Modern technology has made discovery of written records, even those thought to be deleted, more thorough—as evidenced by Enron. These records can reveal prejudicial, careless, and politically incorrect comments that can haunt insurers in a bad-faith lawsuit. Following some simple do's and don'ts when writing to or about claimants can spell the difference between winning and losing a lawsuit.
In a bad faith lawsuit, it's the claim file that is on trial. The jury will be persuaded in favor of the insurer or in favor of the plaintiff based on its contents and the claim practices of the defendant insurer. When the plaintiff prevails, the consequences can be devastating to the insurer's bottom line.
The Law of Bad Faith
Insurance claims involve either first-party or third-party claims. First-party coverage is an insurer's promise to pay its own insured. Your homeowner's policy protects your house from damage from a covered event such as a fire. If your home is damaged in a fire, your claim with your insurer is a first-party claim.
Third-party coverage is the insurer's promise to pay some third party who makes a claim against you. If a neighbor trips and falls in your front yard and makes a claim against you, your insurer has a duty to defend and a duty to indemnify under your third-party coverage. The law of bad faith originated in the third-party context and then has been extended into the realm of first-party claims.
The courts generally treat the third-party bad faith claim as a tort action, not a contract action, arising out of a duty independent of the contractual relationship. The common third-party bad faith claim is based on a liability insurer's wrongful failure to settle within policy limits, and the damages being sought are the excess above the insurance limits. The factors evaluated by the trier of fact to decide if there has been bad faith may include the following.
The severity of the plaintiff's injuries giving rise to the likelihood of a verdict greatly in excess of the policy limits.
Lack of proper and adequate investigation.
Failure to keep the insured advised of settlement negotiations.
Actions that demonstrate a greater concern for the insurer's monetary interests than the financial risk attendant to the insured's predicament.
Plaintiff's counsel is looking for evidence of unreasonable behavior by the insurer in its handling of the underlying claim. The insurer's claim professionals handled that claim, and they are the source of the documentation of what happened. In their standard requests for production of documents, plaintiffs will ask for complete claims files, complete underwriting files on the policy at issue, all claims manuals, and other correspondence and memoranda on claim handling, all promotional material of like policies, and all reinsurance files relating to reinsurance of the risk insured under the policy. They will also request all claim files relating to other claims under similar policies. Their request will seek electronic documentation as well as paper documents. Their access is not limited to materials admissible into evidence at trial but extends to relevant documentation that appears reasonably calculated to the discovery of admissible evidence.
Modern Technology and Discovery
Look no further than the Enron collapse to find examples of incriminating email that could not be taken back! Information in the insurers' computers is accessible, legally and technically.
What each claim professional enters onto the computer each day is a written record subject to discovery in a bad faith lawsuit. This is true for log notes. This is true for emails. This is true for letters. This is true for everything that is entered onto the computer and may include deleted entries.
Those written records provide the plaintiff's attorney the evidence of how the claim was handled. The attorney's responsibility is to be an advocate for the client. The attorney's job is to use the claim file to persuade the jury that the insurer treated the client badly. The client has paid premiums over time to the insurer in exchange for a promise to protect the insured. The jury can easily identify with the client. The insurer may be a "Goliath" to the jury before any evidence is heard so some of the persuading may already be done. From an excellent starting point, plaintiff's counsel will choose those selections in the claim file and claim manual that create the perception of bad faith. Particularly valued entries will be enlarged on a screen or board and referred to through the trial.
A few examples are helpful. When John Grisham had one of his characters (an adjuster) in The Rainmaker write to an insured, "You must be stupid, stupid, stupid," he was not that far from giving an actual example of the prejudicial, careless, and politically incorrect comments that have appeared in documents which have come to light in bad faith suits. The following are some examples.
Taking Sides. An adjuster writes, "We have a favorable interview from a neighbor that our insured's driver was not supposed to use the car," or, "Fortunately, there's a neighbor who says that John was not permitted to drive the car." A proper and adequate investigation is an objective investigation. Objective investigations do not identify information adverse to the interests of the insured as good news. They do not reflect an all-for-us attitude as is reflected in these log notes: "We can only hope that the plaintiff's condition continues to deteriorate." "We think this person will die of cancer, and we will be off the hook."
