Five Keys to Minimizing Statutory ClaimsPDF
Claims professionals are the primary point of contact between insurers and their policyholders. For many, adjusters represent the insurers for whom they work and their performance is under scrutiny now more than ever. Even unintentional miscues can set the stage for costly extracontractual claims. It is vital that adjusters learn to identify and avoid the hazards.
Adjusters encounter policyholders when emotions are high, following losses ranging from a damaged car to the death of a loved one or the destruction of a business. Even so, the adjusting process usually goes smoothly and ends well.
In the rare instance where resolution cannot be reached, either due to coverage denial or disagreement over the amount of loss, an adjuster's conduct can mean the difference between a normal breach of contract claim and a statutory claim for unfair settlement practices, exposing the insurer to multiplied damages and attorneys' fees.
With the benefit of hindsight and an enterprising attorney, a policyholder may identify—and sometimes embellish—any number of acts and omissions giving rise to such a claim. This article outlines the dangers of extracontractual claims, identifies conduct that can give rise to them and suggests simple preventive measures.
Unlike other segments of our economy such as banking and health care, the insurance industry has historically been regulated at the state level. Every state has enacted some form of unfair settlement practices legislation. While there are material differences, the laws generally address a range of "unfair" or "deceptive" conduct in adjusting and settling claims, and permit policyholders to sue directly to recover statutory damages (e.g., treble actual damages) and attorneys' fees. Violations of these statutes regulating insurance practices are generally easier to prove than traditional ("common law") bad-faith claims, so they have become the favored approach of most policyholder attorneys.
To appreciate the risk presented it's important to understand that insurers have a difficult time convincing courts to dismiss statutory claims before trial. This is because statutorily prohibited conduct is broad and often nebulous, so allegations of such conduct usually raise fact issues that must be resolved by juries, not by judges ruling on pre-trial motions. This presents several concerns.
First, it exposes insurers to multiplied damages and attorneys' fees. Second, juries are inherently unpredictable, and may be predisposed to punish insurance companies. Third, an adverse jury verdict is extremely difficult to overcome on appeal because an appellate court must affirm a jury verdict unless there is essentially no evidence to support it. Fourth, in this age of immediate and boundless electronic communication, an adverse jury verdict will quickly be common knowledge among insurance coverage attorneys, and they will use it in other cases against the unfortunate insurer. And fifth, taking a case to trial, and possible appeal, is very expensive.
There isn't too much an adjuster can do to exacerbate a reasonable and good faith coverage dispute that may become a breach of contract lawsuit, since such disputes focus on the construction and enforcement of policy terms. As long as an adjuster's claim handling is not marked by conduct that may violate a state statute, the claim will be decided and any coverage found to exist will be paid out.
However, an adjusters' conduct can—and often does—transform a breach of contract claim into a statutory unfair practices claim, and this article explores which sorts of conduct can open the door to such a claim and offers simple steps to avoid such behavior.
Conduct to avoid
Prohibited claims settlement conduct tends to be broad and nebulous. Although an exhaustive list is beyond the scope of this article, there are certain types of conduct most state statutes outlaw:
- Misrepresenting relevant facts or policy terms;
- Failing to promptly investigate and settle claims;
- Failing to promptly and fairly pay claims where coverage has become reasonably clear;
- Attempting to settle claims for less than a reasonable insured would expect based on advertising or promotional materials;
- Requiring insureds to submit duplicative loss information;
- Failing to perform thorough, objective and fair investigations; and
- Forcing policyholders to pursue litigation to recover amounts due by offering significantly less than amounts ultimately recovered.
These prohibited acts and omissions involve every step of the adjustment process, and are fraught with danger.
Reducing the risk
Fortunately, there are simple things adjusters can do to minimize the possibility of statutory claims. They include:
- Keep your word. Do what you say you will do, when you say you will do it. If you can't, tell the insured ahead of time. This basic courtesy can make a big difference, and yet the frequency with which it is neglected is striking.
- Keep your cool. No matter how obnoxious a policyholder may be, remain professional and congenial at all times. However, do not allow the insured to confuse congeniality with acquiescence. Firmness and civility are not incompatible.
- Emails count. Don't be fooled by the seeming informality of email. In litigation, an email can carry every bit as much weight as a formal letter. If a coverage dispute is brewing, do not hit "send" until you think about how a jury might react to an email.
- Ask before you leap. Confer with counsel or more senior claims personnel before sending a letter or email containing a coverage position or argument about which you have any doubt.
- Your claim file is unprotected. Although the law varies by state, always assume that claim files will be subject to discovery in litigation. You may be cross-examined about notes and emails you expected to be private.
An adjuster's job is more difficult and treacherous than ever in this era of heavy insurance industry regulation. Vigilance is required throughout the claim adjustment process because one misstep can transform a seemingly routine coverage disagreement into a statutory lawsuit threatening extracontractual damages. Fortunately, simple measures can help minimize this risk.