Comparative Negligence – A Multidimensional Approach to Claim Investigation

On March 9, 2011, In Claim Liability Operations, Litigation, By VMG

The ability to accurately evaluate comparative negligence in automobile accidents is a vital skill for any claim representative. The liability decision support system used by the claim representative must serve to augment and bring consistency rather than restrict that skill. Unfortunately many of the liability decision support systems used by insurers today are designed to second guess the skilled thought processes of the claim representative and channel them into a pre-determined, one-size-fits-all decision tree.  Although, many would tell a tale of the salvation of their computer programs – we are not of that mind set.

In this article we will show how an advanced liability decision support system can augment the inherent skills of the claim representative and allow that representative to make comparative negligence evaluations that are multidimensional, viewing the claim as a whole rather than as isolated elements. This multidimensional approach allows the claim representative to structure their evaluations of the key elements of the investigation to make comparative negligence assessments. In addition, these assessments reflect both the factual elements of the claim as well as the more intangible elements such as credibility, quality, and reliability of information sources, elements which can have major impacts on the outcome of negotiations or litigation.

Brief History of the Development of Comparative Negligence vs. Contributory Negligence

Over the past half century the doctrine of comparative negligence has gradually replaced that of contributory negligence in American tort law and has now become the standard in state automobile insurance regulations across the country. In a 2001 Harvard Law School – John M. Olin Center discussion paper, author Oren Bar-Gill noted:

The comparative negligence rule, and more generally the principle of comparative fault, is sweeping through the law of torts, and beyond. Through statutory intervention or judicial innovation, the traditional common law doctrine of contributory negligence has been gradually pushed aside. And the march of comparative fault continues. (Paper 346, 12/2001, p4)

The contributory negligence doctrine had been the governing standard for automobile insurance law for the first half of the twentieth century throughout most of the United States (it remains so in four states and the District of Columbia – see Appendix A). Under the contributory negligence system, third party lawsuits for injuries sustained in automobile accidents were not permitted if the plaintiff in that lawsuit was judged to be even partially at fault in the accident. It did not matter how minor the fault, if it existed at all, recovery of damages was prohibited.

Acceptance of the contributory negligence standard slowly began to decline as dissatisfaction with its relatively harsh results grew among the general public. Pressure from the motoring public and lobbying from trial attorneys resulted in a shift away from the contributory negligence standard. State legislatures across the country began to substitute the new standard of comparative negligence into their automobile insurance regulations. Comparative negligence in its simplest form is a legal doctrine that enables claimants to recover a portion of their damages even when they are judged to be partially at fault for an accident. Each driver’s degree of negligence is compared to that of the others and a claimant’s recovery is reduced by the percentage of his or her negligence.

Depending upon state statutes, comparative negligence takes one of three forms: pure comparative negligence, modified comparative negligence – 50% rule, or modified comparative negligence – 51% rule.

  • Pure comparative negligence – Thirteen states use the pure comparative negligence rule which allows any person suffering damages to recover even if that person was 99% at fault. Any damages awarded however, are reduced, by the damaged party’s degree of fault. In a noted 1975 decision (Li v. Yellow Cab Company), the California Supreme Court, moved the state of California from a contributory negligence system to one of pure comparative negligence. In its decision the court mandated that:

Therefore, in all actions for negligence resulting in injury to person or property, the contributory negligence of the person injured in person or property shall not bar recovery, but the damages awarded shall be diminished in proportion to the amount of negligence attributable to the person recovering. (1975, p10)

  • Modified comparative negligence – 50% rule. In the twelve states utilizing this variation of modified comparative negligence an injured third party can only recover damages if his or her fault does not reach 50%. If a driver is judged to be 50% or more responsible for an accident that driver is prohibited from recovering damages. As with pure comparative negligence, damage awards are apportioned according to the degree of responsibility.
  • Modified comparative negligence – 51% rule. Twenty one states use the 51% rule. Under this version of modified comparative negligence an injured third party may recover damages if his or her responsibility is 50% or less. In other words damages can be awarded to a driver who was 50% responsible for the accident, but not if he or she was 51% or more responsible. As with pure comparative negligence, damage awards are apportioned according to the degree of responsibility.

Note – for a listing of the damage award system in use by each state, see appendix A at the end of this article.

A Structured Approach to Evaluating the Components of a Claim Investigation

All claim investigations are built around three key foundational pillars: investigative reports, physical evidence, and statements. Investigative reports can take the form of police reports, accident scene photos, skid mark analysis etc. Physical evidence is the evidence resulting from an accident – damage to vehicles and injuries to those involved. Statements include statements by the involved parties or witnesses, made to the police at the scene or to the adjuster during his or her investigation, as well as statements provided by expert witnesses brought in to analyze specific elements of the claim.

