Comparative Negligence

Accident Breakdown

One third of all crashes have comparative negligence, and one half have next to none. Take away rear-end and single vehicle accidents, leaving two thirds of the remaining crashes with shared responsibility. Sounds like a good place to focus.

If math is a second language for you, you might do better with a food analogy. At the Chinese restaurant across from the office, the egg rolls are stood on end so that more will fit in the pan on the buffet. Most of the stuffing therefore slides down to the bottom. So, when you lay them down on your plate and cut them in half, most of the filling is on one side, and the other side is mostly empty.

Finding comparative negligence in car crashes is just like that without the MSG. The empty side of the shell contains the rear-enders and the single vehicle accidents; all of the filling is where two or more vehicles are moving. However, not all accidents involving two moving vehicles are created equal. Research has shown that the recipe for crashes most likely to be caused by shared responsibility includes:

• Two or more vehicles on the move
• A backing vehicle
• An intersection or parking lot
• Inclement weather
• Inattention or distraction
• Inappropriate speeds

A good place to start on your improvement effort is on cases that have three or more of those elements. More often than not, the driver at fault has failed to yield. He or she may have run a red light, blown a stop sign, changed lanes without looking, or otherwise turned inappropriately. The driver has then started the chain of events leading to the crash.

However, the driver with the right of way is also considered at fault because he or she failed to drive defensively—without the care and caution required given the driving situation. Perhaps the driver was speeding, a vehicle control issue arose, or something entirely different happened. Whatever is the case, basic precautions taught in driver's education classes were not taken; the driver failed to identify danger, predict what will happen, decide what to do, and execute.

Necessary Precautions

It is against the law to fail to yield, and historical data shows that most claims representatives will figure this out. These professionals are often surprised to learn that failing to drive defensively is just as unlawful as failing to yield. Driving defensively is not just a good idea, it is the law.

Let's say a fight breaks out during a hockey game. At the start of the fight, one player punches another in the back of the head. The second player retaliates by whacking the first player across the mouth with his stick. Before the game resumes, both players are awarded a penalty.

A claims professional settling a case using comparative negligence is just like the referee determining who was at fault for the fight. Just because someone ran a red light does not mean that the other driver can crash into him. Both drivers receive a penalty.

Laws in every state require drivers to take all necessary precautions to avoid an accident, even one primarily caused by the negligence of another. So, in comparative negligence cases, you are looking for the wrongful acts of the driver who had the right of way.

We now know which cases to keep an eye out for and which elements should be investigated. If you commit yourself to focusing on the cases most likely to have been caused by shared responsibility and look at the lack of defensive driving by the driver with the right of way, you will make great improvement. However, you will not get maximum improvement until you do one thing more.

Getting Employees on Board

Any process improvement involves producing different results with the same people. Unless you would like to fire your entire staff and start over again, you must ask people to change. But how? Threats and intimidation? Bags of money? Tears and begging? Remember, these are your employees. Here is a truism about human behavior: Adults do not change their behavior unless they believe that the change serves a higher purpose than themselves. They must believe that a new way of doing things is simply the right thing to do.

Threats, bonuses, and begging can work short-term, but the effects will not last long or bring the full measure of effort you need for maximum performance. However, when your team believes in their hearts that informing policyholders that they are partially at fault for an accident is the right thing to do, you can see huge gains in performance.

Fortunately, there is a higher purpose in assigning comparative negligence, and not just for the reasons that you might think. We all know that every dollar reduced from the payout or collected in subrogation goes straight to your bottom line. When you overpay a claim, the company loses money. You can start a project for that reason and get good results. You can only get great results if you can communicate all three reasons why settling claims with comparative negligence is the right thing to do:

• You have a contractual obligation to do so.
• People's lives are at stake.
• It is true—you are giving your company's money away.

Let's start with the last thing first: you are giving your company's money away. Remember that about one third of all cases have shared responsibility. However, industry data suggests that significantly less than 10 percent of all cases are settled recognizing the causation of both parties. The same study shows that for the average insurance company, every case that is not settled with comparative negligence costs over $1200 in claim payments that should have been avoided. If there were 6 million crashes in 2005, over $1.2 billion in incorrect payments were made to parties whose comparative negligence was not considered in the overall settlement.

So, if the average insurance adjuster handles 50 claims per month—20 of which are property damage, 20 of which are first party collision in a pure comparative state, and 10 are bodily injury—each adjuster could correct costs over $50,000 by settling just 12 percent more of the cases with comparative negligence.

Instead of building profits, surplus, and the company as a whole, where does that money go? What is noteworthy is that it is not going to the claimant. For the most part, the overpayments you are making in liability go to the profits and surplus of the claimant's insurance carrier.

