38 FEBRUARY 2015 Claims Magazine PropertyCasualty360.com
Many decades ago, beginning adjust- ers often heard the phrase, “it’s a jury
question,” meaning that the facts
were not clear enough to decide
if the insured was responsible
for what happened or the claimant was at fault. What this really
meant was that there was not yet
enough information to make a
correct decision. It meant: “go dig
some more,” with documentation,
photos, diagrams, statements, data
and details. Why? Because it is too
expensive to litigate every claim.
Only when adjusters dig as deep
as possible into the facts and lay them out
logically in a report, will the kind of decision a judge and jury make be the result.
Judges and juries don’t always get it right,
and neither will adjusters. But if enough
research has occurred, the odds for correct decisions increase. If an allegation of
coverage, liability, damage or injury is not
valid, a wrong decision to settle will be expensive. But a wrong decision to deny a
valid claim will be even more expensive if
it results in litigation.
What is Litigation?
While a majority of small claims may simply be processed if the facts are reasonably clear, it is the serious claim that may
trigger litigation. It may be a dispute over
whether the policy applies to the loss, requiring a court’s declaratory relief judgment; a dispute of fault or how much the
damage or injury or lost lives are worth.
These issues reach courthouses daily, and
adjusters are responsible for managing
the litigation. There is an eight-corners
rule: the four corners of the lawsuit must
match the four corners of the insurance
policy that applies.
In first-party claims, litigation most
often involves whether coverage applies
to the loss or how much covered damage
resulted. There is enough of this litigation
(or “appraisal,” a form of arbitration re-
quired in some first-party coverages) that
insurers want to be sure that the adjuster
is absolutely correct before saying “No.”
In third-party lawsuits, often both the
claims industry and the insureds fail to un-
derstand what is called the “tripartite rela-
tionship.” With very few exceptions (such
as indemnification policies or “consent to
settle” forms), it is the insurance company
that must defend and/or pay on their in-
sured’s behalf up to the policy limits. The
insurer may elect to settle or defend as it
alone decides, even if payment is entirely
within a commercial insured’s deductible.
The adjuster must select the defense
counsel best suited for the lawsuit and
make the decision whether to continue
with the litigation or settle the claim. Tim-
ing is crucial; if the insured is liable, but
the plaintiff’s demand is unreasonable,
the adjuster may recommend aggressive
discovery (demands for information).
This may discourage the plaintiff into
making an earlier settlement. If
the demand exceeds the insured’s
policy limits and both damages
and the allegations of the suit are
true, to defend rather than settle
exposes the insurer to bad faith.
Every attempt to settle within or
at policy limits must be made.
The losing side in any litigation
has a right of appeal, at least if
they file their appeal in a timely
manner, which differs in various jurisdictions. One key word
is “venue.” There are hundreds
of venues in the United States, and it is
part of the adjuster’s litigation management role to see that the correct venue is
chosen. The plaintiff will sue in the venue
where courts may be most receptive to
his or her position, but the defendant can
oppose that venue if there is a valid reason to do so. The plaintiff may file in state
court, but the defendant may argue that
there is diversity of citizenship and move
to transfer the case to federal court. Occasionally there may be no choice. Claims
involving the Employee Retirement Income Security Act (ERISA) or the Federal Employers Liability Act (FELA) must
be filed in federal courts. Claims under
state workers compensation acts must be
filed in the proper state court, usually in
the state where the accident occurred, although there are exceptions.
Next month we will look at all the potential venues for litigation and appeals, and
explore court reporting of decisions.
Ken Brownlee, CPCU, is a former
adjuster and risk manager based
in Atlanta, Ga. He now authors and
edits claims-adjusting textbooks.
and Court Decisions — Part 2
Adjusters as judge, jury and litigation manager