The writer uses such terms as "tension," "professional enmity," and "boneheaded" in describing how these
"conflicting fiefdoms" (his
characterization) relate to and perceive each other.
POSDCORB
POSDCORB is the acronym developed in 1937 by Luther Gulick and Lyndell
Urwick, two important intellectual ancestors of administrative thought.2
It still stands as a good treatise on executive functions in organizational
settings. Simply stated, here is what the acronym represents.
Planning—Identifying the how and what of achieving
organizational goals.
Organizing—Developing the formal structure of
authority to achieve organizational objectives.
Staffing—Conducting the
overall personnel function of getting the right people in the right
positions in sufficient numbers.
Directing—Making decisions, and figuring
out means of carrying them out.
Coordinating—Bringing together the
functions of the organization's units and processes.
Reporting—Managing
the up, down, and lateral flow of information.
Budgeting—Securing,
monitoring, accounting, and controlling financial resources.
Since Kevin Quinley's critique centered on failures to
coordinate the
work of underwriting and claims, primarily within property and casualty
companies,3 his observations raised two questions in
my mind:
- Does the literature in insurer-promoted designation
programs, such as Associate in Claims, have anything to say about the
importance of coordination?
- Are there any legal developments that
might serve as the basis for contending that failure to coordinate the two
functions significantly increases the risk to the insurance company?
Claims Designation Publications Have Little To Say about Coordination
In pursuing the first question, I reviewed at least a dozen standard texts
used in either designation programs or continuing education classes. While I
found very good, thorough descriptions of what both claims and underwriting
departments do functionally, there is little emphasis on the importance of
coordinating the two functions. Doris Hoopes offers perhaps the best
expression of how each is a source of information for the other but stops
short of recommending formal coordination as an organizational imperative:
The claim department's interaction with the underwriting department is not
limited to providing loss information. Underwriters can provide insight into
the coverage interpretation for individual risks because of their
involvement in providing coverage initially. Underwriters can provide
firsthand knowledge of the intentions of the insured and insurer in forming
the policy. Underwriters are also interested in how policies are being
interpreted so they can reassess coverage forms and endorsements as
necessary. Thus, underwriters are a valuable source of information to claim
representatives when analyzing and interpreting policy language.
Doris Hoopes, The Claims Environment, 2nd ed. (Malvern, Pa.: AICPCU
2000), 1.13.
Legal Developments Speak Loudly
I found a more
fertile field in researching the second question. The Gulick-Urwick
prescriptive acronym is aimed at the internal management function of an
enterprise. (Yes, increasingly, insurers are no longer mere companies, they
are "enterprises.") However, organizations do not operate in a vacuum—they
must deal with their external environment. And, for insurers, the external
legal environment looms large. A 2008 Alabama Supreme court decision
illustrates the point.
The case of Harold Jones and Pam Jones v. Alfa Mut.
Ins. Co., No. 1060179 (Ala. June 13, 2008), began during the
summer of 1995 in south Alabama when Alfa's insurance agent, Wendell
Sanders, went to the Coffee County home of Harold and Pam Jones for a
rewrite inspection. At the time, Alfa insured the property under a farm
owners policy. Mr. Sanders walked around the house and took photographs.
On October 4, 1995, Hurricane Opal ravaged the area. According to the
Joneses, Opal caused damage to the roof (by a falling tree), ceiling
drywall, and walls of the house. An initial Alfa inspection determined that
the company needed an engineering report, so on November 11, 1995, an Alfa
retained engineer (Ralph Jones, presumably unrelated to the insureds)
conducted an inspection. His December 4, 1995, engineer report, apparently
accepted without question by Alfa, determined that the cracks and related
damage to walls was due to settlement of the foundation instead of from
Hurricane Opal.
By letter on December 29, 1995, Alfa notified Bruce
McLean, an attorney who it thought represented the Joneses,4
of the claims' status. The letter enclosed an estimate for replacement of
the Joneses shingle roof and a draft check representing payment, including
the deductible. The two-paragraph letter, signed by Alfa adjuster Gary
Bradshaw, also contained the following:
I also understand that you are in
possession of a copy of the engineer's report which indicates that shifting
and settlement of the insured house was not related to the hurricane winds.
Should you have any questions concerning that report or any aspect of the
insured's claim or policy, please feel free to give me a call. Also if there
is any other damage that the insured has found as a result of the hurricane
that we have not already addressed, please have him submit itemized
estimates for those to be considered. I thank you for your help and
cooperation and look forward to hearing from you.
The Alabama Supreme
Court would later note that the:
two-paragraph letter to McLean does not
quote applicable policy language or explicitly state whether Alfa agreed
with Ralph Jones's [engineer] report. Nor does it explicitly state that the
claim has been denied as claim denial letters typically do.
