Undoubtedly, most claims executives will readily tell you that they have a strong claims management program, which is a crucial component of any claims department. They will point to policies, procedures, guidelines, and claims audits. They would also point to stringent litigation and billing guidelines for attorneys. But do they fully consider the intersection between their claims management program and bad faith? I’m not so sure, given my recent experience.
In one case, the manager responsible for claims and litigation management relied solely upon the adjuster’s summary of the investigation in supporting a denial for a claim worth well over $1 million. Had that manager only briefly reviewed the file, he would have seen that the adjuster’s “investigation” was woefully inadequate and violated not only claims best practices, but also the company’s own claims procedures.
In another, the claims manager failed to take an active role in managing an uninsured motorist claim until over 18 months after a demand for the policy limits had been made. However, by then, the bad faith had been committed, and the damage was done. In both cases, the policyholders have filed suit against the insurer for breach of contract and bad faith. Both suits could have been avoided through active claims management.
3 Impediments To Action
Given the intersection between claims management in bad faith claim, why aren’t carriers engaging in active claims management? I have some theories:
Lack of time and resources. Just as claims adjusters have a legitimate complaint about unreasonable case loads, so do claims managers, who often are managing the caseloads of multiple adjusters. Now add those duties to those associated with employee management and other management duties, and it becomes easy to see how good claims management can fall to the wayside.
Reliance on counsel. Overworked adjusters and claims managers will often rely to heavily on counsel to determine the direction of a claim. While it is tempting to rely on competent counsel to help with the management of a difficult claim, claims managers cannot abdicate their management role to counsel. First, counsel, especially outside counsel, is usually focused on one single case, while the claim manager has to focus not focus not only on a particular case, but several cases in order to ensure consistency. Second, counsel’s goals from those of the claims manager may be divergent, with potentially undesirable results. Third, contrary to what we attorneys think, we don’t know everything (sacrilege!); claim adjusters and managers have much to offer and teach counsel.
Pressure to reduce costs. The pressure on claims managers to reduce the costs of claims handling and claims management is enormous. That pressure can understandably result in less active claim management and claim handing than might be seen if cost were no object. However, as difficult as it may be sometimes, claims managers must balance the duty to fully investigate the claim with budget concerns.
Assuming that I am correct, I can completely understand how the lack of time, money and resources, as well as the ability to rely on counsel can lead to less active claims management. But this is where the part about “management” comes in. Management requires the setting of priorities and allocating the resources available to address those priorities.
Claims management further requires that claim managers evaluate all claims and take a more active role in those that appear are complex or involve significant damages as these are the type of cases that often lead to bad faith suits. An active role means more than simply reviewing the file to see if the claim adjuster is completing tasks timely. It means asking questions to ensure that the claims adjuster is conducting a thorough investigation as well as providing the adjuster with the resources necessary to complete that investigation. It means ensuring that there is good, substantive communication with the client. In litigation, it means working with the attorney to ensure that the tasks being completed will lead to the carrier’s ultimate goal—efficient closure of the file.
Yes, active claims management is time-consuming. It requires the expenditure of dollars in an environment where such dollars are ever-shrinking. However, the time and money expended with such an endeavor will undoubtedly pay dividends when the file in question is marked “closed” rather than in “bad faith litigation.”