When I started in claims, my manager told me that I would receive the most phone calls about the smallest things and the more tedious it was the more frustrated the insured. Those were words of wisdom. Not more than a three years later, I found myself on the witness stand, in court, opposite an insured all because the subject line of the denial form letter said ‘denial’ and not ‘below the deductible denial’. Needless to say, it was defense verdict.
When you work in insurance the first lesson you learn is how litigious society has become. Indeed to file a lawsuit all anyone needs to prove is that their legal claim has legal merit. It becomes frivolous when the legal claim is baseless or has no legal standing.
Of course, if it has no legal backing the lawsuit will be thrown out. What most do not realize is the cost and work it takes to get from the day the complaint is filed to the day the judge gives his final verdict.
The liability claims start when someone calls and advises that they have been injured by the insured and/or they feel the insured was negligent in some way. It could be the local dog walker, the school field trip chaperone, or the high school softball coach. People with assets need liability coverage.
If the insured has admitted liability or taken responsibility for the event and they make the insurance company aware of this, most likely, payment proceedings would be put into place. However, if not, then the legal process starts.
Once the complaint is received, the adjuster is bound by law to respond. They have to determine coverage amount, set reserves and hire counsel. While most have in house counsel, even more, have outside law firms with contracts in place stating hourly rates and expectations.
The attorney assigned would then respond to the complaint. I have never worked with an attorney that did not look to settle or try for summary judgment early on in litigation. There may also be some back and forth negotiation and talks between the plaintiff and defense counsel. If that fails, discovery happens next.
The discovery part is the information sharing piece of litigation. During discovery, the adjuster will see a ton of legal couriers. I once received twenty large boxes of pertinent information/discovery from the opposing counsel. My company had to hire legal interns to assist in reviewing all the information.
Beyond that, there are new discovery rules now regarding computer transactions and email. This must be included within the discovery part of litigation. The company may hire a computer technician to extract metadata or computer files from any computer involved. Once that is completed, a technician may be needed to decipher it all.
All this time, the adjuster is calling the insured and advising of the progress and reports are being sent to underwriting. If the claim merits, underwriting and claims may sit down and have a round table discussion. It is then that offers are made in addition to the scheduling of depositions and further court hearings.
Unfortunately, court proceedings are rescheduled or delayed. That too can cost further monies. Cases can carry on for months and years. There can also be appeals or cases can be thrown out at this point.
There is another alternative that the company may decide to pursue which is arbitration. This entails the adjuster and/or counsel sitting down with the opposition and putting forth the facts. The arbitrator then decides the outcome. There is chance; however, in minor cases, that these decisions may be appealed.
For arbitration to happen, everyone must be on board and agree to the arbitration. The arbitration may take place several states away so plane fare might be needed. But that still is less costly than litigation.
It’s not hard to imagine why companies favor arbitration over litigation. As you can see liability claims cost a lot of money. In some states, the insured is limited as to what they can sue for in an auto accident; while in others, the insured may be asked to sign a form agreeing to arbitration at the inception of the policy.
Litigation weighs heavy on premium amounts. Not only that but it drains bank accounts, destroys families, and takes the best part of life. Make sure the insured understands the costs associated with the process.
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