During the initial portion of a claim investigation the goal of the adjuster is to ascertain the facts of the accident and to determine the liability of each of the involved parties – the claimant (or claimants) and the insured. A key element in determining liability is assessing the comparative negligence for each party involved in the accident.

In assessing comparative negligence, the adjuster uses the investigative reports, physical evidence, and statements to evaluate their content as well as their reliability, quality, and credibility. This evaluation in essence determines if there was a breach of duty by any of the involved parties and if so, what part those breaches of duty played in the accident. This linkage is important given the fact that the concepts of duty owed and duty breached are tort concepts that would be used in a judicial context. Below is a summary of the main elements inherent in the concept of  negligence and breach of duty as outlined by author David J. Shestokas in his article, “The Law of  Negligence”:

Doctrine of Breach of Duty in Motor Vehicle Accidents

A claim investigation can establish that an insured either had no duty or did not breach a duty they did have, or it can establish that a claimant contributed to an accident by breaching a duty the claimant had.

In order to recover damages based on negligence a claimant must prove that all of the elements that comprise negligence are present. These elements are:

  • Existence of a duty by the insured
  • Breach of that duty by the insured
  • Actual harm or damages caused to the claimant
  • The breach of duty by the insured was the proximate cause of the actual harm or damages suffered by the claimant. (Mar 25, 2009, p1)

The operation of a motor vehicle on a public roadway imposes duties upon the operator. There are duties that are common among all states and jurisdictions and there are other duties that are state specific. Common duties include:

  • Duty to look out – you must pay attention and be aware while driving.
  • Duty to operate safely
  • Duty to Avoid – you must do all that is reasonable to avoid a collision or contact with another vehicle or pedestrian.
  • Duty to obey traffic laws
  • Duties created under the “reasonable man” theory. – You must operate your vehicle as would a “reasonable man” in similar circumstances.

The breach of duty concept is fundamental in assessing degrees of comparative negligence for both claimants and insureds. Anyone who is determined to have a breach of duty in an accident is negligent. In any accident, one or both parties can be found to have committed a breach of duty resulting in negligence which contributed to the accident. A sophisticated liability decision support system can assist the adjuster in determining comparative negligence by allowing the adjuster to rate the reliability, quality, and credibility of each the three investigative pillars: the investigative reports, physical evidence, and statements. These ratings, based on the expertise and experience of the adjuster, are used by the liability decision support system in determining the probable shared responsibility of the claimant for the accident.

Given the fact that this assessment of duty owed duty breached is critical to a comparative negligence determination, a system that provides investigation survey templates that are populated with the factors that are relevant in determining the comparative negligence of both the claimant and the insured is paramount. The factors within the templates will assist in determining which driver breached which duty, and the degree those breaches played in the comparative negligence of the claimant and the insured. Because those factors vary greatly with the specific type of accident, the liability decision support system must be adaptive and flexible enough to provide the adjuster with only those query sets that are relevant to the specifics of the particular accident. In addition, a truly advanced liability decision support system will allow an adjuster to use their experience in rating the reliability, quality, and credibility of the reports, physical evidence, and statements themselves. These ratings will be used in generating both comparative negligence assessments and in more advanced systems, an overall strength of case evaluation which can assist the adjuster in deciding the best strategy to adopt in settling the claim. This will insure consistency across claims and within the organization, and provide defensibility should the analytical process itself be challenged.

The results of the analysis provided by the liability decision support system should produce a liability and comparative negligence assessment that provides a useful guideline that the adjuster can use for negotiations and settlement of the claim. We have found that providing the adjuster a visual scaled representation of the probability of the claimant’s shared responsibility for the accident, is an effective method of alerting the adjuster that there is a comparative negligence element that should be pursued.

Summary

When considering the processes involved in the investigation and evaluation of claims some of the fundamentals that an organization should keep in mind include:

  • The liability decision support system should allow the adjuster to focus on the key elements of the claim, and produce a liability and comparative negligence assessment that provides a guideline for negotiations and settlement of the claim.
  • The adjuster must have the flexibility in their investigation to pursue whatever avenues of information are relevant to the claim. The liability decision support system must not become an impediment to that flexibility by forcing the adjuster to adhere to a pre-determined, one-size-fits-all investigative template.
  • The liability decision support system must provide a support structure that allows the adjuster to apply their investigative skills in the most productive and efficient manner.
  • In assessing liability and comparative negligence the adjuster must be able to document objective and consistent standards that are applied across all claims. The liability decision support system should provide a mechanism that is defensible and demonstrably unbiased.
  • Ideally, the liability decision support system will also provide an objective assessment of the strength of case in the event the claim was to proceed to litigation.
  • The liability decision support system should provide a mechanism that allows the adjuster to enter both the factual and subjective elements of the claim for evaluation. The evaluation returned should provide both a strength of case rating, and negotiation points that can be used by the adjuster in determining whether a case should be defended or settled.

