What would you do if you were walking down the street and saw a hundred dollar bill lying on the ground? What if that hundred dollar bill could be multiplied exponentially to the tune of millions of dollars per year? That is the potential sitting in front of many insurance carriers that are not effectively recognizing and assessing comparative negligence.

There is no question that opportunities to improve basic blocking and tackling are ubiquitous throughout the claims industry. Consider the impact on cycle time and accuracy of missed contacts, overlooked witnesses, absent file documentation, or delayed inspections. These are all essential ingredients to the right outcome. Yet, they pale in comparison to the importance and financial impact of proper identification and assessment of comparative negligence.

A Duty Owed
Black's Law Dictionary defines negligence as “the omission to do something which a reasonable man, guided by those ordinary considerations which ordinarily regulate human affairs, would do, or the doing of something which a reasonable and prudent man would not do.”

Wow, now that's a mouthful. In simpler terms, it means breaching a basic duty owed. Think back to how liability analysis has traditionally been taught. In every situation there are certain duties owed, and negligence arises when certain duties are breached. That thought process should be applied to every single claim.

Now consider the following diagramed scenario (Figure 1) in which an insured is northbound on a road with two lanes in either direction. He is in #1, or the innermost, lane signaling to make a left turn. As the light turns from green to yellow, the insured sees an oncoming vehicle in the southbound #1 lane come to a stop. He proceeds, crosses two thirds of the second southbound lane, and is then struck in the right rear door by the claimant. Who is at fault for that accident?

If your experiences are anything like mine, there have been numerous times when you've picked up just such a file and scratched your head as to how the adjuster assessed 100-percent liability against the insured. Of course, this is not limited to intersections; consider similar assessments in parking lot, lane change, slip and fall, medical malpractice, or product liability claims.

Recognizing Negligence
The challenge in any situation is to recognize that comparative negligence may exist. According to Jury Verdict Research, a national organization that tracks such data, rear-end auto accidents accounted for only 45 percent of auto cases adjudicated, with the remainder comprised of intersection collisions, lane changes, chain reactions, and parking lot scenarios. In other words, there was shared liability in a lot of claims.

By establishing the frequency of comparative negligence opportunities, the challenge is to benchmark individual organizations in terms of both the recognition and assessment of shared fault. From my perspective, this became somewhat of a battle cry during my tenure overseeing national quality assurance and casualty initiatives for a large, multinational insurer. Perhaps most telling was not the missed opportunities but rather the reasons behind them.

After all, we live in a society where seemingly everyone plays the blame game. Flip on the television, and you will surely encounter an attorney telling you the accident was not your fault. Complicating matters is our tort system, where risks are few and rewards can be great for doing nothing more than presenting a claim and demanding a settlement, even if it is completely lacking in merit.

Liability Principles
To better understand liability principles of today, it is important to look back at their foundation. Comparative negligence doctrines evolved from the original concept of contributory fault, which dates back to 1809 and the English case of Butterfield v. Forrester, 11 East. 60, 103 Eng. Rep. 926 (K.B. 1809). It is believed that this case before the King's Bench that was the first appearance of contributory negligence as a common law defense against negligence.

Briefly, defendant Forrester had placed a pole against his house that jutted out into the road. Plaintiff Butterfield was riding his horse at approximately 8 p.m., in the twilight. He did not see the pole, struck it, and suffered personal injuries. A witness testified that visibility was about 100 yards, and had the plaintiff not been riding at such a fast pace, he would have seen the pole. The judge instructed the jurors that if a reasonable person would have been injured in a similar circumstance, then the award must be against defendant. However, if the plaintiff was deemed to have contributed to his own injuries as the result of his actions, then he would be barred from recovery.

Contributory Negligence

Now only the law in Alabama, Maryland, North Carolina, Virginia and the District of Columbia, was the predominant negligence law in the United States as well. Recognizing that this law could be punitive in nature, various state legislatures and courts began to adapt to a system that apportioned liability between parties. In addition to contributory negligence laws, which bar recovery if a damaged person is even one-percent at fault, there are three additional negligence standards that vary by state.

Pure comparative negligence is utilized in 13 states and allows a damaged party to recover even if he or she is 99 percent at fault, though damages are reduced by their degree of fault.

Eleven states follow the 50-percent bar modified comparative rule, meaning that a damaged party cannot recover if they are 50 percent or more at fault for an accident. They can recover if they are 49 percent or less at fault, though recovery is reduced by degree of fault.

Another 21 states follow the 51-percent bar modified comparative rule, under which a damaged party cannot recover if they are 51 percent or more at fault. However, recovery is permitted if 50 percent or less at fault albeit reduced by degree of fault.

