Undoubtedly, most claims executives will readily tell you thatthey have a strong claims management program, which is acrucial component of any claims department. They will point topolicies, procedures, guidelines, and claims audits. They would also point to stringent litigationand billing guidelines for attorneys. But do theyfully consider the intersection between their claimsmanagement program and bad faith? I'm not so sure, given my recentexperience.

In one case, the manager responsible for claims and litigationmanagement relied solely upon the adjuster's summary of theinvestigation in supporting a denial for a claim worthwell over $1 million. Had that manager only brieflyreviewed the file, he would have seen that the adjuster's“investigation” was woefully inadequate and violated not onlyclaims best practices, but also the company's own claimsprocedures.

In another, the claims manager failed to take an active role inmanaging an uninsured motorist claim until over 18 months after ademand for the policy limits had been made. However, by then, thebad faith had been committed, and the damage was done. In bothcases, the policyholders have filed suit against the insurer forbreach of contract and bad faith. Both suits could have beenavoided through active claims management.

3 Impediments To Action

Given the intersection between claims management in bad faithclaim, why aren't carriers engaging in active claimsmanagement? I have some theories:

Lack of time and resources. Just as claimsadjusters have a legitimate complaint about unreasonable caseloads, so do claims managers, who often are managing the caseloadsof multiple adjusters. Now add those duties to those associatedwith employee management and other management duties, and itbecomes easy to see how good claims management can fall to thewayside.

Reliance on counsel. Overworked adjusters andclaims managers will often rely to heavily on counsel to determinethe direction of a claim. While it is tempting to rely on competentcounsel to help with the management of a difficult claim, claimsmanagers cannot abdicate their management role to counsel. First,counsel, especially outside counsel, is usually focused on onesingle case, while the claim manager has to focus not focus notonly on a particular case, but several cases in order to ensureconsistency. Second, counsel's goals from those of the claimsmanager may be divergent, with potentially undesirable results.Third, contrary to what we attorneys think, we don't knoweverything (sacrilege!); claim adjusters and managers have much tooffer and teach counsel.

Pressure to reduce costs. The pressure on claimsmanagers to reduce the costs of claims handling and claimsmanagement is enormous. That pressure can understandably result inless active claim management and claim handing than might be seenif cost were no object. However, as difficult as it may besometimes, claims managers must balance the duty to fullyinvestigate the claim with budget concerns.

True Management

Assuming that I am correct, I can completely understand how thelack of time, money and resources, as well as the ability to relyon counsel can lead to less active claims management. But this iswhere the part about “management” comes in. Management requires thesetting of priorities and allocating the resources available toaddress those priorities.

Claims management further requires that claim managers evaluateall claims and take a more active role in those that appear arecomplex or involve significant damages as these are the type ofcases that often lead to bad faith suits. An active role means morethan simply reviewing the file to see if the claim adjuster iscompleting tasks timely. It means asking questions to ensure thatthe claims adjuster is conducting a thorough investigation as wellas providing the adjuster with the resources necessary to completethat investigation. It means ensuring that there is good,substantive communication with the client. In litigation, it meansworking with the attorney to ensure that the tasks being completedwill lead to the carrier's ultimate goal—efficient closure of thefile.

Yes, active claims management is time-consuming.It requires the expenditure of dollars in an environment wheresuch dollars are ever-shrinking. However, the time and moneyexpended with such an endeavor will undoubtedly paydividends when the file in question is marked “closed” rather thanin “bad faith litigation.”