The liability decision support system should augment and support the adjuster’s investigation and evaluation of the claim. It should not be thought of as a sort of “electronic adjuster” that is able to replace the judgment, skill, and analytical expertise of the adjuster. Rather, it should serve to aid the adjuster’s evaluation of the claim by structuring the process of the evaluation itself. Providing a structural framework upon which the adjuster can build an evaluation gives consistency to the evaluation process across claims and throughout the organization.

Bar-Gill, Oren. (12/2001, p4). “Does Uncertainty Call for Comparative Negligence?” (Paper 346). Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper Series. Retrieved 2/10/2011 from: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1134&context=harvard_olin

Case Reference:

Li v. Yellow Cab Co. (1975 p10) 13 C3d 804 [L.A. 30277 Cal Sup Ct Mar., 31, 1975] Opinion – Sullivan, J. – III [6]. Retrieved 3/11/2011 from: http://online.ceb.com/calcases/C3/13C3d804.htm

Shestokas, David J. (Mar 25, 2009, p1). The Law of Negligence: Duty, Breach of Duty, Injury and Causation. Suite 101.com. Retrieved 3/8/10 from: http://www.suite101.com/content/the-law-of-negligence-a105023

Appendix A – Damage Award Systems Used by the Various States

Contributory Negligence States: Alabama, Maryland, North Carolina, Virginia, (Washington D.C.)

Pure Comparative Negligence States: Alaska, Arizona, California, Florida, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, New York, Rhode Island, South Dakota, Washington

Modified Comparative Negligence States – 50% Rule: Arkansas, Colorado, Georgia, Idaho, Kansas, Maine, Nebraska, North Dakota, Oklahoma, Tennessee, Utah, West Virginia

Modified Comparative Negligence States – 51% Rule: Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Vermont, Wisconsin, Wyoming

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Good Claims Management Can Prevent Bad Faith Claims

On December 15, 2010, In Claim Liability Operations, Litigation, By VMG

Accusations of bad faith negotiations against insurers in third-party bodily injury cases are a serious concern to insurers. Understanding the root cause and focusing on best liability claim practices can mitigate negative outcomes associated with these cases as well as contribute to a well balanced liability and litigation strategy.

The Property Casualty Insurers Association of America, PCI, indicates that in eighty percent of the states that allow third-party bad faith claims, auto bodily injury liability cost trends exceeded the national average (Albright, 2009). Bad faith claims can also adversely impact an insurer’s reputation and its ability to draw new customers and retain existing ones.

Bad faith claims put an insurer’s entire claims liability structure on trial. In this article we will examine how a liability decision support system that enables best practices to be consistently used as well as fully documenting each element of the liability claim handling process,  can specifically provide essential protection for an insurer against bad faith claims.

Background

For insurers the liability claim handling process provides numerous opportunities for insureds and claimants to bring bad faith actions. There are any number of ways that an insurer can be held to have committed bad faith. An article by Robert J. Prahl, Director of Education for the American Association of Insurance Services summarizes the areas of claim handling that are potential sources of bad faith:

  • Investigation – The investigation of a claim (both first and third party claims) must be complete and thorough concerning both the liability question and the damages aspect. (2010, p2)
  • Settlement Negotiations – Another possible source of bad faith is the conduct of settlement negotiations, particularly with respect to third party liability claims. (2010, p2)
  • Inadequate Defense – Occasionally insurers may be uncertain whether coverage applies until the outcome of the trial. If an insurer simply refuses to defend a claim involving a question of coverage, it may subject itself to a bad faith claim, including an award for punitive damages. (2010, p3)
  • Unfair Claim Practices Acts – Unfair claim practices acts, in effect in all states, address many aspects of claim handling…Although the provisions of such acts generally do not permit a claimant to sue an insurer for the violation of the act, some states permit a claimant to bring a separate tort action for bad faith directly against an insurer. (2010, p3)
  • Claim File Reporting – Claim adjusters can unwittingly make written or electronic remarks in a paper or electronic claim file which may come back to haunt them in the event the file is later subpoenaed in a bad file suit. (2010, p3)

Within each of the broad categories listed by Mr. Prahl, there are multiple elements, each of which could lead to a bad faith claim. For example, regarding the liability investigation element, Mr. Prahl notes that an incomplete liability claim file could in and of itself be demonstrable proof of an inadequate investigation providing an opportunity for bad faith claims both by the insured and the injured third party.