The chart below shows a state-by-state breakdown of applied negligence law.

Investigating Liability
Whenever a claim is presented, there are two crucial components required for the claim to be honored: liability and damages. If either does not exist, then there is no mechanism established for a claim. For example, if a person is 100-pecent liable for an action but there are no damages, then there is no claim. Likewise, if a person is damaged solely as the result of their own negligence, then they have no mechanism for recovery. The reality is that most situations involve varying degrees of both with shared liability and subjective damages, hence the need to investigate, evaluate and negotiate outcomes.

In every new claim it is incumbent upon the adjuster to concurrently investigate both liability and damages. When looking at damages, the adjuster should, at minimum, do the following:

Obtain a statement from the insured.
Obtain a statement from the claimant.
Obtain statements from any witnesses.
If a motor vehicle accident, state all vehicle occupants.
Assess credibility of all parties.
Examine and photograph all physical evidence.
Retain evidence when necessary, adhering to proper evidence retention protocols.
Obtain a police report or similarly available incident report.
Determine the cause of the accident

These are basic recommendations that need to be considered fluid, as no two claims are the same. In instances of more complex liability, the adjuster will have to conduct an even more detailed investigation. As the investigation progresses, there must be a determination of cause. Primary considerations should be:

Did any party violate a state or local statute? If so, did this violation have any bearing on the accident?
Was a tort committed? If so, who were the responsible parties? In some instances there may be joint tortfeasors. There may also be tortious actions committed by nonparties to the accident, such as municipalities or absentee owners.
There also must be the establishment of proximate cause, that which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produced the injury and without which the result would not have occurred.

There may also be secondary determinations of liability that should be given due consideration. Some examples may include:

Intervening Cause
An independent cause that intervenes between the original wrongful act or omission and the injury, which turns aside the natural sequence of events and produces a result that would not otherwise have followed and could not have been reasonably anticipated.

Last Clear Chance
Did the party with the last clear chance to avoid the accident do so? Are they liable for their failure to act on this chance?

Attractive Nuisance
Negligence arises when equipment or condition is such that it would be both attractive and dangerous to the curious, often children. This could include tractors, unguarded swimming pools, open pits, and abandoned refrigerators. Liability could be placed on the people owning or controlling the premises even when the child was a trespasser who sneaked on the property. Some jurisdictions, such as California, have abolished this doctrine and replaced it with rules of foreseeable danger.

Dangerous Instrumentality
Was the instrumentality maintained in such a condition that it was dangerous and this danger was known holding the owner liability for any injuries caused by that tool's operation. This is particularly challenging in Florida where the state Supreme Court, in Southern Cotton Oil Co. v. Anderson, 80 Fla. 441, 469 (Fla. 1920), extended the doctrine to motor vehicles, holding that owners may be held accountable for any damages suffered by third parties as the result of the negligent operation of their vehicles when they are driven by others with their knowledge and consent. This doctrine imposes strict vicarious liability upon the owner of a motor vehicle who voluntarily entrusts that motor vehicle to an individual whose negligent operation causes damage to another.

Rescue Doctrine
One who is injured in a voluntary attempt to rescue a person whose life is imperiled by the negligence of another is entitled to recovery from the negligent person.

Assumption of Risk
The ability to reasonably anticipate if one's actions may result on harm or injury.

Joint and Several Liability
While laws vary by state, the general premise of joint and several liability provides that a plaintiff may recover all damages from any of the negligence defendants regardless of their individual share of liability. Many people refer to this law as the “Deep Pocket Rule.” Recognizing the punitive potential of punishing claim parties, some states have abolished joint and several, while others of implemented simple several liability that holds parties responsible only for their proportion of fault. Regardless, it is very important to understand the laws of the state of jurisdiction, as they can have a profound impact on negotiation strategy.

Bailment
This is a delivery of goods in trust upon a contract, express or implied, that the trust shall be faithfully executed on the part of the bailee. In simpler terms, bailment is the delivery of tangible personal property to a person on the condition that it be returned by the bailee to the bailor as soon as the purpose of the delivery is complete. Consider situations such as checking baggage with an airline or leaving your vehicle with a mechanic for repairs.

When considering bailment, note that some arrangements benefit the bailor, some the bailee, and others enjoy mutual benefit. As a general rule, the bailee owes the bailor the duty to use reasonable care to safeguard the property. However, the standard of care is dependent upon who receives the benefit of the bailment. Liability can be very complex and, given the multitude of scenarios, is rarely black and white. For this reason alone, 100-percent decisions against any party to a claim should be far rarer than they are in many claims organizations. As the investigation progresses, there should be consideration for variations in state laws as well as the duties owed and duties breached by all claim parties which are clearly documented in a liability write up, or an evaluation.

