Dealing with a Difficult Claim: Breaking the Gridlock of the Property and
Business Interruption Claims Process
July 2003
Large complex claims continue to challenge
both risk managers and insurance representatives when working toward a quick
and fair settlement, particularly with business interruption losses. In the
end, the adjuster and the policyholder have some similar goals: to mitigate
the loss, settle the claim in a fair and expeditious way, and maintain positive
relationships with all the parties. It is the price one has to pay to get there
that is often the main obstruction.
by Daniel
T. Torpey
Ernst & Young, LLP
With big claims frequently come big problems. Some problems are inevitable,
others can be avoided. In recent years, property and business interruption claims
both big and small have become more difficult to settle. These challenges could
be attributable to a variety of causes. One possible obstacle to settlement
is the impact of the high volume of insurance claims from September 11, mixed
with a depressed stock market, resulting in tight cash flow for insurers.
Many insurers may argue that problems arise from September 11 claims that
they never envisioned when they wrote the policy. Other reasons could include
policyholders with more aggressive claim positions or greater questions and
more involvement from reinsurers. Finally, many would like to blame protracted
claim settlements on increased attorney involvement.
These challenges, along with the wide variety of personalities involved in
a loss adjustment, can create a turbulent working environment around a product
that was designed to relieve an organization’s risk. Insurance may relieve the
risk, but it also may increase the stress for many involved in the claim process.
Here are some quick ideas to consider when faced with a difficult claim.
Define the Problem
Problems with property and business interruption claims usually fall into
five categories, as follows.
- Technical disagreement on coverage
- Valuation and accounting disagreements
- Questions about the scope of damage
- Lack of information
- Personality problems
You will need to define where the problem falls with your own claims team
before you move forward with a plan.
Research
Find out more about the issues at hand. Have other companies dealt with the
same issues? Have you contacted their risk managers? What experience have you
or other clients had with this adjuster? What other claims have they adjusted?
Are they well-respected in the field? Are there other corporate clients that
you can talk to about their successes or failures in working with the adjuster?
What is the adjuster’s experience level? The loss may be too complex for the
adjuster to handle. Is your claim consistent with the terms and conditions of
the policy? Check with your broker or attorney on coverage issues.
A Little Help From Your Friends
Request that either a representative from the lead insurance company or another
adjuster from the same firm (if it is an outside adjusting firm) be involved
in your meetings for the rest of the adjustment process. A different perspective
could help things move forward.
Schedule
Suggest implementing an agreed-upon loss adjustment schedule. Determine what
information either party will exchange and when the exchange will occur. “Obtain
agreement from the adjuster’s team and your own management team as to the overall
goals, priorities and sequence of events and meetings.” (See “World
Trade Center Terrorist Business Interruption,” by Daniel Torpey and Jeffrey
Phillips, IRMI.com, January 2002.)
Disclose
Inform your adjuster of your perception of the loss adjustment process in
a small meeting. Be specific and mention areas that you find challenging, and
suggest some ways to overcome these obstacles. Let the adjuster know that you
are responsible for reporting to your management on the claim’s progress. Ask
the adjuster for advice on how to resolve items in the claim. Inform the adjuster
that you can only allocate a certain amount of time to this project before corporate
will ask you to hand over the claim to another group (legal) in your company.
Match Talent
Do you, as the policyholder, have your own qualified claims professional
or claims consultant on your team? Nothing can replace time in the field and
years of experience in adjusting losses. Your adjuster may relate better to
a qualified claims professional with adjustment experience.
Also, check your accounting and engineering expertise. Have you hired your
own claim accountant that is independent from the insurance company and its
representatives? “Understanding everyone’s role in a business interruption claim
is a good starting point to begin to manage expectations.” (See “Who’s
Handling Your Claim?” by Daniel Torpey, IRMI.com, June 2000.)
Money-to-Money Meeting
This mechanism is only effective late in the claims adjustment process. It
should not be attempted until the claim is completed and submitted, and the
claim settlement process is simply at a stalemate because the adjuster has not
provided a comprehensive analysis of the claim or other reasons. Have a meeting
with the key decision-makers from the insurance companies without the adjuster
present and attempt to reach a settlement on the claim with a focus on the overall
value of the loss and not the details of the claim.
Claim Adjustment Week(s)
Suggest a dedicated time period of 1 or 2 weeks during which the experts
are locked in a room to work toward common resolution of disputed items. This
usually works with large volumes of information that must be perused or extremely
complex technical issues on which one side needs to educate the other. A by-product
of these meetings should be full disclosure of each expert’s final or preliminary
claim analysis. Establish a spirit of cooperation with the other side’s experts.
Sometimes, if you can concur on a position, they can influence the adjusters.
Put it in Writing
Request that the adjuster put the issues at hand in writing. A letter may
heighten the level of seriousness and ensure that the other side is convinced
enough by their position that they will put it in writing. You can also detail
out your position in writing to ensure the adjuster and the insurance company
know exactly what it is.
Invoke Appraisal or Arbitration
Give written notice that you intend to invoke the appraisal or arbitration
clauses if the claim is not settled within a certain period of time. The appraisal
clause provides a mechanism to resolve only the valuation issues in the claim,
while arbitration also addresses coverage issues.
Open the Door
Have an unofficial settlement meeting.
Discuss any such meeting with your in-house counsel to protect any legal rights
should litigation develop.
Bring in the Big Guns
Sometimes adjusters are quicker to act when the CFO, president, general counsel,
or somebody in the executive suite rolls into a meeting unexpectedly. This individual
should be fully prepared for the meeting and have a definite role to play in
the meeting.
Broker
Increase your broker involvement to support and broaden the communication
with the adjusters and/or carriers.
Attorneys at the Gate
Insert attorneys into the process. They can assist with negotiations or invoke
some method of alternative dispute resolution such as appraisal or mediation.
Be sure to select attorneys that specialize in insurance coverage.
Call a Team Meeting
After you have identified and listed the issues, a team meeting should take
place that includes the policyholder, broker, your independent claims accountant
and any other expert on the policyholder side. A collective brainstorming effort
will often produce several options to choose from. The brainstorming exercise
also may identify other problem areas (or problem personalities) within the
loss adjustment process. Execution of your plan will take effective leadership.
“Leaders succeed because they dedicate teams of people to one project.” (See
“The Shackleton Approach: Effective Leadership
throughout the Claims Process,” by Daniel Torpey, IRMI.com, August 2002.)
Conclusion
There is no crystal ball for dealing with difficult claims. Experience, patience,
and the ability to see things the way the adjuster sees them will help you resolve
complex issues. Sometimes when we see things the way others do, we recognize
new ways to close the gaps of disputed items. In the end, the adjuster and the
policyholder have some similar goals. They both want to mitigate the loss, settle
the claim in a fair and expeditious way, and maintain positive relationships
with all the parties. It is the price one has to pay to get there that is often
the main obstruction.
Author’s note: Please e-mail any ideas, war stories of turbulent
claims, or best practices that have worked for you in dealing with a difficult
claim. Notable items will be summarized and included in a subsequent article
or update. Please provide information if you would like to be quoted or remain
anonymous regarding your suggestions.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.