According to the American Insurance Association there are currently 6 states that have statutory third party bad faith causes of action – Florida, Kentucky, Louisiana, Massachusetts, Montana and New Mexico. In states without a statutory right to third party bad faith causes of action, third party claimants can frequently sue insurers via assignment of rights of the insured. Author and attorney William T. Barker notes:

Absent rights flowing from a statute, third-party claimants ordinarily have few rights of their own regarding insurer refusal to settle and must rely primarily on assignments of the rights of the insureds they have sued…When a third-party claimant has a statutory right to have the insurer attempt settlement when liability has become reasonably clear, the most obvious consequence is that the claimant can assert a breach of this duty even if the insured was never exposed to any excess or non-covered liability. (2010, p.3)

Bad Faith Cases – setting the stage

Clegg v. Butler and Utica Mutual Ins. Co. – Massachusetts

Summary:

Clegg v Butler established that a third party claimant can sue an insurer for bad faith in refusing to settle after the insured’s liability has become clear. The case also established that insurers can be sued for treble damages for knowing or willful violation of the Massachusetts good faith practices.

The trial judge found for the plaintiff for $250,000 and imposed treble damages plus attorney fees and costs finding that – “Plaintiff is entitled to treble damages for Utica’s knowing and willful failure to effectuate a prompt and equitable settlement of his claim.”

(Clegg v Butler – Middlesex Superior Court, Civil Action No 93-0640, Conclusions, 18)

Key Points of the Case

Plaintiff James Clegg was badly injured in an automobile accident that occurred solely as a result of the negligence of Jeffrey Butler, Utica Mutual’s insured. Clegg sued Butler and brought a bad faith suit against Utica Mutual for refusing to settle.

The trial judge found, and the Supreme Court affirmed, that Utica’s adjuster and his supervisor determined that the insured was completely liable and at “no time did Utica consider the case to be anything but a so-called 100% liability case against its insured.” (Clegg v Butler – Middlesex Superior Court, Civil Action No 93-0640, Findings of Fact, 6)

Both the trial judge and the Supreme Court found that Utica then proceeded to engage in a series of actions that were sufficient to constitute a finding of bad faith in refusing to settle a claim where liability was clear and established. Among those actions:

  • Repeatedly requesting medical documentation that had already been furnished.
  • Failure to respond to an initial settlement demand and subsequent failure to make a settlement offer to a second settlement demand.
  • Violating its own policies which prohibited interviewing claimants represented by counsel.
  • Failure to perform more than an initial medical exam, because as the trial judge found, Utica believed “the results of an IME would be more likely to harm Utica’s interests than to help them.” (Clegg v Butler – Middlesex Superior Court, Civil Action No 93-0640, Findings of Fact, 14)
  • Making an offer of settlement a series of structured settlements well under the policy limits, which the trial judge found, “unrealistic, unreasonable, and unjustified.”

Clegg v Butler clearly illustrated a flawed liability claim management process as well as a failure to adhere to a rigorous best practices regimen. Had best practices been established and been implemented and reinforced in a liability decision support system, many of the specific elements constituting the bad faith claim would not have been allowed to occur. For example, a properly configured liability decision support system would have alerted the adjuster to the existence of required medical documentation and prevented multiple requests for such documentation. See “The Role of Liability Decision Support Systems in Mitigating Bad Faith Claims” section below for further information.

Hovet v. Allstate – New Mexico

Summary:

In Hovet v Allstate the New Mexico Supreme Court combined two different accident cases. In both cases plaintiffs alleged that Allstate violated unfair and deceptive claims practices by failing to offer an adequate settlement amount even though both insureds admitted fault.

The New Mexico Supreme Court used Hovet to extend the right of third party claimants to bring private causes of action directly against a liability insurer for violations of the unfair claims practices sections of the New Mexico Insurance Code.   (NM Supreme Court Decision – Hovet v. Allstate Insurance Company Docket No. 27,969, Opinion Number: 2004-NMSC-010, (April 8, 2004))

Key Points of the Case

At trial a jury found that plaintiff Hovet incurred in excess of $11,000.00 in direct medical bills as a result of an accident with a vehicle driven by Steven Lujan and owned by Arthur Lujan, Allstate’s insured. The Lujans admitted liability. Allstate’s highest settlement offer was $7,200 – substantially less than the plaintiff’s medical bills alone. The jury awarded $62,050.00 in damages.

 (The second case was similar, with the injured parties combined medical bills totaling $5410.00 and Allstate offering $3000.00. At trial a jury found for the plaintiffs in the combined amount of $8700.00)

 In both cases, after appeals, the New Mexico Supreme Court affirmed the third party right to sue an insurer.

