Gone Litigating

Insurers should have specific and detailed claim-handling procedures that address each aspect of the insurer's obligation to the customer. Most insurers have some form of claim-handling or best-practice procedures. These procedures should address the insurer's specific duties to its customers in the adjustment of a claim.

For example, many states have laws that require the insurer's acknowledgment of, or decision on a loss, to be made within a specific number of days. Other states impose the requirement to explain the insurer's position to the policyholder in a clear manner. Insurers should teach and require adjusters and vendors to understand and follow the insurer's claim-handling procedures in all verbal and written communications. The claim-handling procedures also should include several points during the adjustment of each claim where the adjuster or vendor is required to consult with a supervisor about the claim.

The claim-handling procedures also should specify the type information the insurer needs to document a claim for the different coverages of a policy. For example, the information an insurer needs to sufficiently document a homeowner's dwelling loss is different from the information needed to document a homeowner's loss-of-use claim, or personal-property-loss claim. The claim-handling procedures should identify, in general terms, the specific type of information the insurer needs to document the specific type of loss claimed. While there is no "one size fits all," the procedures should identify examples of documents, records, and other information that the insurer will accept to document the claim.

The procedures also should address the adjustment of claims where documents no longer exist, and explain how the insured can submit the required documentation in alternative forms. For example, some disasters are so devastating that no form of property salvage or household records exist due to the disaster's overwhelming impact. In the case of a Category 5 hurricane, for example, the only remnant of the customer's property may be the foundation. While claims that present the complete loss of all household documentation are limited, the insurer's procedures should provide a way — consistent with the policy's terms — to allow the customer to document the loss through reliable alternative forms.

Having specific and detailed claim-handling procedures allow insurers to adjust an insured's claim more efficiently, uniformly, and quickly. When a natural disaster damages numerous insured properties, the insurer needs to mobilize quickly to inspect a reported loss. Once done, the insurer needs to receive sufficient information to document the scope and amount of the loss. The more streamlined and criteria-specific the insurer's processes are in requesting and receiving the documentation needed on a covered loss, the quicker the insurer is able to pay the insured under the policy. A customer whose claim is adjusted quickly and fairly will be more satisfied and less likely to proceed to litigation.

Relationships Are Important

Insurers should have relationships established with sufficient vendors to immediately service catastrophe claims. Many larger insurers have dedicated catastrophe adjusters or other employee adjusters who they send to handle large-volume claims resulting from natural and man-made disasters.

Depending on the market share of risks insured in any geographical area and the insurer's in-house resources, some insurers need to have relationships established with vendors who can immediately assist the insurer in performing the duties owed to its insureds. If given sufficient warning, an insurer may pre-position in-house and vendor resources to respond to a natural disaster. Sometimes a disaster occurs so unexpectedly, however, that advance staging is not an available option. Whether a disaster occurs unexpectedly or whether in-house resources are insufficient, insurers should have established relationships with vendors who they can immediately call upon to help respond to insureds' losses.

Without this plan in place, an insurer may be unable to perform the duties owed to its insureds. One complaint arising out of the 2005 hurricane season was the length of time that it took from a customer's initial report of loss until the insurer initially inspected the loss. Under some state laws, insurers are charged to immediately begin the loss investigation after receipt of first notice.

Similarly, state laws uniformly impose a "duty to reasonably investigate," on insurers. Insurers who lack adequate in-house resources and who lack relationships with sufficient vendors may breach a duty owed to customers because the insurer cannot timely mobilize to inspect the volume of reported losses. Moreover, insurers unable to timely respond to customer service expectations are more likely to face an increased number of insureds proceeding with litigation.

Cultivating Relationships

Insurers should cultivate a positive working relationship with insureds. "Miscommunication," and "no communication," are among the most determinative factors in whether an insured's claim proceeds to litigation.

Prior to a loss, an insured interfaces with an insurer by deciding what type and scope of coverage to purchase, and by paying premiums owed. Pre-loss, the typical insured's prospective is that he performs all of the duties owed by paying the premium. Once a loss occurs, however, the typical insured changes prospective and considers it time for the insurer to perform. The customer's expectation is that the insurer will timely inspect, investigate, and pay the loss. Whether an insurer performs as expected determines the insured's level of satisfaction. In turn, the insured's level of satisfaction (or lack of it) is a significant factor in deciding whether the insured proceeds with litigation.

Generally stated, the adjustment process consists of the insurer receiving the report of claim, meeting the customer to inspect the loss, requesting information about the loss from the customer, evaluating the information to support the loss, and deciding whether and how much to pay. In a catastrophe claim with a large loss, there can be a significant amount and frequency of written and telephone communication with the insured. It may also require detailed records and other information from the insured about the loss.

Depending on the size of the insurer, there may be different individuals with whom the insured communicates with during the various stages of the adjustment process. Within each process, those with whom the parties are working with may also change. In this atmosphere (coupled with dealing with the actual loss of property), some insureds may feel overwhelmed by the insurer's informational needs.

To keep the insured informed and satisfied, and to keep more claims out of litigation, insurers should cultivate a relationship focused on a common goal by creating a seamless transition in the adjusting process from stage to stage. Insurers can do this by clearly explaining each step in the insurer's adjusting process — specified in the insurer's claim-handling procedures — to the customer when the insured first reports the loss.

Insurers can maintain a seamless claim environment by repeating those same details of the insurer's informational needs to the insured throughout the progress of the claim. For example, insurers could initially explain to an insured what specific types of information the insurer will accept to document the loss submitted. This allows the insured to understand the specific information the insurer needs, allows the insured to obtain and present that information, and allows the insured to quickly identify when documents do not exist.

This also helps the insured gage the status of the claim's progress by the insurer articulating what is needed and the customer knowing what information he has supplied. Whether or not the information is immediately available, the insured understands the insurer's process. The insured is then able to work with the insurer toward a common purpose of satisfying the insurer's informational needs and receive payment on the claim.

How an insured relates to an adjuster also can be a factor in whether a claim proceeds to litigation. The insured has no choice in who they will work with to resolve what can be a very personal loss. Whether due to personality types or communication styles, sometimes an adjuster and a customer have a disconnection in their communication. Other than going to the adjuster's supervisor, an insured has no other person with whom to work. When a disconnection in communication occurs on something so personal, an insured can become frustrated, emotional, and even volatile. Given that some claims take a period of weeks or months to resolve, a significant disconnection can create a serious impediment to an insurer's ability to promptly resolve the insured's claim, and can be a factor in whether a claim proceeds to litigation.

Insurers should monitor communications between adjusters and insureds to see that no significant disconnection in communication occurs. If any significant issue is identified, reassigning the claim to a different adjuster could give the claim a fresh start and help the insurer and the insured reconnect to focus on the common goal.

You Have Control

Insurers have control over whether some catastrophe claims proceed to litigation. They can develop specific and detailed claim-handling procedures to make the claim-adjustment process more efficient, uniform, and quick. Insurers can speed up the process of adjusting the thousands of claims that result from disasters by establishing relationships with sufficient vendors to timely service those claims. Insurers can cultivate a positive relationship with insureds by educating them on the adjustment process and working with them to focus on the common goal of documenting their losses.

Anthony S. Cox is partner at the law firm of Hermes Sargent Bates. He can be reached at 214-749-6545, anthony.cox@hsblaw.com.