BI claims and the “legal factor”: Looking Eastward

At the forefront of the Atlantic Canada claims cost debate has been the recent release of three IBC studies highlighting the claims experience of certain participating insurers in the region. All show that soft tissue claims are on the rise and account for the lion’s share of company payouts. The Nova Scotia study showed, for example, that 70% of bodily injury (BI) claimants incurred soft tissue injuries only, and accounted for 56% of the total money paid on claims. The average settlement for claimants with legal representation was $26,000. So what is going on to account for these numbers?

Claims culture

The culture of personal injury litigation has undergone a significant transformation in recent years. Affectionately known as the “auto lotto”, there has been a dramatic increase in the frequency of soft tissue claims and an equally significant increase in the number of personal injury lawyers involved in the process. Which came first is anyone’s guess.

The Nova Scotia study of 540 soft tissue injury claims disclosed that 55% of claimants had legal representation, but received 81% of the total settlement dollars. Is this a function of lawyers dealing with more serious injuries? Is it a function of plaintiff counsel being more astute to the claims process? Or is it just economics?

Atlantic Canadians have also become more claims-conscious than ever before. Advertising by personal injury lawyers has mushroomed. Contingency fee agreements are the norm. Awhile ago, I spoke to a claimant who had been involved in a serious head-on collision. She told me that she had been taken by ambulance to a local hospital. As she laid in the emergency department awaiting treatment, a lawyer walked up and gave her his business card. In Halifax, of all places!

Claims administration

Many blame the courts for the cost of claims in this region. It is true that awards have risen on the judicial front. However, the number of claims that actually make it to trial is minuscule. One therefore wonders whether the problem is industry driven.

There is no doubt that the perceived economics of defending claims has become a major factor in the increase in company payouts. It’s so easy to pay a premium to get rid of the claim without further expense, and certain companies are gaining “a reputation” for doing so. But while this may be okay on a file by file basis, it eventually becomes an industry problem if the practice is widespread, as it currently seems to be. For minor soft tissue claims, strategy from the plaintiff’s point of view boils down to picking just the right threshold of settlement at which the insurer will throw in the towel and conclude that the claim is not worth fighting. The reality is that mild to moderate soft tissue injuries just do not go to trial — and plaintiff counsel knows this.

Is it time to take a harder line on claims? Many in the local industry think so and suggest that the short-term pain would be well worth the long-term gain. After all, cost is a concern on the plaintiff side as well. But as long as the “processing mentality” pervades the claims environment, that issue does not even enter the picture. Quite simply, the bargaining relationship has changed.

Delays

Delay in claims resolution is probably the insurer’s worst enemy. My own pet peeve is the widespread practice of taking defense waivers. Quite often, a “statement of claim” will be issued to protect the limitation period, but the plaintiff is not yet ready to put in a demand. Counsel will therefore waive the requirement to file a defense.

Waivers are a good idea if the claim can be resolved quickly. If they cannot, you have to wonder why. And therein lies the problem. If an insurer is operating under a waiver, there is no practical way to force disclosure of medical and other information supporting the claim. This can be a problem, resulting in increased costs where an independent adjuster is involved, increased demands upon the internal examiner, inability to identify and deal effectively with problem claims, and failure to identify the need for an IME and/or surveillance in a timely fashion. The combination of all of these factors gives rise to a situation where claims will drag on, are inadequately reserved, and may ultimately be negotiated to settlement without complete information — just to get it off the books.

Even worse, the claim remains dormant until, one day, a settlement demand comes in at a level far exceeding the reserve. Unknown to the examiner, counsel has been diligently building the claim and has amassed an arsenal of medical reports and actuarial information, which leaves the company scrambling. Those are the files that land on my desk.

Claims do not just disappear. The longer they go on, the more difficult they are to manage and bring to a successful resolution. And “manage” is the key word here. As questionable as some claims may actually be, they must be regarded with more than just skepticism. A close eye has to be kept on treatment. Information must be obtained on past medical history. An insurer should have a system in place which can flag problem claims and deal with them as soon as possible. The early retention of counsel may be the only option available to speed up the process and keep the indemnity payout within reasonable limits.