(One possible
inference of this wording is that if a company relies on an expert report,
it needs to demonstrate how and why of its reliance.)
A lawsuit, including
a claim for bad faith, followed Alfa's failure to pay for the damage it
attributed to shifting and settling. At trial, the Joneses argued that Alfa
had done an incomplete investigation of their claim by failing to do a "before-after" analysis; that is, Alfa adjusters did not compare the
underwriting file records, which should contain pre-Opal photographs, to the
home's conditions after Opal. Agreeing with the Joneses, thereby remanding
the case for trial under Alabama's abnormal bad faith doctrine, the court
asserted:
… Alfa never investigated any records it had of the condition of
the Joneses' house before the hurricane … Alfa never contacted a realtor who
visited the Joneses' house three days before Hurricane Opal made landfall,
even though … Bradshaw [an Alfa adjuster] had inquired about purchasing the
Jones residence. Alfa never inquired of the Joneses as to who would have
seen their house before Hurricane Opal and never attempted to interview
anyone who may have visited the Joneses' house before Hurricane Opal. Alfa
never considered its own "rewrite" inspection of the Joneses' house,
including photographs of the exterior of the house and never inquired of
Sanders, its own employee, as to the condition of the Joneses' house when he
conducted the "rewrite inspection," even though Sanders testified that he
did not recall seeing any cracks in the interior or exterior walls of the
Joneses' house when he conducted the "rewrite inspection"….
The court
accepted expert testimony that "any investigation by Alfa that did not
include the above-described activities would not satisfy proper claims
handling practice." In addition to acceptance of expert testimony on
industry standards, citing earlier case law, the court seemed to base much of
its reasoning on the duties of an insurer to marshal all facts necessary to
make a determination as to coverage before refusing to pay a claim.
Thus,
an investigation is incomplete unless all facts are included in a cognitive
review of evidence prior to final determination of coverage, and a
before-after analysis dictates inclusion of the underwriting file as an
essential element of a claims investigation.
Additional Implications of
Jones v. Alfa
In Alabama and some other
jurisdictions, Jones v. Alfa delivers a double whammy for
insurers. For example, Alabama has also established that an insurer must
accept the risk assumed, irrespective of a property's physical condition at
the time underwriters approved coverage. (See Great Am.
Ins. Co. v. Railroad Furniture Salvage of Mobile, Inc. et al., 162 So. 2d 488 (1964).) Stated differently, if property is of poor,
substandard construction or has been maintained improperly at the time a
policy is issued, an insurer's invoking poor construction, wear and tear,
and related exclusions, even when accompanied with supporting "expert"
engineer reports, will not defeat coverage. As the Mississippi Supreme Court
opined in a similar case, the insurer:
… had the right to examine these
buildings before they wrote the insurance and accepted the premium on the
policies, and if they had examined the buildings and found they were not
substantial, they could have declined to write the insurance and have
avoided the consequence of this loss.
New Hampshire Fire Ins. Co. v. Kochton Plywood & Veneer Co., 242 Miss. 169 (1961).
From a
management perspective, coordination between underwriting and claims may
extend to other organizational situations as well. For example, in holding
company arrangements in which primary coverage is written in one company and
umbrella or excess coverage is written in another, Jones suggests that the right hand better know what the left is doing, to state it
in the vernacular.
Companies that write primary and umbrella policies in
separate companies, when asked for policy limits in third-party claims, may
find themselves in difficulty if they fail to disclose both policies. No
matter how elaborate the insurer's argument that nondisclosure resulted from
computer problems or managerial snafus, an insurer will find it increasingly
difficult to rebut contentions that the company is engaged in deliberate
concealment or, at best, "studied bungling." (See, for example,
Merritt v.
State Farm Mut. Ins. Co., 247 Ga App. 442, 544 S.E. 2d 180
(2000).)
Conclusion
After Jones, perhaps insurers
will get the message that information technology and computer pizzazz may be
entertaining, but controlling overall enterprise risks through better
management may be a more prudent strategy. At least, management may now find
it necessary to insist that underwriting and claims accept each other as
friends on Facebook.
1Kevin Quinley, "Spanning Silos: Collaboration
Between Underwriting and Claims," Claims
Magazine (July 2009), pp. 12–14.
2Luther Gulick and Lyndall Urwick,
Papers on the Science of Administration
(New York: Institute of Public Administration, 1937).
3My experience is that life and health
companies routinely consult underwriter records when reviewing claims. The
practice is called post-claim underwriting and is not universally revered.
4Harold Jones testified that Mr. McLean "was,
I guess, advising or helping me … to make sure that I wasn't—that I didn't
sign off on anything, you know … But now, so far as engaging him or hiring
him as an attorney, there had not been any such thing as far as saying I
want to hire you to represent me in this matter." Curiously, Alfa makes no
mention of any letter of representation in the claims file.