Most personal line automobile insurance companies experience a low frequency of uninsured motorist bodily injury claims. This low frequency, along with a lack of adjuster training, infrequent supervisor oversight and inadequate experience could be a formula for disaster. A well trained and experienced adjuster, who also receives timely and quality oversight, is more likely to deliver quality service to the injured insured, while achieving a reasonable outcome on the claim.
Following basic claim handling fundamentals will avoid receiving first party lawsuits that have any meritorious pleadings that include causes of action like “Breach of Contract”, “Breach of the Implied Covenant of Good Faith and Fair Dealing” and “Punitive Damages”.
Below are some basic claims handling fundamentals to consider that will demonstrate you have conducted a “reasonable” investigation, evaluation and negotiation.
Fundamental #1: Confirming Coverage
Most companies offer this type of coverage and there are over 20 states that require an insurance company to write, not just offer, uninsured motorist coverage for its insured. Therefore, there is a great likelihood that the policy you are dealing with does provide this coverage.
It is essential that the adjuster review the declaration page and document the claim file with facts such as insured driver’s name, involved vehicle (Year-Make-Model), policy effective date, date of the accident and coverage limits. This will allow the adjuster to confirm that not only did the coverage exist on the policy when the accident took place, but that the driver and vehicle were both on the policy when the accident occurred.
Fundamental #2: Application of the Coverage
Once it is established that there was uninsured motorist coverage on the policy, it is then necessary to determine if the facts of the accident triggered a potential for the application of uninsured motorist coverage. The adjuster’s file should reflect that they are attempting to “find” how the coverage will apply to the facts. This is especially necessary when faced with facts that include allegations of a “hit and run” accident.
There are a few factors that could influence the application of uninsured motorist coverage to specific facts of an automobile accident:
- Policy Contract Language – The adjuster should receive documented training, so they will be versed with the ability to comprehend and apply the language to the merits.
- State Statutes/Insurance Codes – These are legislative tools that must be available to the adjuster through targeted and documented training.
- State Case Law/Public Policy – The judicial system provides opinions based upon their interpretation of policy language, existing statutes/insurance codes and prior court opinions. These opinions are another valuable tool for the adjuster and should be part of their training.
It is a good practice for the adjuster to call the insured and explain the uninsured motorist coverage and why it will or will not apply to their accident. This call should be documented in the claim file. Some states have insurance regulations in place that require this type of communication to be in writing to the insured. Be familiar with the insurance regulations within your state.
Fundamental #3: Investigating Negligence
There are four basic elements of determining negligence. They are:
- A Duty Owed
- Breach of the Duty Owed
- Existence of Damages
- Damages are Causally Related to the Breach
Conducting a reasonable investigation is required of an adjuster and is part of the Implied Covenant of Good Faith and Fair Dealing that is inherent in every insurance contract.
Webster defines “reasonable” as:
1. agreeable to reason or sound judgment; logical: a reasonable choice for chairman.
2. not exceeding the limit prescribed by reason; not excessive: reasonable terms.
3. moderate, especially in price; not expensive: The coat was reasonable but not cheap.
4. endowed with reason.
5. capable of rational behavior, decision, etc.
Part of the adjuster’s negligence investigation should clearly outline the reported facts and his or her plan to complete their investigation. There are many investigation activities to consider and the completed activities should be material and this is why it is important that they be driven by the initial reported facts. These activities could include: obtaining a statement from the insured driver about the facts of the accident; taking pictures of the insured vehicle damages; preparing an appraisal of the insured vehicle damages; gaining possession of any police report that was prepared; contacting any witnesses listed on the police report and obtaining their statement; contacting the other driver for their statement about the accident facts and their automobile insurance; taking pictures of the other driver’s vehicle damage and preparing an appraisal of the other driver’s vehicle damages. In some instances it might be necessary to make an in-person visit to the accident scene to complete a diagram or signal phasing, along with canvassing the area for potential independent witnesses and retaining an accident reconstruction expert.
It is a good practice for the adjuster to call the injured insured and explain what the negligence investigation has revealed. This call should be documented in the claim file. Some states have insurance regulations in place that require this type of communication to be in writing to the insured. Be familiar with the insurance regulations within your state.
Fundamental #4: Investigating Special Damages
The injured insured driver or injured insured passengers will be entitled to claim special damages. Typical types of special damages are medical expenses and loss of earnings. It is recommended that these be explored and documented at the time the adjuster is taking the statement from the insured driver or their injured passengers. An adjuster’s statement taking skills about injuries and loss time from work should be honed during targeted training. Obtaining medical and/or wage loss authorizations are excellent tools to further the investigation. Be sure to utilize the authorizations if you receive them and communicate their use and findings to the insured presenting the claim. A timely and quality review of the medical and/or wage loss information is an essential part of the investigation because this will lead the adjuster to fundamental #5.
Any information found in the medical or wage loss information that causes the adjuster to have questions regarding the reasonableness and/or necessity of the special damages, should be shared with the injured insured. Do not play “hide the ball”.
Fundamental #5: Claim Evaluation
The evaluation process is comprised of assessing both negligence and the incurred special damages, along with the type of injuries sustained by the injured insured. The adjuster should document the evaluation by clearly noting the file regarding all material facts. The adjuster will arrive at a decision to either make a settlement offer or to deny the claim. Either decision should be documented in the file, along with the material facts to support their decision. The settlement value should take into consideration any “first party medical payments” that have been made to the injured insured. Any settlement value placed on the claim should also have a consistent claim reserve documented in the file.
Remember, that some policies include language that allows the value of the uninsured motorist claim to be reduced for any medical payments made to the injured insured. Additionally, some states might have statutes or case law that state the medical payment reduction from the uninsured motorist claim must be taken from the “full value” of the claim and not from the uninsured motorist policy limits.
Uninsured Motorist Policy Limits = $30,000.00
Medical Payments Policy Payments = $5,000.00
Uninsured Motorist Claim Value = $38,000.00
Evaluation Formula = $38,000.00 – $5,000.00 = $33,000.00
Settlement Offer = $30,000.00 Policy Limit
Be familiar with the insurance statutes and case law within your state.
Fundamental #6: Settlement Negotiations and Claim Denial
It is a good practice to begin any settlement negotiations with a reasonable offer that is supported by the material facts. Certainly, the adjuster should offer their assessed value prior to any arbitration hearing, regardless of what the insured or their legal representative is demanding.
The denial of the claim should also be based upon all material facts. It is recommended that there be management oversight and ratification regarding the claim denial involving this type of first party coverage.
It is good practice to document all settlement negotiations and claim denials both by phone call and in a written communication. Some states require that this type of communication be in writing, so be familiar with the insurance regulations of your state.
Ken Oswald is an insurance consultant and expert witness located in Orange County, Calif., with over thirty years of property/casualty insurance experience. Retained by some of the largest insurance companies in the country, he has prepared opinions and testified as an expert witness in state and district court regarding industry standards, insurance regulations and policy contract language.