Another source of delay is the healthcare system in Atlantic Canada. Early medical intervention can be crucial to the successful resolution of soft tissue injuries. In the normal course of events, however, a claimant receives passive treatment for six to nine months following the accident. If that does not work, the family doctor refers the claimant to a specialist, usually in physical medicine. While the claimant waits for an appointment, the family doctor too often advises the claimant to rest and avoid activity, or even to stay off work.

Meanwhile, the “section-B” carrier is doing nothing by way of rehabilitation if the claim has not yet passed the two-year mark. It continues to pay for drugs, physio treatment, and orthopedic beds. It also cannot justify the cost of a multi-disciplinary medical intervention unless there is a chance of permanent disability. After waiting 10 to 12 months, the claimant finally gets an appointment with a physiatrist, who usually recommends a return to work. But by that point, the injury is two to three years old, the pain has become chronic, the claimant has developed an “injured victim” mentality, and the prospects of further improvement are slim. In the meantime, the “section-A” carrier can do nothing but stand at the sidelines while the claim goes south.

There is a need to streamline medical rehabilitation. How to do so is largely a fiscal issue, but many in the industry resent the passivity shown by section-B carriers to BI claims. Granted, that is an economic decision of the insurer involved, but if the bigger picture can somehow be brought to the forefront, perhaps there is room for an industry-wide protocol aimed at reducing section-A payouts.

Workload

The focus of the industry has been to cut costs in recent years. Unfortunately, however, that has come at a price for many on the claims side. BI claims have increased exponentially. File counts are way up and morale is way down. Experienced personnel are also in short supply and are under constant pressure to “close the file”.

Simply put, claims handlers do not have the luxury of managing claims as they should be managed. How this affects the overall level of indemnity payouts is difficult to measure. Again, we get back to the problem of paying a premium to get rid of a claim. Time constraints affect the ability to distinguish valid claims from fraudulent ones. Proper investigation of one claim can take a back seat to the need to move onto the next. All of these factors are bound to take a toll on company payouts — this is no secret to the plaintiff bar.

Fraudulent claims

In late 2001, the Canadian Coalition Against Insurance Fraud (CCAIF) released a report indicating that as many as 26% of all personal injury claims have some element of fraud. Fraud falls into two categories: first, when the person knowingly defrauds an insurer, and second, when an individual exaggerates an otherwise legitimate claim. There is a thin line between fraud and exaggeration, but I would suggest that it is the latter category that is bleeding the insurance industry dry.

Criticism has been lodged against companies that settle such claims instead of fighting them. And it is not so much the direct effect that this has on company payouts as it is the multiplier effect that it has on overall public expectation, especially in an area like Atlantic Canada. Word gets around. Background checks, independent medicals, early disclosure of medical history, and a very close examination of section-B usage are all prerequisites to the early identification of exaggerated claims. Unfortunately, however, those investigations are frequently left until after litigation has been commenced, and by that point in time, the claim has taken on a life of its own.

Say what you will, it is only human nature for plaintiffs to want to get as much from the system as possible. Until tighter controls are put in place to ensure that over inflated claims do not succeed, the problem is only going to get worse.

Conclusions?

A short time ago, I had a discussion with a prominent plaintiff lawyer concerning the criticism his firm was receiving about the level of its settlement demands. His blunt response was to indicate that his job was to present his client’s claim in the best possible way, while the insurance industry’s job was to present it in the worst possible way. The claim is resolved somewhere in between. How can you fight that logic in an adversarial system such as ours? You cannot.

And that is why industry must continue to challenge claims in an effective fashion, and not simply “process them”. Otherwise, payouts will continue to climb and the industry, as well as the public in general, will continue to suffer. An equitable balance should exist between the desire to compensate people fairly, and the overriding need not to let the system get out of control.