 Hovet’s suit against Allstate alleged unfair and deceptive trade practices. These practices were outlined in an Amicus brief filed by the New Mexico Trial Lawyers Association, which asserted:   (Hovet v Lujan and Allstate – New Mexico Court of Appeals Decision, April 7, 2003. Discussion, 10)

  • Allstate’s treatment of Hovet was a single instance of a nationwide practice adopted by Allstate of a “Settle for ‘X’ or Litigate policy applicable to cases where the liability of Allstate’s insured is reasonably clear at the outset.
  • Allstate makes a “one time ‘take it or leave it’ offer” generated by a computer program that evaluates claims “without any real regard for the individual characteristics of any particular claim or claimant.”
  • The settlement offers generated by Allstate’s computer program are “approximately 25-40% of the historical values” for similar claims and frequently do not even equal the amount of claimant’s medical bills.”

Hovet v Allstate offers a perfect example of the need for a comprehensive liability decision support system that combines and reinforces liability claim management best practices, with an objectively fair and defensible settlement range analysis engine. In determining settlement ranges for general damages, a liability decision support system must apply fair and consistent rules for liability claims of a similar type, while still allowing an adjuster the flexibility to account for the individual variations found in a particular liability claim. Such a system will allow an insurer to rebut claims of bad faith whether through “low-balling” settlement offers, or analyzing liability claims using a “cookie-cutter” approach.

The Role of Liability Decision Support Systems in Mitigating Bad Faith Claims

What does a liability decision support system have to do with these litigation cases?  In our opinion, everything.

For insurers the key to avoiding, or failing that, defending against bad faith actions is consistent adherence to a set of carefully developed, fully documented, and rigorously enforced liability claim management best practices. Those best practices must be applied consistently to every liability claim handled by the organization. The liability decision support system used by adjusters in evaluating liability claims must not only provide settlement range suggestions which are justifiable and fair, it must also reinforce the best practices of the organization throughout the entirety of the liability claims management process.

Examples of Liability Best Practices and Their Application to Mitigating Bad Faith Claims

  • General damage calculations should use the same metrics for all liability claims of similar type and take into account specifics for individual liability claims such as injury severity, long term implications, prior injuries, contributory negligence, etc. The liability decision support system must evaluate each claim using clearly understood and defined rules which have been incorporated into the liability claim management best practices of the organization. Those rules (reflecting the best practices) should be based on the historic evaluation of cases of similar characteristics previously settled by the company. The rules must be unambiguous and fully documentable.
  • Adjusters must fully document all encounters made during the life of a liability claim. Each contact with claimants, attorneys, witnesses etc., needs to be fully documented so as to avoid charges of bad faith negotiations or failure to fully investigate, etc. The liability decision support system plays a key role prompting and aiding adjusters in fully documenting all encounters with parties to the case. It can be configured to remind adjusters of the importance of not incorporating unnecessary commentary into their documentation.
  • Adjusters must respond to demand letters. Failure to do so can be evidence of failure to negotiate in good faith, or ignoring an opportunity to settle – both frequent elements of bad faith claims. The liability decision support system should prompt and ensure that adjusters respond in a timely and appropriate manner to demand letters.
  • Complete and full documentation of the case including medical reports, police and witness statements, photos, investigation results, etc., must be available to, and used by, adjusters as they make decisions throughout the course of the liability claim. One of the most frequent elements of bad faith claims is a claim of failure to fully investigate. A complete liability claim file can rebut a charge of failure to fully investigate. The liability decision support system is key to this element. It plays two roles, prompting the adjuster if there is missing or incomplete information, and providing the adjuster instant real-time access to all documentation regarding the claim.

Exposure Management – Litigation Management and the Liability Decision Support System

The best way to mitigate a bad faith claim is not to have one arise in the first place. The liability decision support system can play a key role in preventing bad faith claims before they start. It can do that in two ways. In an earlier article in this series, “Information is Key to Successful Negotiations,” we quoted author Mikel Benton in an article in Claims in which he quotes attorney Allen Church as saying:

Adjusters need to say to themselves, “I’m going to do everything I can, professionally, to prevent this claimant – each and every claimant – from acquiring the title of plaintiff, hiring an attorney. (Benton, 1999 p.90)

The first way that the liability decision support system can prevent a claimant from becoming a plaintiff (and possibly filing a bad faith claim) is for the adjuster to use that system to satisfy the claimant that he or she is being offered fair compensation for their damages or injuries. The ability of an adjuster to prove to a claimant that they are using fair and objective criteria to analyze and settle the liability claim is based almost entirely upon the best practices built into the liability decision support system. If those criteria can be rationally explained to a claimant during the negotiation process the chances of settling the liability claim before it goes to litigation are substantially improved. Even if a claimant does eventually retain an attorney, the same elements hold true assuming that the claimant’s attorney is using a common sense approach to the negotiations. In either case the liability decision support system itself can play a decisive role in preventing a claim of bad faith.

