Red flags and green lights: What sends a claim to court?

The claimant's interest, on the other hand, is in securing compensation for an injury or loss as promptly as possible. Because the claims investigation process always takes time, these competing interests set the stage for frustration on both sides, and frustration can quickly transition to anger and a resulting end of important communication.

One essential prerequisite to meaningful communication is trust. The simplest way to build trust with a claimant is to avoid creating the impression that the claim is being neglected. Instead, follow through with commitments (e.g., to return calls, to send documents), and stay away from unreasonable or redundant demands. Sometimes, lawyers for claimants will present a comprehensive demand package early in the process, complete with extensive medical records. This is an excellent indication that the claimant would rather resolve the case by negotiation or mediation than through litigation.

If part of the adjuster's initial response is a reflexive request for copies of the claimant's complete medical record, most or all of which has already been provided, the claimant and counsel are likely to conclude that the carrier is not giving serious attention to the claim. Once that impression takes root, they are likely to be less optimistic about negotiation as an effective option.

The phenomenon of conflicting interests leading to frustration, anger and ultimately a breakdown in communications is sometimes referred to as an "escalation cycle." The risk of escalation in both complexity and intensity increases with the amount of time it takes to resolve conflicting interests. One formulation of the escalation cycle describes five identifiable transformations that develop as the cycle progresses:

• Tactics shift from light to heavy;

• Issues proliferate;

• Stereotyping and demonizing ensue;

• Good intentions give way to bad;

• Conflict expands to include more parties. (Pruitt & Kim, Social Conflict: Escalation, Stalemate, and Settlement)

Each of these transformations is a red flag during the processing of a claim. As the investigation develops and time passes, what started out as a relatively cooperative effort between the claims manager and claimant to collect and transfer information, can become more adversarial. One side or the other may begin imposing onerous deadlines, demanding irrelevant or duplicative information, and threatening harsh consequences for relatively minor deviations from a planned or agreed course of action. The appearance of these kinds of heavy-handed tactics is an early sign that the negotiation process is in danger of heading off the rails.

Lawsuit ahead

A move by the claimant to expand the conversation beyond the claim itself and into the realm of bad faith or unfair claims handling is also a strong indication that communication is failing. There is a serious problem if the claimant stops being a person and becomes "a fraud," "a malingerer" or someone with a "lottery" mentality. The claimant's counsel may become an "ambulance chaser," engaged in purposeful deception and the claims representative becomes a cog in the insurance machine whose sole purpose is to collect billions of dollars in premiums from working people and avoid paying claims by whatever means necessary. When the players in the claims drama begin thinking in these terms, the likelihood of avoiding litigation diminishes significantly.

A lawsuit is also very likely on the horizon when instead of trying to find relevant information and resolve the claim, the claims representative is trying to dig up dirt to justify denying or paying less on the claim. Or when, instead of trying to provide relevant information to support the claim, the claimant is refusing to cooperate, is actively threatening bad faith claims or complaints to the state bureau of insurance.

The only consistently effective way to de-escalate from any of these increasingly adversarial scenarios is to talk directly, in person or by telephone (and not resort to e-mail or other written communication), with the person doing the negotiating on the other side. Often a person-to-person conversation can head off a march to the courthouse and reestablish a spirit of cooperation. To be effective, however, any person-to-person discussion has to follow some basic guidelines:

• Listen to the other side, even if you think they are not listening to you;

• Do not get defensive;

• Do not approach the conversation as a contest in which the goal is to score points and win;

• Remember that it is always acceptable to say, "I don't have an answer for you on that right now, but I will find the answer and get back to you shortly," (as long as you do, in fact, come back with an answer shortly).

• It is also completely acceptable to say, "I'm not sure how to react to that; I need some time to think about it."

Of course, this kind of direct communication is no cure-all. A party can only control one side of the conversation, and no amount of careful communication can make up for unwillingness on the other side to engage constructively. For this reason, there will always be cases where communication breaks down irretrievably. Are these the cases that should be tried? The answer is frequently: "It depends."

There are several primary factors to consider in determining whether it makes good sense from the carrier's point of view to proceed to litigation. Assuming a case involves liability exposure that significantly exceeds the costs of defense, it may be prudent to move a case to litigation when:

• There is legitimate reason to believe that a genuinely disputed factual or legal defense will be successful, preferably via dispositive motion; or

• The claimant's demand is unreasonably high and no amount of education and communication short of litigation will persuade her to bring it into a reasonable range.

In cases that have zero or little merit, and value at or below the cost of defense, it may still make sense to move the case to suit if:

• The carrier has a legitimate concern about the public relations effect of a cost-of-defense settlement (i.e., if the company gets the reputation of settling low-quality claims for tens of thousands of dollars because it would cost more to defend them, it will encourage the filing of more bad claims against its insureds); or

• The carrier has a long-term interest in securing a ruling that is likely to work in its favor in subsequent cases and the case presents an especially good opportunity to secure that kind of ruling.

Ultimately, the adjuster acting alone cannot prevent a claim from ending up in litigation. There will be times when an adjuster will have followed every piece of advice offered here and still be unable to resolve a claim before the claimant files suit. However, if the adjuster makes a good faith effort at communicating openly and directly with the claimant or claimant's counsel, she will greatly increase the odds of settling the claim prior to litigation.

James B. Haddow, Esq. and Kimberly A. Watson, Esq. are attorneys with the firm of Petruccelli, Martin & Haddow, LLP (www. pmhlegal.com), a Your House Counsel (www.YourHouseCounsel.com) member firm in the Greater Portland, Maine area.