The claimant's carrier, however, is also your competition. Giving the company this money is like giving your girlfriend $100, and her using the money to buy her other boyfriend dinner. It is about way more than the money, though. Normally, when someone tells you that something is "not about the money," you should grip your pocketbook a little tighter. This time, though, it really is not.

Reading Between the Lines

What do insurance companies sell? You could say service, protection, coverage, or even say peace of mind. All of those things, though, are wrong. Insurance companies sell contracts. You offer to provide financial benefits when certain conditions are met in exchange for acceptance and consideration. The customer accepts the company's offer to insure them by signing the application and provides consideration when paying the premium, and voilà: a valid, enforceable contract is now in effect. To entice acceptance and the all-important consideration, your company uses a variety of marketing tactics. In every contract you sell, the consideration that the company brings to the table is defined in the insuring agreements. To define liability, a statement in the contract reads that you "will pay to settle or defend any claim for which our policyholder becomes legally liable," or likely something similar.

Is a company really living up to the agreement if it fails to correctly settle cases with comparative negligence? It may pay to "settle or defend," but whose decision is that really? The claim representatives hold that authority, or at least the claim departments.

The Fine Print

Anytime you see an "or" clause in a contract, take note. It means that a condition has to be ascertained in order for the contract clause to be properly interpreted. In this case, we are contractually bound to "settle or defend" based completely on whether or not our insured is legally liable. Herein lies a potential conflict when the comparative negligence of the other party is ignored.

One example is a typical case where two vehicles are approaching the same uncontrolled intersection from opposite directions. One driver turns left in front of the other, and an impact occurs. In most states, the driver who turned left is the one who failed to yield, but that rule is far from universal. For the purpose of discussion, let's say that the person turning left is 75 percent at fault for the accident and the person proceeding straight is 25 percent at fault.

If we refer to our insuring agreement, we know we have a duty to both settle the claim and defend the insured. This is because the insured is legally liable for 75 percent of the causation, but is not legally liable for the other 25 percent. The "or" clause has become an "and" clause. We have a duty to both settle and defend.

If we pay the claimant 100 percent, then the claim has been settled. Have we defended the insured? No. We have demonstrated that when it comes to defending, we cannot worry about protecting a portion of the claimant's deductible, securing contribution for a negligent-free guest passenger's injuries, or helping the driver maintain a safe driver discount. We have said we have better things to do with our time.

Yet we continue to enter the marketplace reciting slogans of how great we are while we ignore this fundamental aspect of the contract that they purchase. Employees know this, and if you make it crystal clear, momentum starts to build.

Teaching your adjusters the duty to defend as defined in the contract is not only a right of our policyholders but a sacred trust that we should hold above all other responsibilities—that is how you show comparative negligence is the right thing to do. It is powerful only because it is true.

A Lesson for Drivers

That brings us to our most important reason why we should be settling cases with comparative negligence—it is not just the money or the contract our policyholder signed.

Pardon the non sequitur, but what happened to station wagons? Did your family have one when you were a child? How many station wagons do you see on the road today? In the answer to this seemingly unrelated question, you will find the most important reason for settling cases with comparative negligence. In short, the federal government has determined that our society would be better off if cars are more fuel-efficient; they now produce less waste, less pollution, and have less of a dependence on foreign oil. Regardless of the wisdom of the intentions, the unintended consequence of these rules has been to make cars inherently less safe.

In 1974, the original Corporate Average Fuel Economy (CAFE) standards were established, requiring carmakers to increase their average fleet fuel economy from 12 miles per gallon to 18 miles per gallon in four years. Without the suspension of Newton's second law, this unrealistic demand could not be met. Through successful lobbying, automakers persuaded Congress to make pickup trucks and vans exempt from these standards, as they were normally used for trade work performed by carpenters and plumbers. As a result, the station wagon gave way to the truck-based SUV and the van-based minivan. That is what happened to the station wagon.

As an auto manufacturer, how do you go about making automobiles that are more fuel-efficient? Create a smaller, lighter, and less powerful vehicle that, as a result, is more vulnerable on the road. Aside from that, a passenger's safety in an automobile is directly related to the skill of the driver. So, when you inform a claimant that his or her settlement must be reduced by 25 percent because he or she was inattentive, traveling too fast, or something else, you are teaching that person the correct way to drive. Maybe the claimant will lose a portion of their deductible or even a few more thousand dollars. However, the policyholder is gaining something far more valuable: the knowledge of how to avoid accidents—and stay alive—in the future.

A focus group study conducted by a large insurer found drivers who were told they were partially at fault for a car accident told six other drivers. As a result, seven more people who have the duty to drive defensively reinforced for every claimant you hold partially at fault.

So, now you know which cases to focus on, what to look for, and why settling cases with comparative negligence is the right thing to do.