The second way that a liability decision support system can prevent a bad faith claim is by providing the adjuster with an accurate estimate of the true strength of case for both the insurer and the claimant. The most advanced liability decision support systems will take into account all aspects of the liability claim, even including participating attorney records and the dynamics of the venue in which the case would be heard. Such systems can provide the adjuster an accurate indication of the overall strength of the case and whether or not a decision to settle prior to trial is in the best interest of the insurer. In such cases settling would prevent later claims of bad faith and the potential for large punitive judgments.

Medical Specials Documentation and the Liability Decision Support System

Medical specials represent an area where sophisticated liability decision support systems, combined with an adjuster’s experience and expertise, can convince a court or jury that a settlement offer was reasonable in light of the totality of the circumstances of the liability claim. In order to do so, complete and accurate documentation of the adjuster’s decision process is vital.

The liability decision support system should provide the factual foundation upon which the adjuster decides the amount of a settlement offer.  State of the art decision support systems allow adjusters to assess diagnostic and treatment related medical specials using both the insurer’s historical data and standardized government reimbursement guidelines such as the annual physician fee schedule (PFS) published by the Centers for Medicare and Medicaid Services (CMS). In addition, adjusters can use the decision support system to assess the appropriateness and effectiveness of treatments provided to a claimant using medically authoritative ICD9 diagnostic and CPT treatment databases.

The liability decision support system should also provide a fact-based, objective, documentable, and defensible settlement value range. Adjusters can then assess the unique elements of a liability claim such as contributory negligence, comparative fault, pre-existing conditions, etc, – clearly documenting each element and its effect upon the adjuster’s valuation of the liability claim.

Having a relatively transparent liability workflow process that an adjuster can point to and explain during a litigation proceeding can play a significant part in overcoming a claim of bad faith.

The Importance of Providing Consistency Across Liability Claims

A well-defined and managed liability claim workflow that conforms to and supports liability strategy and best practices will ensure consistency across liability cases. In combination with a liability decision support system designed to reinforce those best practices, an insurer will be able to minimize the variations in settlement values among claims of a similar nature. Being able to prove that an insurer is applying the same objective standards across all liability claims, and that those standards are fair, reasonable, and in line with industry standards, is an important element in defending against, or even preventing bad faith claims.

Because bad faith claims represent serious threats to insurers on many levels it is imperative for insurers to act preemptively to avoid being placed in bad faith situations. The best way to do this is to ensure consistent, provably fair, liability claim standards which are adhered to by all claims adjusters and which are reinforced by well defined organizational best practices that are incorporated into the liability decision support systems used by the organization.

The Vatti-Manhattan Group team would like to acknowledge and thank the American Insurance Association for their valuable assistance in researching elements of this article.

Albright, Brian (March 12, 2009): p3: New legislation challenges “bad faith” claims practices. Auto Body Repair News (ABRN). Retrieved from: http://abrn.search-autoparts.com/abrn/article/articleDetail.jsp?id=586762

Barker, William T (June 14, 2010): Legislative Approaches to Bad Faith Litigation – New Appleman Insurance Bad Faith – Chapter 10. LexisNexis Communities – Insurance Law Community Blog. Retrieved 11/28/2010 from: http://www.lexisnexis.com/Community/insurancelaw/blogs/insurancebytespoweredbynewappleman/
archive/2010/06/14/legislative-approaches-to-bad-faith-litigation-new-appleman-insurance-bad-faith-litigation-chapter-10.aspx

Benton, Mikel (June 1999): p90: Adjuster’s Repertoire Should Include Negotiation. Claims

Prahl, Robert J. (Undated): Bad Faith and Excess Liability – Insurer Conduct on Trial. American Association of Insurance Services (AAIS). Retrieved 11/29/2010 from: http://www.aaisonline.com/articles/badfaith.html

Case References

Clegg v Butler

Middlesex Superior Court, Civil Action No 93-0640 (http://www.bwglaw.com/lawyer-attorney-1369135.html)

Appeal of Trial Court Decision to Supreme Judicial Court of Massachusetts, Middlesex – Clegg v. Butler, 07216 (Mass. March 12, 1997) (http://caselaw.findlaw.com/ma-supreme-judicial-court/1418069.html)

