Interview the person insured — preferably in person.
  • Obtain a recorded statement from the person insured concerning the facts of the loss.
  • Interview and obtain a recorded statement from every independent witness.
  • Interview and obtain a recorded statement from the claimant if suit has not been filed.
  • If suit has been filed interview the attorney for the claimant about the factual basis for the suit.
  • View the scene of the incident.
  • Obtain all documents that have relevance to the claim, like:

○          The insured’s copy of the policy.

○          The police or fire report, if any.

○          Medical records.

○          Financial records.

○          The application for insurance.

○          Contract(s), if any, between the insured and the claimant.

○          All other records that might be relevant to the claim and policy.

  • Consult with necessary experts like:

○          Investigative engineers.

○          Coverage counsel.

○          Defense counsel.

○          Medical professionals.

○          Architects.

○          Forensic accountants.

○          All other experts that might be relevant to the claim and policy.

If it appears that there is coverage for the claimed loss advise the insured of the insurer’s decision.

If it appears that there is no coverage consult with management to review the facts gathered by the thorough investigation before a decision is made.

Conclusion

Failure to conduct a thorough investigation is a breach of the promises made by the policy of insurance to provide defense and/or indemnity to the person insured. Failure can also result in the insurer being sued for the tort of bad faith.

Insurers must, to comply with current law conduct:

  • A detailed investigation of the facts of the loss and policy acquisition.
  • A determination of the expectations of the insured and the insurer at the time the policy was acquired.
  • A determination of the purposes for which the policy was acquired.
  • An examination of all communications between the insurer and the insured or their representatives.
  • If the investigation is not conducted, the insurer faces suit for the tort of bad faith.

The thorough investigation requirement first enunciated by the California Supreme Court in Egan v. Mutual of Omaha Insurance Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (Cal. 08/14/1979) is essential when attempting to interpret a disputed policy of insurance.

In Egan, the Supreme Court concluded that “an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.”

Claims Commandment III

Thou Shall Communicate Often

Insurance claims is a service business. The claims person provides a service to the insured and the insurer. Communication is essential to providing the service promised by the insurance policy.

In some states, like California, communications is required by regulation:

                        Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured’s policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer’s additional liability. [10 CCR 2695.4 (a)]

This means that the initial written contact with an insured in a first party property claim should advise the insured of all benefits, coverage, time limits, or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by a first party insured.

When a claims person receives any communication from an insured, third party claimant, or a representative of the insured or claimant regarding a claim that reasonably suggests that a response is expected, should immediately after receipt of that communication, furnish the claimant with a complete response based on the facts as then known by the claims person. Some regulations allow the claims person up to 20 days to respond. Good claims handling requires an immediate response. If the response is oral rather than written it should be noted in the claims person’s file or log.

Upon receiving notice of claim, every insurance claims person should immediately do the following :

  • Acknowledge receipt of such notice to the claimant or insured.
  • If the acknowledgment is not in writing, a notation of acknowledgment must be made in the insurer’s claim file and dated.
  • Provide to the claimant or insured necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the claimant must provide for proof of claim;
  • Begin any necessary investigation of the claim.

The investigation must be a “real,” meaning the claims person or investigator must actually contact the claimant, the witnesses and start collecting the documents needed to complete the claims investigation. Investigation and must be started immediately after receiving notice of claim.

Merely reading a policy wording and notice of claim is not the beginning of an investigation or an investigation at all.

Upon receiving proof of claim, every insurance claims person should  immediately accept or deny the claim, in whole or in part.

The amounts accepted or denied shall be clearly documented in the claim file unless the claim has been denied in its entirety.

Some states allow up to 40 calendar days to respond.

If more time is required to determine whether a claim should be accepted and/or denied in whole or in part, the claims person should provide the claimant or insured written notice of the need for additional time.

The written notice should specify any additional information the insurance claims person requires in order to make a determination.

The written notice should state any continuing reasons for the insurer’s inability to make a determination.

Thereafter, the written notice should be provided at least every thirty calendar days until a determination is made.

If the determination cannot be made until some future event occurs, then the claims person should comply with this continuing notice requirement by advising the claimant and/or insured of the situation and providing an estimate as to when the determination can be made.

Effective diary systems are also essential to professional claims handling or the Regulations will be violated with regularity.

Every claims person must conduct and diligently pursue a thorough, fair and objective investigation and should not persist in seeking information not reasonably required for or material to the resolution of a claim dispute.

The claims person’s obligation is not limited to communication with the insured or the claimant.

The claims person and the insurer have an obligation to communicate with the state, police agencies, or prosecutors. In California, and most states, such a communication is absolutely immune from suit. Pursuant to section California Civil Code Section 47(b), a privilege is stated that bars a civil action for damages for communications made “[i]n any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law and reviewable pursuant to [statutes governing writs of mandate],” with certain statutory exceptions.

The privilege established by this subdivision often is referred to as an “absolute” privilege, and it bars all tort causes of action except a claim for malicious prosecution. “The absolute privilege in section 47 represents a value judgment that facilitating the “utmost freedom of communication between citizens and public authorities whose responsibility is to investigate and remedy wrongdoing” is more important than the “‘occasional harm that might befall a defamed individual.’” (See Imig v. Ferrar (1977) 70 Cal. App. 3d 48, 55-56 [138 Cal. Rptr. 540].)”

