Undoubtedly, most claims executives will readily tell you thatthey have a strong claims management program, which is a crucialcomponent of any claims department. They will point to policies,procedures, guidelines, and claims audits. They would also point to stringent litigationand billing guidelines for attorneys. But do they fully considerthe intersection between their claims management program and badfaith? I'm not so sure, given my recent experience.

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 worth well over $1million. Had that manager only briefly reviewed the file, he wouldhave seen that the adjuster's “investigation” was woefullyinadequate and violated not only claims best practices, but alsothe company's own claims procedures.

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.

Three Impediments To Action

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

1. 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.

2. Reliance on counsel. Overworked adjusters andclaims managers will often rely too 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.

3. Pressure to reduce costs. The pressure onclaims managers 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 complexor involve significant damages, as these are the type of cases thatoften lead to bad faith suits. An active role means more thansimply reviewing the file to see if the claim adjuster iscompleting tasks timely.

It means asking questions to ensure that the claims adjuster isconducting a thorough investigation as well as providing theadjuster with the resources necessary to complete thatinvestigation. It means ensuring that there is good, substantivecommunication with the client. In litigation, it means working withthe attorney to ensure that the tasks being completed will lead tothe carrier's ultimate goal—efficient closure of the file.

Yes, active claims management is time-consuming. It requires theexpenditure of dollars in an environment where such dollars areever-shrinking. However, the time and money expended with such anendeavor will undoubtedly pay dividends when the file in questionis marked “closed” rather than in “bad faith litigation.”