Hovet v Allstate

New Mexico Court of Appeals – 66 P.3d 980 (2003): 133 N.M. 611: 2003-NMCA-061 Hovet v Lujan and Allstate http://scholar.google.com/scholar_case?case=9086812093971735021&q=related:5iZ8SIuH9d4J:scholar.google.com/
&hl=en&as_sdt=40000002&as_vis=1

NM Supreme Court Decision – Hovet v. Allstate Insurance Company Docket No. 27,969, Opinion Number: 2004-NMSC-010, (April 8, 2004). http://www.supremecourt.nm.org/pastopinion/VIEW/04sc-010.html

(CC) December 2010 Vatti-Manhattan Group
This article may be copied and distributed freely provided that you keep this copyright notice intact and is provided for free and without charge.  We have to the best of our knowledge abided by all copyrights, trademarks and quoted material.  Any comments, omissions, misuse concerns etc. regarding the use of trademarks and copyrights should be directed to
info@vatti-manhattangroup.com.

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Information is Key to Successful Negotiations

On October 12, 2010, In Claim Liability Operations, Litigation, By VMG

Negotiating a claim settlement requires a wide range of skills. The claim adjuster must be completely familiar with all aspects of the claim and must be able to negotiate with a claimant (or a claimant’s representative), from a position of confidence that his or her settlement offer is based on a fair and reasonable assessment of the facts of the claim. The key to a proper negotiation is to have the right information in the right form in front of you during the negotiation process.

Information technology supports the key psychological aspects of negotiation. In this article we will explore the key elements of the negotiation process and how they directly correlate to information technology and more importantly the key elements of data to make the negotiation process consistent within an organization.

Psychology of Negotiations

In negotiating settlements with claimants or their representatives, claims adjusters must balance a series of competing needs. They need to satisfy the claimant that he or she is receiving fair compensation for the damages or injuries they have suffered while understanding that the claimant’s view of their required compensation may not be in line with reasonable expectations. They also must balance the need to close cases and at the same time prevent as many claimants as possible from becoming plaintiffs. Author Mikel Benton makes note of this in an article in Claims where he quotes attorney Allen Church as saying:

Adjusters need to say to themselves, “I’m going to do everything I can, professionally, to prevent this claimant – each and every claimant – from acquiring the title of plaintiff, hiring an attorney.” Including good negotiation techniques early…can prevent claims from going to court. (Benton, 1999)

In order to balance these competing needs the claim adjuster must pursue their negotiations from a psychological point of view of achieving a “right end,” or in other words, a settlement that is a fair and reasonable conclusion for all parties involved. A key element in achieving a “right end” negotiating philosophy for a claim adjuster is their confidence in the data they use in constructing their negotiation strategy. That data must be of sufficient detail to provide a true and unambiguous view of the key elements of the claim. It must also be immediately accessible to the claim adjuster so that the adjuster can reference it in real-time ongoing conversations and negotiations. By having access to detailed and trusted data the claim adjuster has the foundation to pursue the negotiation process from a “right end” perspective.

Negotiation Process

For the claim adjuster, whether negotiating directly with a claimant or with a claimant’s attorney the “principled negotiations” strategy is by far the most productive. The principled negotiation theory was pioneered by the Program for Negotiation at the Harvard Law School, and first published in the book “Getting to Yes: Negotiating Agreement Without Giving In” by Roger Fisher and William Ury. (http://www.pon.harvard.edu/tag/principled-negotiation/). Principled negotiation theory is based on four basic criteria – these are defined by USLegal:

Principled negotiation is a negotiation strategy that emphasizes interests, not problems. The four fundamental principles of principled negotiation include: 1) separate the people from the problem; 2) focus on interests, not positions; 3) invent options for mutual gain; and 4) insist on objective criteria.

The principled negotiation concept is ideally suited to situations where information technology is a key element of the negotiation process. Because accurate data and information are inherently objective they allow claim adjusters (and those they are negotiating with) to approach negotiations with a set of shared expectations based on the true facts of the claim. This allows both parties to the negotiations to enter into those negotiations with realistic expectations as to their outcome.

Most plaintiffs’ attorneys will generally recognize this common sense approach to negotiations. In the Association of Trial Lawyers of America publication Trial, attorney Michael Heatherly notes this common sense approach to negotiations:

Maintain credibility. As in the settlement demand, when negotiating, I try to avoid overstatement, acknowledge true weaknesses of the case, and emphasize my best-documented points. Exaggerating or making claims that can’t be backed up objectively will immediately undermine credibility.