To fulfill Commandment III the claims person must communicate promptly and often with the insured, the claimant and the insured (if a third party claim) and counsel for each. In doing so the claims person establishes a rapport with the insured and/or claimant and will make resolution of the claim easier. No claims person should ever misrepresent or conceal benefits, coverages, time limits or other provisions of the policy from the insured or the claimant.

Claims Commandment IV

Thou Shall Understand The Policy

Insurance policies are contracts. To understand insurance claims the adjuster must understand how all contracts, and specifically insurance contracts, are interpreted. Rules of contract interpretation have developed over the last 300 years and are applied by courts with the intent to fulfill the desires of all parties to the contract.

People and judges who are not conversant in insurance and the interpretation of insurance contracts believe that the insurance policy is difficult to read and understand.

As one court said in Delancy v. Rockingham Farmers Mutual, 52 N.H. 581 (1873):

                        This [policy], if read by an ordinary man, would be an inexplicable riddle, a mere flood of darkness and confusion … should some extremely eccentric person attempt to examine the involved and intricate net in which he was to be entangled, he would find that it is printed in such small type and in lines so long and crowded as to make the perusal of the document physically difficult, painful and possibly injurious.

The following rules govern the construction of contracts of insurance:

  • If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed at the time of making it, that the promisee understood it.
  • If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. However, if the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous.
  • When a policy is interpreted, the provisions of an endorsement control the interpretation over the body or declarations of a policy when the two are in conflict.

For example, if the language written to limit an insurer’s liability to the appraised value appears on the declarations page, while the valuation  condition that provides for an actual cash value adjustment appears on a form endorsed to the contract, the endorsement’s language would  control the interpretation of the contradictory language of the policy.

However, the fact that the two sentences could have been written more clearly, did not mean that they were ambiguous.

Consider the reasonable expectations of the insured but, when doing so, include the understanding that every insurer is presumed to be acquainted with the practice of the trade he insures.

More than 150 years ago the US Supreme Court in Hazard’s  Administrator v. New England Marine Insurance Co., 33 U.S. 557 (1834) adopted the rule.

                        It concluded that “no injustice is done if insurers are presumed to know their insureds’ industry because it is part of their ordinary business.”

In MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635 (2003), the California Supreme Court first stated the primacy of the “reasonable expectations” test when interpreting insurance policies. It decided that the reasonable expectations of the insured required coverage to exist for an ordinary act of negligence even if it involved pollutants.

Where the language of the policy is clear, the language must be read accordingly, and where it is not, it must be read in the sense that satisfies the hypothetical insured’s objectively reasonable expectations.

If you find the term is clear and unambiguous there will be no need to apply the reasonable expectations test.

If you find any ambiguity, or determine the insured should be paid, the application of the reasonable expectations test will give a court the ability to construe the policy against the insurer and in favor of payment of the insured’s claim.

Most states will apply the plain meaning test.

Long-established insurance law supports the conclusion that insurers are presumed to know and be bound by the meaning of the terms used and customs adopted in their insureds’ industries.

Insurers, and insurance claims professionals, faced with a need to understand and apply the wording of a policy of insurance must now conduct their investigation to include:

  • a detailed investigation of the facts of the loss and policy acquisition;
  • a determination of the expectations of the insured and the insurer at the time the policy was acquired;
  • a determination of the purposes for which the policy was acquired; and
  • an examination of all communications between the insurer and the insured or their representatives.

To do so the insurer must at least conduct a detailed interview of the insured, the claimants, the brokers, and the underwriters. When there is a dispute over the meaning of common terms, the court will often find it necessary to inform upon the understanding of persons in the particular business insured so that the judge must consult the opinions of experts.  The expert testimony can be helpful in establishing that the insured’s or the insurer’s interpretation of the term at issue is different from that advanced by the other was reasonable. In California, this may be sufficient for a party to prevail because although insureds are treated differently so that even if [the insurer’s] interpretation is considered reasonable, it would still not prevail, for in order to do so it would have to establish that its interpretation is the only reasonable one.

An insurance claims professional can never make, or recommend, a decision with regard to an insurance claim until he or she has read the entire policy as it relates to a loss, interpret the policy wordings in accordance with the rules of interpretation stated above, conduct a complete and thorough investigation to determine the reasonable expectations of the insured, and if unable to make a decision seek the advice of competent coverage counsel.

Claims Commandment V

Thou Shall Communicate With the Insured

The key to resolving insurance claims amicably is constant and substantive communication between the insured and the adjuster. Communication about the claim on a regular basis allows the insured and the adjuster to build rapport.

Building rapport is a fundamental aspect of human communication.  Being able to build rapport could be viewed as a basic element of social intelligence. The professional should first spend time establishing rapport and the confidence of the person being interviewed. there are four elements of building rapport.

People who wish to build rapport should strive to:

  • build trust, such as demonstrating honesty, reliability, and fairness, understanding another person’s views, such as making statements that the professional understands how the other person feels,
  • show respect, that is be polite and express gratitude, and
  • be the kind of person who others would like by stating a willingness to be empathetic and altruistic.

A claims situation where the adjuster fails to establish rapport with the insured is doomed to fail. Rapport is a relationship marked by harmony, conformity, accord, or affinity.