Liability Write Up
Every claim should contain a liability write up. Whether it is in the claim notes or the application of decision support software, such as ClaimIQ™, it is incumbent upon the adjuster to outline the following:

Duties Owed

Detail the primary duties owed by each party
List the primary considerations
List the secondary considerations

Duties Breached

Detail the duties breached by each party
List the primary considerations
List the secondary considerations

Going back to the liability scenario at the beginning of this article, we established that the insured was making a turn in front of the claimant. In this situation, there are several duties owed, which should be addressed in the liability write up, including yielding right of way, maintaining proper lookout, taking evasive action, respective traffic controls and rules of the road.

The purpose of the liability write up is to make a decision that will not only determine a more accurate outcome, but provide a negotiation strategy to amicably resolve the claim. It is also important to assess the degree by which duties were owed and breached. For example, the insured owed a greater duty to yield the right of way to oncoming traffic. However, once the insured had established control of the intersection, the claimant owed a duty to cede the intersection to the party in control. The insured owed a greater duty to adhere to traffic controls that allowed for the passage of the claimant, but the claimant also had a duty to maintain a proper lookout.

As the duties are laid out, breaches assessed and to which degree, it becomes clear that this is not a 100-percent liability situation. As is the case with most intersection accidents, and most non rear-end accidents for that matter, it is one of shared liability. Herein lies the challenge of not only recognizing the opportunity by resolving it accurately.

Negotiation Strategy
Once liability and damages have been established, the next task is to formulate an effective negotiation strategy. Let's face it. One knows it is a lot easier to pay someone 100 percent than to tell them that they bear some responsibility for their own damages. This is especially true in a day and age when adjusters are busy and claims disposition is a key metric. But it can be done.

Having worked with a large number of insurers on accuracy improvement projects, such as liability, achieving 35-percent comparative negligence assessment in pure comparative states has proven to be a reality. For modified comparative states, this figure is in the 25-percent range and contributory states drops to about 12 percent. Further evidence of this potential opportunity area can be derived from more formulaically driven jurisdictions, such as Japan, where comparative negligence is routinely assessed about 35 percent of the time.

So what does this mean from a bottom line perspective? If an organization is currently assessing 50/50 on 5 percent of all claims with an average payment of $2,800, the benefit derived is $70,000 per 1,000 claims processed. Keeping the average comparative assessment at 50/50, assessing comparative at an optimal level of 35 percent increases accuracy by $490,000, or an improvement of $420,000 per 1,000 claims processed. Multiplying this out by actual claims processed can show a tremendous opportunity for accuracy improvement, often to the tune of tens of millions of dollars per year.

For a claims organization processing 10,000 material damage claims in a year, this improvement is $4.2 million. For 100,000 claims, this improvement is $42 million. Hit that million claim mark and improvements are $420 million. This does not even begin to factor in the improvements on the bodily injury line where average paid are much higher and potential benefits much greater.

Of course not all comparative claims will be settled at 50/50; some will be 80/20 in favor of the insured, others 60/40 in favor of the claimant. What we do know is that seeing more shared liability is an opportunity nearly universally available to all insurers, both domestically and in many nations abroad.

Subrogation
It is estimated that 15 percent of all property and casualty claims are closed with a missed subrogation opportunity. This is significant in terms of bottom line revenue and policyholder retention opportunities. By more effectively leveraging improved liability processes, insurers have the ability to immediately gain a competitive edge in the marketplace. During my tenure implementing subrogation recognition initiatives, my team determined there were three key obstacles to effectively identifying recovery opportunities.

1. Adjuster workload was such that processing and closing claims was often measured in quantity instead of quality.

2. Organizational understanding of fundamental liability theories was lacking.

3. A tendency to take the path of least resistance, as paying 100 percent is much easier than arguing comparative negligence.

To truly be effective, the concept of accurate liability assessment has to become part of the corporate culture. From the outset of claim training, adjusters need to be indoctrinated into the thought process that liability is a key element of each and every claim. After all, to effectively pursue a claim one must prove both damages and liability

Integrating proven resources can assist in the development of this philosophy by providing consistent feedback and reporting that enables management to look for coachable moments. They can also provide the most effective roadmaps for successfully negotiating liability settlements.

Considering juries across the nation assess comparative fault more than half the time, there is no reason that our own experts can't move the ball closer to the goal line. The key is to give them the tools by which to effectively do so.

For insurers willing to take the liability improvement challenge, this is low hanging fruit. Think of the competitive advantage this improvement will provide in an increasingly tough marketplace? Think of the benefit to consumers who will reap the rewards of more competitive pricing that will lead to greater market share and higher policyholder retention.

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A Million-Dollar Dilemma

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