Ask adjusters to prove their claims, too. While I try to put forward the best possible documentation of my claims when I begin negotiation, I expect the other side to do the same. For example, if an adjuster claims that the plaintiff was partly at fault because of speeding, I say, “I’ll take that into consideration if you send me something I can show my client to prove that’s true.” I usually find out immediately whether the adjuster is bluffing or stating a legitimate defense. (Heatherly, 1995)

Enhancing Negotiations with Key Data Elements

In the paragraph above attorney Michael Heatherly noted that he would “Ask adjusters to prove their claims, too” during negotiations. The ability to prove your negotiating points, whether to an attorney or the claimant themselves, is the key factor that will enable a claim adjuster to achieve a successful outcome in the negotiation process. Information technology and the information it provides is the key to that ability.

• The more advanced decision support negotiation / liability systems will give adjusters the ability to drill into medical treatment patterns and determine whether treatments were medically justified for the injury being claimed, were provided in the most cost-effective manner, and whether or not they were effective in treating the condition.

• Medical bill charges. Sophisticated decision support negotiation / liability systems allow adjusters to instantly assess whether treatment charges are reasonable by comparing those charges to a detailed UCR database containing charge information for providers providing similar services within the same geographic locations (Historical / Medicare UCR is a unique methodology created and supported by VMG).

• Settlement range suggestions based on comparisons of like cases against a comprehensive database of extended historical claim and settlement data. Settlement ranges are calculated using formulas that take into account various factors such as injury severity, length and type of treatment received, prior existing injuries, aggravating circumstances, contributory negligence and the geographic area.

• Real-time access to claims documentation materials including police reports, witness statements, accident scene photos, medical reports, etc. Having instant access to data of this type allows the adjuster to discuss highly specific elements of the claim in detail with the claimant or their representative in real time. The adjuster can look at photos or medical reports directly while negotiating and use the information to counter or refute specific elements of the claim.

• Strength of Case, as described and referenced in this article, references the most advanced decision support negotiation / liability systems that provide the adjuster an indication of the overall strength of the case should the case proceed into litigation. This is a sophisticated data model that looks at the claim in a holistic manner that includes not only claim specific elements (injuries, loss of wages, pain and suffering etc.), but other elements which might be of major influence in a trial environment. Such items are assessed with the understanding that a jury will evaluate the case with respect to all the participants involved, (insured, claimant and attorneys). These are important elements for an adjuster to consider because they are also routinely considered by the claimant’s council as noted by attorney Heatherly in Trial:

A client’s character is perennially cited as one of the most critical factors at trial. Communicating character to an insurance adjuster in a demand package is difficult. However, photographs and accounts of a client’s praiseworthy personal and social activities are of great help, giving the opposition a better first impression than simply identifying the client as “a 24-year-old male carpenter.”

On the other hand, in assessing the value of a claim, don’t overlook a client’s downside. The defense will surely bring up any negatives if the case goes to trial.

You should also assess the defendant’s presentability. If he or she was intoxicated, driving recklessly, or is simply a poor witness, the insurance company will be less enthusiastic about challenging your claims regarding liability and the mechanics of the accident. (Heatherly, 1995)

As can be seen from Heatherly’s observations of these data points, they contribute to the overall ability to negotiate a claim successfully. When combined into a trusted whole they provide the adjuster the ability to negotiate from a position of confidence and strength.

Close

Insured’s (and claimants) judge insurance companies through only one prism – how they handle claims. Ensuring that claims are handled fairly and consistently is a key element to a company’s reputation and survival.

For claim adjusters trustworthy, accurate data, formulated consistently across the organization is a pre-requisite to ensuring their confidence during the negotiation process. When adjusters have faith and trust in the data that they are using, they can negotiate settlements confidently – to the right end. This will in turn enhance the organization’s reputation among its employees, its competitors, its customers and the public at large.

Benton, Mikel (June 1999): p90: Adjuster’s Repertoire Should Include Negotiation. Claims

Heatherly, Michael J. (August 1995): p58(5): Negotiating From Strength: Sure Steps Toward a
Settlement. Trial – published by the Association of Trial Lawyers of America

USLegal – definition of Principled Negotiation. Retrieved from:
http://definitions.uslegal.com/p/principled-negotiation

(CC) October 2010 Vatti-Manhattan Group
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Introduction

On May 28, 2010, In Claim Liability Operations, Litigation, Medical Cost Containment, Predictive Modeling, Technology, VMG General, By VMG

Welcome to the Vatti-Manhattan Group blog, a new feature of our main Vatti-Manhattan Group web site.  We will be using our blog to publish news and information related to the Insurance industry, Claims processing and technology, and other topics of interest to insurance industry professionals.  We encourage you to register with us (using the register link to the right, below the blue VMG “welcome” box) so that you can receive email alerts from us when new blog posts are published, and participate in their discussions.

 
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