Rapport can be established by the professional complimenting the office decor if  possible to do so honestly. However, if the insured is relegated to a drab cubicle, rapport can be established by the professional commiserating with the difficulty of working in less than comfortable surroundings. The adjuster can gain rapport with the insured might also explain that his employer also forces the  adjuster to work in a similar situation.

The adjuster, to establish rapport, should delay questioning by making an attempt to find mutual interests and concerns with the person to be interviewed. The task of establishing rapport can take minutes or hours. It is imperative that to complete a successful adjustment sufficient time must be expended establishing rapport before the serious and detailed part of the interview begins. Regardless of the skill of the adjuster, if rapport is not established, the goal of the adjustment will not be reached.

Once rapport is established it is essential that the adjuster maintains rapport with the insured by setting up an ability to communicate regularly with the insured. The insured should be provided with the adjuster’s office telephone number, the adjuster’s cell phone number, and an e-mail address where the insured can reach the adjuster to resolve any questions that might come to mind.

The adjuster, even if not asked a question by the insured after rapport is established, should mark a diary to communicate with the insured at least once every thirty days even if the communication is nothing more than a telephone call that simply asks how the insured is doing. If possible, the adjuster should also fill in the insured on the progress of the claims investigation and any events happening.

Contact in person is preferable but case loads for most modern insurers does not allow for continuous personal contact. If such contact is not available the contact should be by telephone, mail, or e-mail.

For example, if the insured has been sued by a third party, the adjuster should explain what is happening in the lawsuit. When defense counsel files an answer to the suit the adjuster should deliver a copy of the answer to the insured, explain the meaning of the language in the answer, and what defense counsel expects to do next to protect the interests of the insured. Each communication should be noted in the file. At least every 30 days some communication must pass between the adjuster and the insured and noted in the adjuster’s file whether the communication is substantive or merely an effort to keep up the rapport between the insured and the adjuster.

For example, if the claim relates to a fire at the insured’s home, the adjuster, after establishing rapport should present to the insured a schedule of the time needed to determine the scope of damage, set a time for meeting with the insured, an independent contractor, and the insured’s contractor. The meeting should take place quickly with everyone ready to work. The adjuster, the experts and the insured should then agree on the scope of loss and the adjuster should explain how long it will take the contractors to create an estimate of repair. When the estimates arrive the adjuster should prepare a comparison of the estimates and meet with the insured to determine the differences between the two or more contractors. The insured and the adjuster should then agree on the contractor whose estimate covers the entire loss and a contract should be agreed to repair the house. As repairs proceed the adjuster should inspect the work and regularly advise the insured of the progress of the repair regularly until the repair is completed.

States, by Regulation, also require regular communication and will punish the insurer if the adjuster fails to communicate.

The Regulations set minimum, not maximum, standards. Adjusters should, and are expected to, exceed the minimum standards set by the Regulations. Insurers now find — in bad faith litigation — that trial lawyers will posit violation of the minimum standards set by the regulations as evidence of bad faith sufficient to allow a trier of fact to assess tort damages against the insurer. Since the Regulations are stated to be minimum claims handling standards, failure to comply will give a judge or jury the opportunity to contend that the failure to comply is evidence of tortious conduct sufficient to support a claim that the insurer committed the tort of bad faith.

The adjuster must be familiar with the Regulations in his or her state with regard to communications to the insured and work to exceed the requirements. The minimum standards set by the various states are just that: minimums. The adjuster who establishes and maintains rapport with the insured will resolve more claims quickly and without difficulty and will never face the wrath of a supervisor or auditor from the state.

The adjuster that fails to communicate regularly and substantively will have difficulty reaching agreement with the insured.

Claims Commandment VI

Thou Shall Document The Claims File

Most insurance regulators require that every insurer maintain claim files that are subject to examination by the regulator or by his or her duly appointed designees. The regulator requires that the claim files must contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the insurer’s actions pertaining to the claim can be determined. Similarly, insurance company management needs the same ability to determine that the claims people are doing what they expect to be done to keep the promises made by the insurance policy.

In simple language everything the claims person does should be recorded in the claims file whether kept in a computerized system or a paper file. Every document collected, every photograph taken, every video recorded, every letter written, every e-mail sent, notes of every telephone conversation, should be in the claims file. Every comment and note made in a claims file should be written as if it were addressed to “Dear Commissioner” or Dear Ladies and Gentlemen of the Jury.”

The information in the claims file must be maintained so that the claim data are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment. This data must be available for all open and closed files for the current year and for, at least, the four preceding years.

All file destruction practices should be reviewed to ascertain that no file will be destroyed less than five years after it is opened nor less than four years after it is closed. Insurers should also maintain procedures to never destroy a file if litigation has started or is anticipated until after the litigation is resolved.

A diary system for the destruction of old files should be established by the insurer and its claims personnel with a requirement to keep the files at least two years longer than the regulator requires as an extra precaution.

If the files are scanned into computer media, microfilmed, or recorded in a method other than paper backups off site of the files should also be maintained. The claims person must record in the file the date the claims person received, date(s) the document was processed and date the licensee transmitted or mailed every material and relevant document in the file and maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy. Files must be maintained, at least, for the current year and the preceding four years.

