Thanks to the Internet and telecommunications, the globe is shrinking, figuratively. Thus, many risk managers — especially those with far-flung foreign operations — no longer focus parochially on loss exposures inside the U.S. While the tort explosion has detonated loudest in this country, companies must ponder the possibility of foreign claims. This is doubly true as commentators see some foreign jurisdictions becoming almost as lawsuit happy as America. Japan, for example, faces a shortage of attorneys and is trying to get more students into law schools. Be careful what you wish for!
Risk managers must assess whether or not they have liability exposures abroad. If so, their insurers or adjusting companies must be able to service claim-handling needs in foreign countries. Increasingly, risk managers have foreign loss exposures and, hence, claims abroad. Consider the following scenarios:
- A visitor slips and falls at a company-owned manufacturing site in Ontario, Canada.
- A hand-tool your company manufactures injures a German national in Frankfurt; he brings legal action against the company in his local court.
- A sales rep traveling in Buenos Aires on business is involved in a fatal car collision.
- A product that your company manufactures allegedly malfunctions and injures a Chinese citizen in Beijing.
Any of these situations suggest that the sun may never set on tort liability. While America can pride itself on leading the world in the number of lawyers per capita and its jackpot (some might say crackpot) tort system, much of the world is waking up to smell the whiplash. American tort trends could migrate overseas faster than Disney and McDonalds. This will negate any presumption that injury claims in foreign jurisdictions are inherently de minimus matters.
Global Claim Handling a Must
If the risk manager's company has any operation, plant, or division outside the United States, property exposures loom, as well. A key part of disaster recovery is to get losses investigated and settled as quickly as possible. This helps an organization bounce back after a loss. If a manufacturing facility is crippled due to an earthquake in Turkey, it matters very much whether your insurer has rapid-response capability to get to the scene and expedite the handling of your first-party claims.
How can risk managers be sure to have their claim needs met in the event of a loss abroad? This checklist should help:
_____ Does the insurance company or adjusting firm have claim offices worldwide? Seek details. Some TPAs may boast about having offices abroad, but under close examination, these may turn out to be post-office boxes. Or they might have locations in Puerto Rico, Canada, and the United Kingdom. This would do you little good when you have a chemical spill in Australia.
- _____ Does the insurer or adjusting company have an executive-level adjuster who can travel abroad to investigate claims?
- _____ Does the U.S. insurer or adjusting service have any specialty adjusters who are multilingual and who can travel abroad on short notice?
- _____ Is the insurer or adjusting company owned by a larger parent organization, which has a separate network of claim offices?
- _____ Does your insurer or adjusting company have a reciprocity arrangement with a foreign adjusting service? When the U.S. company has a foreign loss, it subcontracts out to the firm abroad, and the foreign firm returns the favor if they have a loss in the U.S.
Defense Counsel Needs
While adjusting services abroad are vital, equally important are defense attorney resources for foreign claims. One handy resource for locating attorneys in foreign jurisdictions is Lex Mundi, Ltd., which has as its purpose the "professional exchange of information about the local and global practice and development of law and to direct communications among its members." Lex Mundi, Ltd., publishes an attorney directory titled (what else?) Lex Mundi.1 It lists law firms from around the world, organized by country. Each page profiles a different law firm, giving addresses, telephone, fax, and telex numbers. A brief narrative describes each firm's size along with practice highlights.
When dealing with foreign law firms, an important cost factor to consider is up-front retainer fees. It is not uncommon for foreign firms to require a $10,000 advance wired to them up-front. Often, you are under time constraints in making assignments to foreign law firms. You may have few options in terms of competing firms wanting your assignments, so your bargaining leverage is diluted. You may end up doing things to accommodate a foreign law firm that you would never consider when dealing with U.S. law firms. (My company would not consider paying up-front retainers to law firms. But we find ourselves occasionally having terms dictated to us by a foreign firm when we are under time constraints to solidify legal representation to handle a claim.)
What's the solution? Dig your well before you get thirsty. Line up foreign legal counsel long before you have a legal need abroad. This way, you will feel less pressure to crater to demands and also put foreign firms at ease by giving them time to check you out and verify your creditworthiness.
If you use a third-party claim administrator in a foreign country, scan its directory and verify that the firm does, in fact, have offices in specific countries and in specific cities. Get biographies on key adjusters who would handle your claims. Ask about fee schedules and see if they mirror the fee schedules for domestic locations.
If you deal with an insurance company's claim department, question the claim manager closely about foreign claim capabilities. Do likewise if you use an independent claim-adjusting service. Take notes. Follow up in writing. Confirm all agreements and representations.
You want to avoid a situation where the insurance company's foreign claim capability essentially involves handling a matter 7,000 miles away by phone or dumping it into the lap of a foreign attorney to do glorified claim-adjusting work simply because the insurance company has no claim office or affiliation with a TPA.
Also consider where you are likely to have foreign claims. This can help you prioritize your preparedness. Shore up resources first in the foreign countries where you are most likely to have losses. This may be determined by the scope of a company's business and sales. Invest time to familiarize yourself with local claim customs and practices.
For example, in some foreign jurisdictions, it may not be the norm to get a signed release in exchange for a claim payment. This may or may not be acceptable to you. In other jurisdictions, it may be customary for a company or corporate official to make an apology to an injured person. This may or may not be advisable from a liability or claim-handling standpoint. The time to become aware of these special factors and to talk through them with your claim service is before a loss occurs, not after.
Foreign intrigue may be fun if you are watching a spy movie. It is not so fun when you have a foreign claim and need international expertise. As the globe shrinks, a company's claim-handling needs expand. Use these tips to improve your readiness for foreign claims as one sound component of your international risk-management program.
1 To request a free copy of the directory, write to Lex Mundi at Lex Mundi, Ltd., 1800 West Loop South, Suite 1880, Houston, TX 77027, telephone (713) 626-9393, fax (713) 666-4462.
Kevin Quinley CPCU, AIC, ARM, is senior vice president of Medmarc Insurance Group in Chantilly, Va. He can be reached at kquinley@cox.net.
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