VIEWS: 19 PAGES: 4 POSTED ON: 3/21/2011
Effective Claim Handling Strategies While we know most litigation will resolve itself before trial, it isn’t always easy to determine early on in the life of a lawsuit whether a particular suit can be settled or when it is the right time to consider settlement. Making a determination as to whether a case should settle, including in that analysis determining the right time to consider settlement versus trying the case will depend on a number of factors. A D&O insurer managing a claim that falls within the scope of coverage under the D&O policy is regularly confronted with these questions. In order to successfully navigate in these waters, the D&O insurer needs to employ a strategy that includes a strong technical understanding of the insurance product, experience and the ability to analyze the underlying claim. At the same time the insurer should strive to build a positive and constructive line of communication with the insured and their counsel with the goal that the insurer and the insured can operate as a unified team. While there are many common threads running through just about every D&O claim situation, rarely are two D&O claims exactly alike. First of all the terms and conditions of a D&O policy can be materially different from insurer to insurer. Even if it is the same insurer, coverage enhancements, jurisdictional issues, the facts of a particular case and issues of liability and damages can dramatically affect how a specific claim will be addressed. It is critical for the insured to work with an insurance broker or agent who has a sophisticated knowledge of the D&O insurance product and the D&O marketplace in order to ensure the insured purchases a comprehensive insurance product tailored to their individual needs. This is of vital importance as it appears we are beginning to experience an increase in the frequency and severity of D&O claims. Maintaining an open line of communication between the insurer and the insured will reduce the possibility of misunderstandings that can lead to coverage disputes. The insurer via its claim department, should promote a strong, long term relationship with the insured based on effective communication before, during and after the claim has been made. It is imperative that the insurer/insured relationship not begin and end with the underwriter selling an insurance policy, but should extend to and incorporate the insurer’s claim department. After all, if a claim is made against an insured, it will be the Claim department and not the underwriting department that will take the lead in responding to the claim and communicating and working with the insured. The Claims department of the insurance company should make itself available to meet with the Insured prior to a claim arising. This will be an opportunity for the parties to get to know one another prior to a claim arising, but will also allow the Claim department the opportunity to discuss their claims handling philosophy as well as to respond to questions regarding the general operation of the insurance policy. It is also useful if the insurance broker participates in these discussions as they can contribute a substantial level of technical expertise and act as an effective sounding board for the insured in connection with any technical policy coverage questions that might arise. Finally, if there is a difference of opinion regarding the operation of a particular aspect of the policy, the insurance broker is in an excellent position to act as an intermediary in assisting the parties in reaching a solution. When the insured, broker and insurer confer, topics of discussion might include: (1) the claims process - a brief discussion of what the Insured can expect from the Insurer after a claim is reported; (2) claim department service standards as respects to adjusting a claim; (3) the level of automation of the Insurer’s claims systems; (4) the Insurer’s claims handling philosophy. In particular, whether the Insurer has a pro-active or passive approach to claims handling; (5) the claims department’s philosophy as to settlement and/or litigation of claims; (6) the experience level of individuals in the claims department; (7) whether the claims department interacts with the underwriting department so as to better understand a particular insured; (8) whether the claims department’s claim handling philosophy includes risk management and/or loss prevention strategies; and finally (9) review various aspects of the policy that might be applicable to a particular claim situation. As part of this discussion the insurer should emphasize the benefits of controlling defense costs in connection with the defense of a claim. Even if the policy has a large self-insured retention and the litigation can be disposed of within the retention, it is in the insured’s interest to closely monitor their counsel’s activities as they will directly benefit from any cost savings. Additionally since most D&O policies provide that defense expenses are a part of loss and thus erode the available limit of liability, excessive defense expenses will erode the available policy limit for that claim and/or future claims. In order to foster a close working relationship with the insured, the insurer needs to respond promptly, effectively, consistently and fairly. Some insurance company claim departments have in place specific claim handling guidelines relating their general thoughts as to how the insurer and the insured can best work together to successfully resolve the claim. For example the guidelines may request defense counsel to provide a report setting forth how they plan on defending the claim. Defense counsel may also be asked to regularly keep the insurer up to date on the status and defense counsel’s analysis of the claim as the case proceeds forward. Additionally, the insurer may request the insured to provide information regarding how defense counsel will staff the case, their billing rates as well providing a budget of projected costs on a going forward basis. Attention should be given to follow-up communications with the insured during the life of a claim. Assuming the insurer determines no coverage is available for a particular claim, the insurer should notify the insured of such and do so in an articulate and professional manner. Timely and professional communications requires the insurer to have a dedicated and experienced claims staff who understand and appreciate the complexities of the D&O policy. The insurer ought to have a sound and consistent claims handling philosophy based on a thorough and practical understanding of the law. Inconsistencies in claims handling and/or the approach to claims handling within a Claim department is never a good thing. Finally, if feasible during the life of the claim, the Insurer and the Insured should jointly attempt to focus their efforts toward promoting strategies such as litigation expense programs and litigation defense and/or settlement strategies, consistent with the issues of the particular case. Effective communication between the parties will assure that each party understands how they can benefit from a cost effective defense. By having in place a strong working relationship between the Insurer and the Insured, the parties will have a greater opportunity to successfully resolve a claim and build a long term and profitable relationship. Steven J. Gladstone is the Senior Vice President of Claims for XL Professional – Hartford and the Global Professional Practice Leader for XL Insurance. The views expressed in this article are those of the author only and do not necessarily reflect the views of XL Insurance and/or the XL Capital Group of Companies.
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