If date stamps are not in use the insurer should provide a date stamp to each claims person so that the date of each action will be recorded in the file. If the insurer is “paperless” all incoming mail and documents must have imbedded in the image a date showing when the document was received. A mail log should also be maintained to establish dates of mailing of each document.

If the insurer uses computer generated e-mail and logging the computer should be programmed to record the date and time of each entry in such a manner that the claims person cannot modify or change the dates of any entry. All e-mail communications must be saved for up to five years in a searchable database or in connection with the electronic claims file.

All electronic records must be kept in such a manner that would allow a complete copy of the electronically recorded record to be printed out in full so that it is available to produce to the regulator or the insurer’s supervisory personnel or in discovery if litigation occurs.

The key for the claims person is, if in doubt about putting information into a claim file, always put the information in and never fail to record actions that relate in any substantial way to the file, the adjustment of the claim or the investigation conducted by the claims person.

Claims Commandment VII

Thou Shall Never Lie to an Insured

Insurance is considered a business of the utmost good faith. The principle of utmost good faith (uberrimae fides) was, I believe, first stated in the British House of Lords by Lord Mansfield in 1766 in a case where he concluded that the duty of good faith rests upon both the insured and the insurer and held the insurer to its knowledge at the time the policy was signed. The insurer, like the insurers, took the premium, knowing the condition of the security provided, and could not upon loss claim the insurer was deceived. [Carter v. Boehm, 3 Burr 1905 (1766)]

As the old maxim says “honesty is the best policy.” There is no excuse for an insurance claims professional to lie to an insured. Not only is a lie to an insured a failure to act with the utmost good faith, it is an action fraught with danger. Keeping up a consistent lie is almost impossible. All definite statements can be corroborated or proven false by further investigation. If a lie, the lie will be proved.

Lies to insureds — even when done for what the claims person believes is a good purpose — will always cause the insurer problems. Lies created on the run invariably include internal contradictions. A lie told to an insured can be, and most certainly will be, used by the insured to prove that the actions of the insurer were made in bad faith such that the insurer will be punished with punitive damages.

In Allison v. Fire Insurance Exchange, 98 S.W.3d 227 (Tex.App. Dist.3 12/19/2002) a major punitive damage award was obtained by a plaintiff who claimed that the adjuster lied to her about the authority to resolve a claim for mold damage. Although the case was reversed because of an excess verdict the lie cost the insurer a great deal of money when the case was eventually settled.

Claims people get into trouble when they fail to tell the truth to the insured about the following:

  • The check is in the mail.
  • There is no problem with coverage.
  • I will pay the fees of the lawyer of your choice.
  • The claim is being reviewed by senior management.
  • I need another 30 days to complete my investigations.
  • I need a copy of your policy.
  • I need you to go to all of the places where you bought the stolen property to get a receipt.
  • I will hire a contractor to rebuild your house.
  • I don’t have authority to settle your claim.
  • I don’t need to do an investigation to know your claim is not covered.
  • Any other statement that is not true.

California Insurance Code Section 790.03(h)(1) provides:

                        Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:

Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

Similarly, the California Code of Regulations, 10CFR 2695.4 provides:

    (b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.

This should be self-evident. It is a statement of prudent and common claims handling. Although this Regulation seems to apply only to surety bonds it also applies to any type of insurance. Nothing can be gained by an insurer concealing or misrepresenting information about the policy or the surety bond. Claims staff should be warned that violation of this regulation will be grounds for discipline and almost certain loss of employment.

On the other hand, proving that insurers and insured play on a different set of rules, a mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be wilful. [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 95-97, 3 S. Ct. 507, 515-16, 28 L. Ed. 76, 82 (1884)]

Claims Commandment VIII

Thou Shall Not Suffer Fraud to Succeed

Insurance fraud in the U.S. is epidemic. Insurance fraud continually takes more money each year than it did the last from the insurance buying public. Estimates of the extent of insurance fraud in the United States range from $87 billion to $300 billion every year. In truth no one really knows the extent of insurance fraud because most insurance fraud schemes succeed without the insurer even suspecting that it is being defrauded.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. No one will ever place an exact number on the amount lost to insurance fraud but everyone who has looked at the issue know – whether based on their heart, their gut or empirical fact of convictions for the crime of insurance fraud – that the number is enormous. When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-insurers drops logarithmically.

A report from the Insurance Services Office (ISO) noted:

  • Insurers consider fraud “a serious problem” but their companies’ anti-fraud efforts only “moderately effective.”
  • Sixty-eight percent say their companies’ anti-fraud programs address claims fraud “thoroughly,”
  • 19 percent say they address premium fraud “thoroughly,”
  • 25 percent say they address application fraud “thoroughly,”
  • Slightly more than one-third (37 percent) think the amount of fraud their companies have experienced has increased over the past three years.
  • Forty-two percent think that 21 percent or more of total claims contain “soft” fraud, but only 6 percent think that 21 percent or more of claims contain “hard” fraud.
  • They agree that fraud is most prevalent in the private passenger auto and workers compensation lines of business.
  • Eighty-two percent of the 353 insurers responding to the survey say they have an anti-fraud program at their companies.
  • One hundred percent of the large insurers, 91 percent of the medium insurers, and 64 percent of the small insurers have an anti-fraud program.
  • Sixty-three percent of the companies say that the state or states in which their companies do business require an anti-fraud plan.
  • However, only 13 percent of insurers doing business in these states (n=213) consider state requirements and guidelines “very useful.”

