Placing the value on bodily injury claims is inherently speculative.
To remove some of the guess work from ascertaining a proper value for general damages, some insurance companies utilize a comprehensive software program called Colossus. The Colossus software attempts to recreate, electronically, the “round-tabling” that often occurs with specific claims. One court has described the “round-tabling” process as a process in which the insurer’s most skilled and experienced casualty claims professionals come together to evaluate hypothetical injury claims by examining settlements in similar claims, jury verdicts, and the like. See In re Farmers Ins. Exchange Claims Representatives’ Overtime Pay Litigation, 336 F.Supp.2d 1077, 1102 (D. Or. 2004).
When an insurer decides to use the claim valuing software, it is customized according to the insurer’s settlement philosophies and claims practice history. This process may involve bringing together a super round-table to come up with predicted values for hypothetical case scenarios, which are then incorporated into the software matrix. When this is done, the Colossus software allows for electronic “round-tabling” at each adjuster’s desk for each submitted claim without having to wait for a claim committee meeting. In that fashion, use of the Colossus software helps insurers to evaluate claims consistently and to smooth out variations in claim payouts.
Because some settlement amount ranges of value recommended by Colossus may be different than what a specific adjuster would offer on a specific claim, there has been a plethora of litigation over the utilization of the software where plaintiffs assert bad faith claims against the insurance company based on their use of it.
Although Colossus is a useful estimating tool, it is incapable of considering external factors such as re-injuries to preexisting conditions or complications arising as a result of preexisting conditions; the reputation and caliber of counsel; possible aggravated liability; and a multitude of other external factors.
Some courts have noted that Colossus does not and cannot replace the claims professional’s judgment and experience.
Claim Values and Bad Faith
Two cases demonstrate judicial focus on the adjuster’s independence in deciding claim values in the context of bad faith litigation.
In Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583 (E.D. Pa. 1999), Allstate used Colossus on the claim presentation. The first evaluation produced a value range of $11,624 to $13,824 although the adjuster in the case independently evaluated the case as being worth $50,000 to $60,000. On that same day, Allstate offered $50,000. Two days later a Colossus evaluation was run with the addition of different variables which produced a settlement range of $50,760 to $61,060. Shortly thereafter Allstate gave the adjuster $100,000 in settlement authority but he did not utilize that authority and instead made an offer of $80,000.
The claimant insured accepted the $80,000 offer but would not release his bad faith claim. The insured argued that Allstate committed bad faith because it calculated the value of claims based upon irrelevant variables used in Colossus.
The court found that even assuming all of plaintiff’s arguments about the impropriety of the program, the adjuster did not rely on the program exclusively in making his own initial settlement offer of $50,000, which was well above the first value range. The adjuster consistently used his own judgment in determining the value of the case. Therefore, the use of Colossus was not relevant to the bad faith claim.
In a second case, Milhone v. Allstate Ins. Co, 289 F.Supp.2d 1089 (D. Ariz. 2003), the adjuster also used Colossus to set a value range in the plaintiff’s case. The adjuster’s initial offer was less than the range Colossus recommended, but the adjuster then made an offer within the range and made a final offer above the range. Plaintiff asserted that the adjuster had to apply the Colossus value mandatorily and that the Colossus formula did not take into account how an injury might specifically affect a particular individual.
Just like the court did in Kosierowski, the court in Milhone, stated that assuming the plaintiff’s allegations were true, plaintiff nevertheless failed to show how the program – by not taking into account some items – would constitute bad faith as a whole. The facts demonstrated that Colossus was not mandatorily used by the adjuster “in this case.” The court concluded that adjusters could overcome any alleged bad faith in utilizing the system where a manual adjustment to the range was offered.
Both the Kosierowski and Milhone cases underscore the importance of the adjuster’s ability to deviate outside the range recommended by the Colossus software.
However, adjusters, attempting to avoid bad faith allegations face a quandary: most claims will inevitably fall within the range of Colossus values, and therefore, the selection of a different value within that range will not help against a claim for bad faith use of Colossus. The insurer finds itself trying to explain away a large class of cases where the adjuster legitimately agrees with the recommended amount or value range. Thus, an actual deviation from Colossus ought not to be the touchstone of good faith. The analysis should require the plaintiff to present evidence of bad faith beyond the lack of deviation from Colossus recommendations.
For those insurers that utilize a Colossus system, several things can be done by the adjuster to demonstrate independence through the claim file notations.
First, it is helpful for the adjuster to state in the claim notes that utilization of Colossus is only a tool and does not need to be mandatorily followed.
Second, the adjuster can demonstrate his or her independent thought analysis for valuing the case by placing sufficient claim notes in the file demonstrating the mental thought processes by which the adjuster came to the ultimate conclusion of claim value. This would include the issue of whether there are or are not preexisting conditions and their affect upon the injury being claimed. Those particular aspects of the medical records that are relevant to the value analysis should be set forth in the claim notes with sufficient detail so that an independent reading of the claim note would demonstrate what the claim adjuster believed was relevant in assigning case claim values.
Third, if missing information is relevant but unavailable then the missing information should be documented so that an under value of the claim can be explained by specific missing information.
Fourth, if the claim representative selects a specific dollar value from within the Colossus value range then the adjuster should explain why the lower or higher number in the range was selected.
Finally, if independent medical examinations are performed, the claims adjuster should identify into the claim file those aspects of the independent medical exam that the adjuster found particularly relevant in assessing claim value. Disagreements among the doctors regarding diagnosis, prognosis, restrictions and limitations should be noted.
Although Colossus can be a useful tool in the overall claim process, the adjuster must feel free to use independent judgment in evaluating any particular claim. Irrespective of whether Colossus is being used, best practices in the claim environment is to document the file. An insurer’s utilization of Colossus requires the adjuster to be more vigilant in documenting the claim file so as to demonstrate independent judgment and assessment of a particular claim and how it interrelates with the range of values assigned.
When properly done, the claim representative will minimize the risk that the utilization of Colossus, by itself, will become a distraction and source for bad faith allegations against the company.
This article was originally published in the winter 2013 issue of Claims Journal. Read more from the issue.
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