The predictability of calculating general damage values in personal injury claims can be highly speculative. By its nature, pain and suffering is a subjective experience. It is difficult for an individual to measure his own pain, let alone the pain of another. In the case of Voland v. Farmers Insurance Co. of Arizona (1997), the court observed that the calculation of general damages is “no more precise or predictable than throwing darts at a board.”

Traditionally, insurance companies use a “round-table” process to evaluate personal injury claims. Round-tabling is a process in which an insurance company's most skilled casualty claim professionals come together to evaluate injury claims by examining settlements in similar claims, jury verdicts, and the like. Recently, insurance companies have turned to an electronic round-table approach created by Colossus, a software program designed to help claim professionals determine, with some consistency, the value of any given personal injury case. The process also can smooth out variations in claim payouts among similar claims.

Automated Round-Table

Customized at installation to reflect a specific insurance company's settlement philosophies and claim practice history, the software guides users through a series of questions regarding a claimant's medical bills, treatment, prognosis, preexisting conditions, and injury-related symptoms. It electronically assesses severity points based on the totality of the entry submitted. The software internally applies the insurer's recorded and collated information about the value of injuries, and it recommends a range of dollar values for the injury claim. The generated values then can be used as a guide to determine the settlement value of a particular personal injury claim.

Problems arise in the bad-faith context when the Colossus value is rigidly followed without some demonstration that the claim professional has exercised independent logic in assessing the claim's worth. This is particularly true when evaluating first-party uninsured and underinsured motorist claims. Courts have noted that even though the software may be a useful estimating tool, it is incapable of considering significant external factors such as the character and credibility of witnesses; exacerbations of preexisting conditions; the reputation and competency of counsel; the availability and potential for exemplary damages; the possibility of aggravated liability; and a multitude of other external factors.

Blindly adopting a Colossus settlement value may lead to bad-faith exposure. In cases in which the offer exceeds the value assigned by the software, courts have presumed independent judgment to be present because of the deviation from the range. In Milhone v. Allstate Insurance Co. (2003), the claim professional exercised independent judgment by offering an initial settlement offer that was less than the range Colossus recommended. However, the claim professional then made an offer within the range and, ultimately, a final offer that fell above the range.

The limited case law underscores the importance of the claim professional's ability to assign values that deviate from the Colossus-recommended range. An adjuster attempting to avoid a claim of bad faith faces a quandary, as most claims fall within the range of Colossus values. Therefore, the selection of a different value within that range will not, by itself, guard against a claim of bad-faith use of the program. Insurance companies find themselves in a precarious position, trying to explain away a large class of cases where the adjuster legitimately agrees with the recommended amount. In this situation, it is crucial that the adjuster document his independent view of the case in the claim notes.

Issues of contributory negligence or comparative fault, where applicable, are very significant. While wholly subjective to the claim professional, the presence of contributory/comparative fault creates significant elasticity in the overall claim-valuing process. These issues should be identified in explicit detail in the claim notes, including a range of percentage application.

Significant Liability Facts

Relevant preexisting conditions should be identified beyond mention on the Colossus submission entry. Facts relevant to contributory or comparative negligence should be cited and discussed in the claim evaluation notes. Medical specials should be differentiated by whether or not they are diagnostic- or treatment-related in the claim notes. After weighing the medical specials by focusing on the treatment as opposed to the diagnostic charges, the adjuster should subtract the specials from the software's range. The remaining value represents the value of pain and suffering in most cases. The adjuster then can work with the residual damage amount by specifically allocating dollars to an expected injury recovery period.

As an example, let's assume the pain and suffering residual value for a soft-tissue cervical sprain/strain is $3,000. The adjuster decides to adopt a mid-range value within the overall Colossus range, reporting in the claim notes a $2,000 pain-and-suffering value. Most soft-tissue cervical sprain/strain injuries resolve within 8-to-10 weeks. For the first month, the adjuster may allocate $750 when pain and suffering is most pronounced. The adjuster might allocate a value of $500 for the second month, and perhaps $250 for the subsequent month. This approach leaves a $500 margin of error.

This relatively easy calculation meets two principal goals: First, the claim professional has adopted a settlement value within the software-assigned range that will comply with the insurance company's internal guidelines for adjusting practices. Second, by documenting the claim file with an explanation — as previously indicated — the claim file will protect the company against bad-faith claims. Keep in mind that actual deviation from Colossus should not be considered the touchstone of good faith. Rather, the plaintiff should have to produce evidence of bad faith beyond the apparent lack of deviation from Colossus' recommendations.

Thus far, courts have found that plaintiffs must show how an insurance company's use of the software resulted in an unreasonable offer in their particular cases. Clearly noting that an analysis includes the information discussed will not only enable the claim professional to document independent thought, but also will make it more difficult for the plaintiff to demonstrate that the use of Colossus affected the specific claim presentation.

Room for Interpretation

Most of the information used for a Colossus submission can be reworked into a stand-alone claim note demonstrating why the claim professional selected a particular dollar value within the software's recommended range.

Once Colossus recommends a range of values, an adjuster can decide to suggest a figure that falls below that value range. The adjuster need only record the information that provided a basis for indicating a lower value range. For example, if the injury was enhanced because the insured failed to wear a seatbelt — and the jurisdiction has a law that allows seatbelt use to be taken into consideration in assessing the overall liability for the injury produced in the motor vehicle accident — then the claim file should be documented with that fact.

In significant rear-end impact cases where the claimant was using a three-point safety restraint, the likelihood of lower-back problems arising from the impact is substantially less significant than a cervical injury. Simply including biomechanical facts in the claim file can be helpful. When a vehicle is struck from behind, the victim's torso remains stationary while the vehicle moves forward and out from underneath the victim. When this occurs, the victim's torso is compressed into the seat cushioning momentarily, which then sets up a recoil action. Upon release of the energy in the seat cushion, the torso juts forward as a result of the recoil. At this point, the seatbelt acts to keep the victims pelvis stationary as a pivot point, and the seatbelt and the shoulder harness prevent substantial forward motion. There are simply not enough stresses in this biomechanical action to produce a significant lumbar injury. A brief discussion of this point in the claim note demonstrates independent evaluation of the biomechanics of the accident itself, which can support a lower settlement value than the Colossus range.

In many situations, routine X-rays taken immediately after a motor vehicle accident might reveal osteophytic spurs. Because osteophytes take a long time to develop, they were probably present prior to the motor vehicle accident. This should be referenced in the claim note, in addition to any other concerns or suspicions an adjuster may have regarding preexisting conditions. The claim note should then identify that the case valuation is focused on an exacerbation of a preexisting condition instead of an injury caused solely by the subject motor vehicle accident. Gaps in treatment should be noted and discussed, as should overlapping treatment with similarly situated health-care providers.

An all-inclusive claim note incorporating the information above at the time the software formulates its range — along with an indication that the claim professional either agrees or disagrees with this value formulation and why — can be pivotal in demonstrating evaluation independence.

Steven Plitt is the chairperson of the Insurance Practice Group at the law firm of Kunz, Plitt, Hyland, Demlong and Kleifield. He may be reached at (602) 331-0360 or via e-mail at sp@kunzlegal.com.

Special Reports /

Limiting Bad-Faith Exposure

Related Stories

Recommended For You