Because fewer than one-third of respondents answered questions about their companies’ expenditures, estimates of industry-wide spending on anti-fraud efforts are not reliable. The response rate suggests that insurers are unable to isolate anti-fraud expenditures in their budgets or unwilling to share what figures they have with other insurers and the general public.

What Do The Results of the Effort Against Fraud Really Show?

Insurance fraud prosecutions and investigations are anemic. What the reports do not tell is that most of those convicted were sentenced to probation. Few made full restitution and those who served time were few and far between. Insurance criminals are laughing at the insurance industry, the police agencies, the Fraud Divisions and the prosecutors. If they are one of the few criminally convicted, they face an average sentence of only five years probation and 60 days in jail. Jail time is usually served on weekends so that the convicted fraud perpetrators can still ply their fraudulent trade on weekdays.

For insurance fraud to be prosecuted the insurer must do the work to complete a thorough investigation that can be presented to a prosecutor because police, federal investigators, prosecutors and even Fraud Division investigators will do nothing until the case is presented to them in detail by an insurer. Every person involved in the business of insurance must understand that insurance fraud is the orphan child of the criminal justice system. Insurance fraud will never be totally defeated. It will be reduced and may be made unprofitable to the perpetrators when the public and prosecutors recognize that insurance fraud is a serious problem that effects their own financial condition.

Everyone involved in the business of insurance and everyone who buys insurance must make it clear that they are angry with what is happening to their insurance premium dollar. When I, and everyone who has ever purchased a policy of insurance, hear that $300 out of every $1,000 we pay in premium goes to a criminal we should all want to scream out the window, as did the character in “Network” — “I’m mad as Hell, and I’m not going to take this any more!”

What is Fraud?

Insurance fraud is a tort, a civil wrong. Black’s Law Dictionary, 6th Edition, defines fraud as:

An intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.

In simple language, fraud can be defined as a lie told for the purpose of obtaining money from another who believes the lie to be true. Civil insurance fraud exists if an insured makes a representation to the insurer that the insured knows is false; conceals from the insurer a fact he or she knows is material to the insurer; makes a promise he or she does not intend to keep; and makes a misrepresentation on which the insurer relies in issuing the policy, that results in the insurer incurring damage.

Investigating Fraud

The beginning of a thorough insurance fraud investigation is the interview. The interview can be informal, it can be recorded with an audio recording device, it can be recorded with a handwritten statement signed by the witness or it can be recorded by a certified shorthand reporter. The interview is a structured conversation. It is not an interrogation. It is not the stuff of spy films, police investigations, or prisoner of war camps. Interviews are everywhere. Interviewing is an art. Use of methods similar to those used by scientists conducting experiments is a more accurate description of interviewing.

Conclusion

Whenever fraud is suspected it is the duty of the insurer, its claim staff and its special investigation unit (SIU) to conduct a thorough investigation. If a preponderance of the evidence gathered reveals that a fraud has been committed: that there was a material misrepresentation or a concealment of a material fact, made with the intent to deceive the insurer, that the insurer was actually deceived, and that the insurer was damaged by the deception, the claim must be rejected.

If a preponderance of the evidence does not exist or establishes there was no fraud the claim should be paid.

Claims Commandment IX

Thou Shall Document the Claim File

Insurance claims handling is a person to person business where the claims handler, the insured and the claimant (if there is one) interact with each other. Because the interaction is not always perfect it is essential to document the interaction in the claims file whether hard paper or electronic and paperless. In addition to the fact that such documentation is good claims handling, it is required by most state insurance regulators. For example:

            (1)       maintain claim data that are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment. This data must be available for all open and closed files for the current year and the four preceding years;

            (2)       record in the file the date the licensee received, date(s) the licensee processed and date the licensee transmitted or mailed every material and relevant document in the file; and

            (3)       maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy; files shall be maintained for the current year and the preceding four years. [California Fair Claims Settlement Practices Regulations, 10 CCR 2695.3 (a)]

Adjusters, claims handlers and any other claims personnel who maintain “working” or “field” files, should be aware that those additional files are part of the file and records required to be kept by the Regulations and are subject to examination by the Commissioner.

The practice of being less cautious in the maintenance of “working” or “field” files should be discontinued. Every comment and note made in a claims file should be written as if it were addressed to “Dear Commissioner” or Dear Ladies and Gentlemen of the Jury.”

All file destruction practices should be reviewed to ascertain that no file will be destroyed less than five years after it is opened nor less than four years after it is closed. Insurers should also maintain procedures to never destroy a file if litigation has started or is anticipated until after the litigation is resolved.

A diary system for the destruction of old files should be established by the insurer and its claims personnel with a requirement to keep the files at least two years longer than the CDOI requires as an extra precaution.

If the files are scanned into computer media, microfilmed, or recorded in a method other than paper backups off site backup of the files should also be maintained.

If date stamps are not in use the insurer should provide a date stamp to each claims person so that the date of each action will be recorded in the file. If the insurer is “paperless” all incoming mail and documents must have imbedded in the image a date showing when the document was received.

