Apology Programs

Not so fast. While apology programs garner publicity and interest, they pose challenges from an insurance coverage standpoint. No risk manager wants to jeopardize his liability insurance coverage. Apology programs can impact insurance coverage, so risk managers must therefore be aware of roadblocks before jumping on the apology bandwagon. Let us examine some insurance coverage issues that can arise from apology programs.

Usurping the Insurer's Role

Most insurance companies discourage policyholders from do-it-yourself claim adjusting. One adjuster role is to determine legal liability. An insurer may resist substituting a policyholder's judgment for that of the carrier's claim staff. This is more than a philosophical preference. The conditions of most insurance policies spell out policyholder duties in the event of a claim. Breaching a condition may negate an insurance policy's financial protection. For example, many policies contain a condition that bars insureds from making any commitment to pay without the insurer's consent. Common in insurance policies is language along the following lines: "No insured shall, without our consent, make any offer or payment, except for first aid."

An insured's offer to settle or make a payment may be disproportionate to the proven damages or to the liability picture. Insurers believe that if they are called on to pay, then they should have the say as to the worth of a claim. This is fair. The training of claim personnel gives them a frame of reference — albeit not infallible — as to what injuries are worth. When well meaning corporate representatives offer money to a claimant, it may be much more or much less than what an insurer deems reasonable to pay. Insurers resist being locked into paying sums before they can analyze both legal liability and damages. Apology programs, with their emphasis on early financial offers, contravene this insurer instinct.

Potential Prejudice

Even if state laws bar apologies from being admitted as evidence of liability, an insurer can argue that such statements create an expectation of recovery in the claimant's mind, an expectation that is tough to dislodge once an insurer delves deeper into a case's investigation and defense. Offering money — even a nominal amount — to a patient is a bell that cannot be unrung. Some consumers may even misconstrue an offer as a sign of weakness.

A risk manager's early gesture to "monetize" a claim's value can prompt a claimant to up the ante and hike demands for compensation. "If I knew it was going to be this easy, perhaps I should ask for more?" a claimant may ask. "What about my future lost wages or loss of earning capacity? What about my pain and suffering — I read where one claimant got millions for that. Now that we're talking money, I think I need and deserve more…."

Other pragmatic questions abound when harmonizing apology programs with liability insurance coverage:

• Who determines whether an injury or property damage is, in fact, a case of liability on the part of the policyholder?
• What happens in "gray area" cases when negligence exists on the risk manager's company, but there is also contributory negligence on the part of the claimant or an intervening cause? Liability questions are rarely open and shut, black and white; shades of gray abound. What should be done in these cases? Should a monetary offer be made? Or an apology offered, even though liability is not clear-cut? Be sure to reserve expressions of remorse only for the most clear-cut cases of deviation from reasonable care.
• If the claimant accepts the offer, does the risk manager insist on a release of all claims? Without a release, the claimant may still pursue a claim for further damages. Pressing for a release has its own perils, though. It may prompt the claimant to seek legal counsel to review the document. This, in turn, may cause the risk manager's company to lose control of the claim, triggering the conventional litigation process that apology programs aim to sidestep.

Reconciling Apology Programs

Ideally, risk managers would like to have their cake and eat it, too, by participating in apology programs but without alienating their insurance companies or jeopardizing their liability protections. How can risk managers harmonize these aims?

Here are five tips:

1. Inform the insurance agent or broker that you have adopted an apology program. Make this part of the specifications when obtaining quotes for liability insurance coverage.
2. Educate prospective insurers about the program. Prepare to make a cogent case to the insurer as to how and why decisions will be made. Allay concerns that risk managers will promise the world to claimants.
3. Align yourself with insurers that support and encourage apology programs as a rational way to address adverse outcomes.
4. Get buy-in from the insurance company before apologizing to a claimant or making monetary offers.
5. If the insurance company balks at giving its approval for either an apology or a monetary offer, decide whether you want to handle the claim outside of your insurance coverage and policy contract.

"Sorry" works, but so do financial protections in the form of having operable liability insurance protection. The point here is not to persuade risk managers to be closed-minded about apology programs. Rather, as part of their own risk management efforts, practitioners must be aware of insurance coverage perils that can lurk in so-called apology programs and use these tips to sidestep the financial landmine of lost liability protection. Failure to ponder these ramifications of apology programs may lead the risk manager to be the one saying, "I'm sorry!"

Insurance claim executive and author Kevin Quinley has helped claim professionals boost their productivity. Visit his blog, The Claims Coach, at http://claimscoach.blogspot.com. Get your free monthly productivity newsletter, Claims Caffeine, by e-mailing kquinley@cox.net.