Earth is flat. Man will never fly. Madonna will never turn 50. Do these urban legends and myths sound familiar? In litigation, certain myths still inhibit the effectiveness of risk managers in bringing their skills and value to the litigation and trial process. Let's examine four such myths.

Myth: The Risk Manager Should Back Off

Some mistakenly think that risk managers shouldn't concern themselves with trials. It is true that risk managers have enough to do in terms of managing insurance, dealing with brokers, and overseeing safety programs and departmental budgets. Nevertheless, they should rightly concern themselves with trials. Win or lose, the fact that a case is going to trial will increase legal fees. This will increase the cost of risk and affect long-term insurance pricing. If the company loses a trial, then adverse waves crash upon the shore of insurance prices.

A bad trial result can be detrimental to a company's stock price and competitive position, degrading its image among vendors, business partners, and others. From an enterprise standpoint, much is at stake when any matter goes to trial, whether it is insured or uninsured. Thus, savvy risk managers will see involvement in and management of the trial process as a legitimate subset of their bailiwick.

Myth: The Insurer Takes Care of Everything

In a perfect world, an insurer's decision to roll the dice at trial would be the product of substantial thought and deliberation. However, real-world constraints may get in the way of this ideal scenario, as beleaguered claim adjusters may be drowning amid hundreds of claim files. It is likely that they are suffering from Adjuster Attention Deficit Disorder, or AADD for short.

Ritalin may not help here. Cases can lapse into trial simply because adjusters are not attentive enough, overestimate the odds of winning, or underestimate its financial impact. Adjusters may have punted decision-making to outside legal counsel, who was delighted to move the case to trial because that translates to added billing opportunities.

Insurance companies are financial institutions. They make money by maximizing claim caseload and minimizing claim head count. This can create situations where adjusters are spread so thin over large caseloads — or where decision-making and approval processes are so bureaucratic — that the adjuster shies away from going to supervisors to obtain approval for high-reserve changes or authorizations that could lead to a case settling before trial.

Even if you have insurance, there may be plenty to worry about. For instance, in its zeal to trim costs, has the insurer saddled you with a jackleg lawyer? Other insurer-related concerns loom as well:

  • Has the insurer provided you with capable lawyers but constrained them with so many cost restrictions that they're entering a gunfight with a squirt gun?
  • Is it taking a case to trial that should be settled?
  • Is it rolling the dice on a case that could blow above your policy limits, leaving you with an uninsured excess liability exposure?
  • Does the case going to trial have some counts, such as punitive damages, that may not be insured if a jury goes crazy?
  • Is it taking to trial a case in which it has not calculated or communicated the downside risk? Do you risk losing “street cred” with the boss and upper management because of a nasty “surprise” the insurer never flagged?

If the insurer rolls the dice and loses, it may be “capped” by its policy limits. By contrast, you have no “cap.” The onus falls on you to pick up the pieces and deal not only with bad publicity and an injured reputation, but also the air let out of your stock price, the new opportunities for your competitors, and the shaken confidence of suppliers, business partners, and customers.

Myth: The Insurer Does What It Pleases

Yes, the insurance company will likely assert control of a claim if it heads to trial. Often, this prerogative is embedded in the policy language, which explicitly gives the insurance company the right to defend or settle any claim and to control the defense. Having said that, some constraints can keep an insurer from just doing what it pleases.

For example, the policy may have a Self-Insured Retention (SIR). If this is the case, and if the trial value is within that SIR, then risk managers have a powerful argument as to why they should steer the ship.

Second, if the insurance company has asserted any coverage defense or if it has issued a reservation of rights letter, then it relinquishes some ability to manage the claim. Such gestures in many states extend policyholders the right to select independent counsel, which is to be paid at the insurance company's expense.

Third, if insurance company rides roughshod over the policyholder's interests, then it may invite bad-faith claims. Rattling the “bad-faith” saber can sometimes temper imperious conduct on the part of insurer claim departments.

Myth: Leave Legal Matters to the Legal Department

So, should the risk manager be involved in managing trials, especially if that person isn't an attorney by background and doesn't have a law degree? Shouldn't risk managers cede to the legal department or just opt out altogether?

A simple surrender may be tempting for many risk managers, particularly those already inundated with other duties. Delicate “turf” issues lurk here. Who “owns” the trial process when a company has an interest that's headed toward this often-fateful phase of litigation: risk managers or in-house attorneys? Just as insurance seems to be the purview of the risk manager, trials may be viewed as the exclusive province of the legal department. While I don't suggest that risk managers elbow the legal department out of the way, there may be legitimate reasons as to why the legal department should not take sole ownership of the trial process.

First, many in-house legal departments themselves are spread thin and beleaguered. This may be one more job that they don't relish. Attorneys in these departments may not necessarily be litigators and may therefore have legal specialties dissimilar from the issues presented by an upcoming trial. In addition, the legal department may not be attuned to the extent to which insurance companies can control the trial process if the risk is insured. Therefore, the best approach is one of cheerful collaboration and cooperation between risk management and legal departments. Risk managers know how an adverse trial result can materially impact the future cost of risk, including but not limited to insurance pricing. Risk managers understand that even a successful trial result may result in transaction costs that also adversely impact the future cost of risk. Also, risk managers — often drawn from insurance or brokering backgrounds themselves — realize the constraints imposed by the fact that an insurance company is managing a case toward trial.

Unicorns, alligators in New York City sewers, and Sasquatch are all myths. The preceding myths have less notoriety. However, they can still spook many risk managers, inhibiting their ability to bring insights and expertise to bear on the trial process. Shedding these myths will help risk managers engage deeper in the trial process, thereby taming costs, enhancing communications, and achieving better outcomes.

Kevin Quinley is an insurance claim expert and author. He can be reached at [email protected]. Visit his blog, The Claims Coach, at http://claimscoach.blogspot.com.

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
  • Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
NOT FOR REPRINT

© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.