A mail log should also be maintained to establish dates of mailing of each document. If the insurer uses computer generated e-mail and logging the computer should be programmed to record the date and time of each entry in such a manner that the employee cannot modify or change the dates of any entry. All e-mail communications must be saved for up to five years in a searchable database or in connection with the electronic claims file.

Further, all electronic records must be kept in such a manner that would allow a complete copy of the electronically recorded record to be printed out in full so that it is available to produce to the CDOI or in discovery if litigation occurs. Every computer record should be kept with on-site and off-site back-ups of the records.

Every insurance regulator will conduct audits of insurers doing business in their state. Failure to properly document files as required by good claims handling, statutes or regulations will find the insurer facing fines and bad reports on the ability of the insurer to properly complete the promises made by the insurance policy. Also, unfortunately claims people must spend a great deal of their time documenting the file because about three percent of all claims result in litigation against the insurer. It is essential to every litigation that the insurer has a record of everything they did to protect the insurer against false allegations of bad faith.

The professional claims person will log every telephone call, keep every e-mail and letter in the claims file, and document everything done to deal with the claim.

One way to protect the claims handler and the insurer is Barry Zalma’s E-Book: Zalma on California Claims Regulations – 2011. The E-book is available at http://www.zalma.com/REGS.htm

Claims Commandment X

Thou Shall Not Pretend to be a Lawyer

Some experienced and professional claims people know the law in their area of expertise better than most lawyers. Most claims people do not nor are they capable of pretending that they know the law. Whether the claims person knows the law of insurance contracts or tort law well, he or she is not a lawyer and should not do anything that even hints that the adjuster is acting as a lawyer.

Therefore, communications with an insured, dealing with coverage issues should be limited to the wording of the policy and the claim against the insured. If the case requires that legal authorities be cited to an insured or claimant to best communicate the position of the insurer the adjuster should retain the services of a competent coverage lawyer to write to the insured as the attorney for the insurer.

Many years ago some disreputable insurance companies rescinded policies of insurance as a matter of policy to avoid legitimate claims. The claims staff was instructed to rescind every policy that generated a large claim. When a competent policyholder’s lawyer sued on behalf of those whose policies were rescinded and took the deposition of the adjuster and destroyed the insurers’ position with a simple question: “Please spell rescission.” None could spell it correctly and those who could were stumped by the second question: “What elements must be proved to establish a valid rescission.”

A coverage lawyer would have no trouble answering the two questions. An untrained and inexperienced adjuster could not. The insurers who rescinded willy nilly we assessed punitive damages in addition to requiring them to pay the claims and most went out of business.

Adjusters should be adjusters and leave lawyering to lawyers.

Claims Commandment XI

Thou Shall Empathize With the Claimant

Everyone in a claim situation is unhappy, disturbed, shocked, injured either in body or emotionally and need help. The adjuster must recognize the difference between sympathy and empathy. Empathy is identification with and understanding of another’s situation, feelings, and motives. It is the ability to understand another person’s circumstances, point of view, thoughts, and feelings.

Sympathy, on the other hand, is the sharing of another’s emotions, especially of sorrow or anguish and includes pity and compassion. It is the fact or power of sharing the feelings of another, especially in sorrow or trouble. Sympathy must be limited to the needs of relatives or clergy, not a professional relationship.

The adjuster should avoid sympathy and work to convince the insured or claimant that the adjuster empathizes with the claimant’s situation. Empathy can be shown if the adjuster can honestly express one or more of the following similarities between the adjuster and the claimant:

  • They have similarities in their families;
  • They practice the same religious denomination;
  • They were also wounded in the war while serving in the US Military;
  • They have children of the same age;
  • They belong to the same club;
  • They engages in the same hobby;
  • They are fans of the same sports team, or
  • They have some interest in common.

When the claimant believes that the adjuster empathizes with the problems of the claimant or the insured the two will work together as a team to resolve the claim. With empathy, the adjuster can provide the service promised by the terms and conditions of the insurance policy.

The adjuster is the living embodiment of the insurance company: this is the person the insured meets when he faces a loss and needs help. It is the adjuster, and the help he or she gives the insured, that is the essence of the promise made by the insurer when the policy is issued. Without this service insurance becomes meaningless. The adjuster is the foundation upon which an insurer is built. If the adjuster is not professional, and does not provide the service promised by the insurer, the promise made by the policy is broken and the insurer will first lose customers and ultimately fail. Claims that are owed must be paid promptly and with good grace.

To do otherwise would be to ignore the purpose for which insurance exists: to provide service, protection, and security to the insureds. The property adjuster has a duty to:

  • help the insured prove the loss to the insurer;
  • help the insured understand the terms and conditions of the policy; and
  • conduct a thorough investigation to determine if a third person is responsible for the loss so that subrogation can be instituted to recover, in addition to the money paid by the insurer, the deductible or other non-covered portions of the loss.

Insurance claims professionals are people who:

  1. Can read and understand the insurance policies issued by the insurer.
  2. Understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
  3. Are all competent investigators.
  4. Have empathy and recognize the difference between empathy and sympathy.
  5. Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
  6. Understand how to repair damage to real and personal property and the value of the repairs or the property.

An insurer whose claims staff is made up of people who are less than Insurance Claims Professionals will be destroyed by expensive and counter-productive litigation.