Subjectivity. Other documented subjective comments that have caused trouble include: "This is ridiculous!" (an adjuster venting his belief in the claimant committing fraud); "These people ...." (Used as a slur against an ethnic group the adjuster felt had ties to organized crime); "Mr. X dabbles in adult entertainment"; and "This place is a dump. Pigs wouldn't live here!"
Hanging Out the Dirty Laundry. Claim professionals on a file have to answer to supervisors and supervisors' supervisors. There may be special investigators separately working on the claim. Everyone does not always play well together in the sandbox. The claim file is not the place to vent about the behavior of others no matter how outraged you may be by a coworker's behavior or a company procedure. In a 2002 bad faith suit, one adjuster's log notes had the following sentence: "I am darn near speechless on how this appeal has been handled by the other area."
Stupid, Stupid, Stupid. "If the claimant calls, don't take the call." That's what a supervisor wrote in an email in an attempt to help an adjuster. It didn't look helpful when a jury heard it.
Poor Word Choice. Nouns and verbs tell an accurate story, e.g., "the claimant walked two steps from the wheelchair to the television set." Adverbs and adjectives tell a jury that the insurer made up its mind without further thought, e.g., "the dishonest claimant is perfectly healthy and quickly jumped from the wheelchair then walked confidently to the television set."
Prejudice. Not just racism, but ageism, and much more. Careless and poorly trained writers reveal their feelings in emails with the same abandon they might reveal them at a bar or a friend's house. There are instances in which adjusters have written: "This black lady was behind the desk"; "She was an older woman and didn't remember me"; "The boy was too fat to have exited the car in that manner."
To further illustrate prejudice: slip and fall accidents very often happen to overweight people. Pretty soon, some adjusters begin to develop an attitude toward overweight people. As a way of venting frustration, one adjuster labeled file documents "FLS." When asked what that meant, he answered "fat lady slips."
Conclusory Statements. In general, the claim professional's opinions work against an insurer. Yes, a reasoned opinion of how the facts apply to the law on liability or damages may be appropriate or even needed. Yet, we have seen files that contain statements like, "They are deadbeats"; "They are procrastinating"; "They don't have a snowball's chance in hell of getting what they are asking for"; and "I just know this claimant doesn't want to go back to work."
Sexism. One supervisor wrote to his adjuster, "To the 'chick magnet' ... this claim has been assigned to you because you have 'hot hands.'"
To summarize, here are a few Do's and Don'ts to help assure that your claims correspondence will not work against you in a bad faith lawsuit.
Do's and Don'ts for Claims Correspondence
Avoid unnecessary opinions. This includes remarks about race, religion, weight, sex, and the motives of the insured.
Demonstrate fair-mindedness. Avoid statements that show a "rooting interest" against the interest of the insured. The insured has paid premiums and expects the insurer to root for him, not against him. Events that may prejudice the insured are not properly characterized as "favorable" or "fortunate."
Stick to the facts. Refer directly to supporting documentation, such as correspondence directed to, or received from, the insured or related service providers.
Keep it simple. Plato's advice has withstood the test of time because it is good advice: "Wise men talk because they have something to say; fools because they have to say something."
Draw conclusions prematurely.
Allow differences of opinion with a coworker or supervisor, anger, over-zealousness, or overly aggressive tactics be reflected in written notes or email.
Make promises you cannot fulfill. If you send a "form letter" promising to be in touch every 30 days to an insured, be prepared to honor that promise.
Use humor as a way of showing your feelings about a claim or claimant.
So, while many factors may play a role in a bad faith judgment costing a company hundreds of thousands of dollars in punitive and compensatory damages, poor writing skills can often be a determining factor in deciding whether an insurer has shown "vexatious, unreasonable, or outrageous conduct" to quote one statutory provision.
These nuances convince us that the art of claims writing is quite separate from the generalized effective business writing skills that many companies offer their claims professionals. Claims professionals require skills in claims writing to combat issues of tone, prejudice, and carelessness that continue to threaten an insurer's bottom line.
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