- September 1, 2009 8:44 am
- Rick McCord
- No Comments
Claim Basics
There is an old saying in the claim industry which still holds pretty much true. It suggests that there are three basic elements to any claim, regardless of how minor or severe it might be, and for most any type of coverage. They are: Coverage, Liability, and Damages. No matter what type of claim is involved, these three pieces must be addressed, generally in the order they’re listed.
Step One: Coverage
The first key element is Coverage. The adjuster must review and understand the policy, its intended scope, coverage forms and endorsements, effective dates, and key provisions. Does this particular policy apply to the loss? If there is a vehicle involved, is it required to be listed on the policy schedule, and is it there? Does the policy require that the driver be specifically insured, or in the alternative is this particular driver excluded from coverage? If the loss involves a transportation accident, does this particular policy apply to liability, physical damage to the tractor and/or trailer, cargo, injuries to the driver or any passengers? Is the person or firm involved, or the particular location, the same as the one intended to be covered under the policy?
Once the coverage issues have been analyzed, a key decision must be made. If there is no coverage applicable to the loss involved, there may be no need to move on to the next categories. However, the answer is oftentimes not completely clear. A vehicle or driver or location required to be listed on the policy schedule may not be included, but it is possible that it is in the process of being added. Many policies involve the monthly reporting of vehicles and/or drivers, and there is always some delay in that information reaching the appropriate party in order for the policy to be updated. It may be necessary to check with the agent, insurer, or underwriter to confirm.
It may be that the adjuster does not have the complete policy or coverage details. Most policies include various endorsements, some of which may potentially have an effect on a particular loss. It may be necessary to obtain and review additional parts of the policy in order to make an informed coverage opinion.
If it appears there may be no coverage, more decisions must be made. It can be dangerous to simply take the position that the policy doesn’t apply, and take no further action. There is no way of knowing whether the information initially provided concerning the loss is complete or accurate. If there are questions, it may be necessary to conduct additional investigation in order to rule out coverage. In such a case, the adjuster may make the decision to issue a formal Reservation of Rights to the insured, or obtain a Non-Waiver Agreement, which formally notifies the insured that there is a question regarding coverage. It essentially allows the adjuster to develop more information, while at the same time protecting against the allegation that such action implied that coverage was in order.
If the first notice of the claim was in the form of a lawsuit, with a specific timeframe in which an answer must be filed, the adjuster has additional decisions to make. Should he or she retain an attorney to file a response, in order to avoid a default judgment potentially being entered against the insured or driver? Is it possible to obtain an agreed extension of the answer date from the plaintiff attorney? If the coverage issues are not clear, as is often the case, should the adjuster hire coverage counsel to look into the matter and research the applicable law?
If there is clearly no coverage, or once additional steps have been taken to confirm that there is no coverage, there may be no need to move to the next element of the claim. If coverage does apply, it is then necessary to move on to the second phase.
Step Two: Liability
Once coverage is confirmed, the second key element is to determine Liability. Was the insured at fault or legally responsible for the loss? This obviously can involve such straightforward facts as who ran the red light, or who failed to clear the ice from the sidewalk. But it may not always be as simple as that. There may be contracts or leases that could create legal liability on the part of the insured. The insured may or may not be responsible for acts of another party. Or the loss may involve a jurisdiction where comparative fault can be the basis for a claim. For example, your insured may be only slightly responsible for an accident, but in some states still potentially at risk for a proportionate share of the resulting injuries or damages.
If the loss involves “First Party” damages, the Liability phase may be moot. For example, if coverage is provided contractually under the policy for damage to the insured’s vehicle, or the driver’s medical bills, or for Workers Compensation, or for some type of property, or some other type of loss, it may be considered to apply automatically without regard to fault.
If the investigation indicates that there is no liability on the part of the insured, those presenting claims must be appropriately notified of that determination. In certain states this requires that the claimant also be referred to a state insurance department for a possible review of their claim.
Once sufficient investigation and fact finding has been completed to establish coverage as well as liability on the part of the insured, the adjuster can move on to the next phase of the claim.
Step Three: Damages
Once it’s been determined that there is coverage and the insured is at fault (or in certain instances is not required to be at fault), the adjuster must then determine what damages resulted from the loss.
Damage to a vehicle or some other physical object can be relatively simple to ascertain. A vehicle appraiser can inspect the damage and write an estimate for the cost to repair it, or determine what its market value was prior to the accident. The cost to replace a damaged roof, or repair a destroyed guardrail, can be determined fairly easily.
However, the damages involved in an injury can be much more difficult to quantify. The nature and extent of the injury, the scope and costs involved in treatment, the time missed from work, additional expenses, and other types of “special” damages can be determined. But what of the so called pain and suffering, or “general” damages to which the injured person might be entitled? This is much more subjective and open to interpretation. The situation is typically complicated by the wish of the injured claimant to get a settlement as large as possible. It is oftentimes further complicated by the presence of an attorney who might intentionally or otherwise exaggerate the extent of the injury, or even encourage the injured party to incur additional medical bills, in order to enhance the perceived value of the claim.
The location of the accident, and the jurisdiction in which the case might potentially be tried, are also significant factors. Juries in some areas are generally considered to be much more liberal in awarding damages than in other areas. An injury claim in New York City or the Rio Grande River Valley may be worth much more than the same injury in North Dakota, or even in a small rural area of New York State. These are all factors the adjuster must weigh.
Conclusions
Some would add a fourth critical element in the handling of a claim: Settlement. Once the coverage, liability, and damages have been reasonably determined, the final phase involves bringing the claim to a conclusion by way of reasonable settlement. The terms and figures must be explained clearly to the claimant, who must agree to accept the proposed settlement. This can involve back and forth negotiations, depending on the situation. This would generally be followed by the signing of some type of document such as a Release or Proof of Loss, and the actual issuing of the settlement check.
In a relatively small percentage of cases it may not be possible to reach a reasonable settlement, for various reasons. Maybe the demands or expectations of the claimant or his/her attorney are not realistic or in line with the facts. Or there may simply be a wide gap between what each side sees as the true value of the claim. In these cases it may sometimes be necessary for the case to be tried, and for a judge and/or jury to determine the ultimate value of the claim.
Whether a claim involves a rock chip in a windshield or total destruction of a vehicle, a shingle blown off the roof or the complete collapse of a skyscraper, a cut on the hand or a catastrophic brain injury, the basic elements are the same. The process can appear to be fairly simple, and in many cases it is, but there are a huge number of variable factors at each stage of the claim process which can complicate things. The trained and professional claim handler will take these into account, but will still remain focused on the key components of each claim.