The liability adjuster represents the insurer and deals directly with the insured. When a claim is made, the insurer provides an adjuster to help the insured understand the policy and comply with its conditions. The role of the liability adjuster is slightly different to that of the property adjuster. The liability insurance adjuster has a three-fold duty:

  • to the insured, to protect him or her against exposure to liability to third parties as a result of an accidental tort that falls within the definition of “occurrence”;
  • to the claimant, to treat him or her fairly and, if liability exists, to resolve the claim promptly without ignoring the duty to the insured; and
  • to the insurer, before agreeing to resolve a claim, to establish that coverage exists for the loss under the terms and conditions of the policy, that the insured is liable to the third party, and the most reasonable resolution of the claim has been achieved.

The lesson for every claims person is to have empathy for the insured and the claimant recognizing that as a result the claims investigation will be completed with ease, the insured or claimant will assist the adjuster, and the claim will eventually be resolved with both the insurer and the insured will be satisfied with the result.

Claims Commandment XII

Thou Shall Stay With A Claim

Insurance is a personal service business. Although there is nothing in a policy of insurance that even mentions an insurance adjuster insurers found that they needed to help the people they insured to make it possible to resolve claims without animosity. The insurance adjuster is the only contact a person insured has with the insurer.

The claims adjuster is the person knowledgeable in insurance retained by an insurer for the purpose of assisting the insured in proving a loss to the insurer. A person who expresses to the insured the fidelity and good faith of the insurer. The adjuster determines the amount of loss, the cause of the loss, and the final settlement in cash value after all factors have been considered.

Adjusters are the representatives of the insurers who must fulfill the promises made by the underwriter when the risk was taken. They must determine that the decision to insure was based upon accurate facts and that the underwriter fully understood the risk he or she was taking. Underwriters weigh the hazards faced  by a particular property before agreeing to take on the risk of loss.

The adjuster is the foundation upon which an insurer is built. If the adjuster is not professional, and does not provide the service promised by the insurer, the promise made by the policy is broken and the insurer will first lose customers and ultimately fail. Claims that are owed must be paid promptly and with good grace. To do otherwise would be to ignore the purpose for which insurance exists: to provide service, protection, and security to the insureds.

To be an effective adjuster it is imperative that the adjuster establish rapport with the insured and continue with the insured from the first notice of loss until the conclusion of the claim to the satisfaction of the insured and the insurer. The rapport and continuity is lost when management changes the adjuster on a claim more than once.

To properly serve the people the insurer insures requires professional insurance claims handlers who are secure in their position and can spend the time necessary to assist an insured to resolve a claim even if that claim, like a third party liability claim, takes years to resolve.

Lesson

To fulfill this claims commandment insurers must staff their claims department with experienced, professional claims personnel who have chosen claims handling as a profession. The claims personnel must be people who can empathize with the insured and, if there is one, claimant.

The insurer must emphasize to its personnel that it requires continuous rapport with the insured and claimant and that it will never change the person in charge of a claim unless absolutely necessary. Claims people should make clear to the insured and the claimant that they will be with them from beginning until the claim is resolved.

Claims Commandment XIII

Though Shall Educate Yourself Continuously

Insurance and the law of insurance is continuously changing. As regular readers of Zalma on Insurance are aware new cases on insurance issues come from the courts daily. Facts and practices that are clear and unambiguous today will be ambiguous or wrongful tomorrow. Acts that are considered bad faith today will be considered to be good faith tomorrow.

The key to becoming a professional claims handler is education and information. For that reason the professional should, among other things:

  • Read Zalma on Insurance
  • Read the insurance trade journals daily, most of which are available for little or no cost, on line:

○          Bests Review.

○          Business Insurance.

            ○          Insurance Journal.

            ○          Claims Journal.

            ○          Claims Magazine.

            ○          American Agent and Broker Magazine.

            ○          National Underwriter.

            ○          Underwriters Insider.

            ○          Zalma’s Insurance Fraud Letter.

○          Dozens of others.

○          Join and participate in insurance or investigation related LinkedIn groups.

○          Join and participate in insurance or investigation related Yahoo groups or Google groups.

○          Subscribe to the newsletters of IRMI.

○          Subscribe to Findlaw’s summaries of recent insurance decisions.

○          Take insurance related continuing education classes.

○          Obtain an insurance related designation like CPCU, CLU, AIC, etc.

It is also necessary to comply with state regulations regarding licensing and continuing education. For example only, California now requires of adjusters:

          Hour Requirements

24 hrs biennially – Independent Insurance Adjusters and Public Adjusters

       Line Specific Requirements:

Courses must be in license type held.  If multi-licensed, any course is allowed.

          Ethics

4 hrs – Life/Health Agent and/or Fire/Casualty Broker-Agent, independent insurance adjusters and Public Adjusters

          Education Methods:

  •                         Classroom
  •                         Self-Study
  •                         Online

          Compliance Renewal Date:

Independent & Public Adjusters renewal date is 5/31 of even numbered years

         Carryover Hours:

Excess hours can be carried forward to next renewal period. Excess hours completed after expiration date do not carry forward to next renew period.

          Course Repetition:

Courses may not be taken more than once in each renewal period for credit

          Reporting Method:

CE credits are reported online daily to the CDI (classes within 30 days after course completion)

Licenses can be renewed online at www.insurance.ca.gov and click on the Online License Application.

          Exemptions to CE Requirement:

Agents who are 70 years or older and have had a California insurance license in good standing for 30 or more continuous years

          Non-Residents:

Exempt if licensee meets home state CE requirement, with the exception of nonresidents selling annuities or LTC.

To be a professional claims handler it is essential that you understand the covenant of good faith and fair dealing, the basis of insurance, how insurance works, and a high level of skill in the profession.

Claims Commandment XIV

Thou Shall Adjust

The claims handler has been called an “adjuster” for centuries because he or she is capable of adjusting to different situations. In modern practice and adjuster is:

                        The person knowledgeable in insurance retained by an insurer for the purpose of assisting the insured in proving a loss to the insurer. A person who expresses to the insured the fidelity and good faith of the insurer.

The adjuster is also a person who, “for any consideration whatsoever, engages in business or accepts employment to furnish, or agrees to make, or makes, any investigation for the purpose of obtaining, information in the course of adjusting or otherwise participating in the disposal of, any claim under or in connection with a proof of loss or engages in soliciting insurance adjustment business.”  [California Insurance Code § 14022.]

It is the obligation of the adjuster to determine the amount of loss, the cause of the loss, and the final settlement in cash value after all factors have been considered.

The adjuster must be capable of working with various people under multiple difficult situations, determine the dispute and resolve it in a manner that is acceptable to the insured or claimant and the insurer for whom the adjuster works.

The courts of many states have created a tort called “bad faith conduct of insurance contract requirements” (the “tort of bad faith”). Although bad faith is grounded in contract principles it is treated as a tort for the purpose of assessing damages. To understand the tort remedies available for bad faith conduct the adjuster must understand a fundamental principle of contract law that every contract imposes on each party a duty of good faith and fair dealing in its performance and its enforcement.

The adjuster provides the service promised by the insurance company. The adjuster is the living embodiment of the insurance company: this is the person the insured meets when he faces a loss and needs help. It is the adjuster, and the help he or she gives the insured, that is the essence of the promise made by the insurer when the policy is issued. Without this service insurance becomes meaningless. The adjuster is the foundation upon which an insurer is built. If the adjuster is not professional, and does not provide the service promised by the insurer, the promise made by the policy is broken and the insurer will first lose customers and ultimately fail. Claims that are owed must be paid promptly and with good grace. To do otherwise would be to ignore the purpose for which insurance exists: to provide service, protection, and security to the insureds.

To do the task the adjuster must be flexible and ready to work within the confines of the contract of insurance, the covenant of good faith and fair dealing, and simple good manners to work as a partner with the insured or claimant to resolve the claim to the satisfaction of both. If a claim is properly adjusted litigation between insurers and insureds and claimants will diminish and in many cases disappear.

Claims Commandment XV

Thou Shall Not Be Cruel

Insurers pay to the satisfaction of their insureds and claimants approximately 95% of all claims presented. However, there will always be claims made on policies that do not provide coverage. They can be as simple as:

  • A fight in a bar with an all inclusive assault and battery exclusion.
  • Earthquake damage to a house with no earthquake coverage.
  • A flood to a house with no flood insurance.
  • A landslide wipes away a house and lot where landslide is excluded.
  • An auto accident two days after the policy expires.
  • Vandalism damage to a car that is only covered by basic third party liability coverage.
  • A business intentionally pollutes a nearby waterway.

Advising an insured or claimant that there is no coverage on an insurance policy always falls upon the shoulders of an insurance adjuster. How the adjuster fulfills the task of advising a person that he is on his own and can expect nothing from the insurer can cause, or avoid, a lawsuit from the insured.

It is essential that the adjuster deal with the claim denial in pleasant, empathetic and kind fashion. The adjuster should never be brusk and cruel. The adjuster should never take joy in denying a claim although it is the adjuster’s obligation to comply with the terms and conditions of the policy.

Be kind. Be considerate. Be clear, concise, and advise the person whose claim must be denied, why his claim must be denied. That means the adjuster must provide the insured with the results of the adjuster’s investigation that reveals all of the facts relied upon, how they apply to the specific wording of the policy, and how the facts and the policy wording are interpreted by the courts of the place where the claim occurred. If possible the denial should be written and detailed and presented in person to the insured or claimant so that the adjuster is available to answer any questions raised by the denial.

No insurance policy covers every potential claim. Some casualties are either uninsurable or not insured. It is not only correct, honest and moral to explain a denial to the insured, in states like California, it is required by Regulation:

(1) Where an insurer denies or rejects a first party claim, in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer’s knowledge. Where an insurer’s denial of a first party claim, in whole or in part, is based on a specific statute, applicable law or policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the statute, applicable law or provision, condition or exclusion to the claim. Every insurer that denies or rejects a third party claim, in whole or in part, or disputes liability or damages shall do so in writing. [California Fair Claims Practices Regulations Section 2695.7(b)(1)]

The Regulations are clear but they fail to take into consideration the duty of the adjuster to deal with the insured with empathy and personal contact. It just requires a cold, written statement, that must contain difficult to understand legalisms. Fulfilling the Regulation to the letter is cold and cruel unless delivered by an adjuster, who, through the investigation process has developed a rapport and trusting relationship with the insured.

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