claims 2001: COURTING DISASTER

Adjusters should be familiar with the growing incidence of bad faith claims aimed at insurers. The White vs. Pilot lawsuit has become a benchmark in the industry, particularly given the large award of $1 million which is being appealed.

Bad faith is “the up and coming area of litigation”, and the latest trend is toward naming adjusters personally liable, says Brian Sartorelli, president of Investigative Research Group. In response, adjusters will have to be vigilant in record keeping, he told delegates. “Document, document, document,” is the new name of the game. Adjusters should not be “intimidated” by this development from conducting thorough investigations, he adds. The onus, however, will be on adjusters to provide reasoning within their files for the actions taken when handling a suspect claim, and to stick closely to the terms of the contract/policy.

Investigation conduct

Adjusters will have to monitor the actions of investigators, he adds. In particular, adjusters need to know the laws surrounding “reasonable expectation of privacy” for claimants, and ensure that investigators conduct surveillance “above board”. “I believe that unless private investigators change their ways and become more credible, there are going to be more bad faith claims.”

The rise in fraud, particularly in accident benefits claims, is also sounding warning bells, he says. Adjusters need to be aware of “red flags” indicating possible abuse. Typical signs are too many passengers listed in a vehicle, hard-to-prove soft tissue damage claims, low impact accident claims, accidents with no witnesses/remote locations, and payouts ranging from $4,000 to $6,000. “Companies are paying just to get rid of claims,” and abusers of the system are aware of this, he notes.

Cracking down on fraud and not exposing the insurance company client to bad faith lawsuits is a difficult rope to walk, Sartorelli concedes. However, obvious actions include education about fraud rings, and to record not just that a claim is suspect, but “why it was investigated”.

New suits, new strategies

The threat of class action lawsuits is a “relatively new phenomenon”, says Glenn Gibson, CEO of Crawford Adjusters. Crawford is currently involved in the Walkerton, Ontario case that resulted from E. coli bacteria infecting the town’s water supply. “Managing class actions are a real part of what we’re doing [as adjusters] today…it’s here and it’s happening.”

A class action can be triggered by an “event”, such as the Walkerton case, or by a single case resulting in a payout to many people, such as the recent suit filed against the Canadian government which, if successful, could see more than $1 billion in interest payments go to thousands of war veterans, Gibson explains. The rise in class actions is linked to the passage of legislation in some provinces, which is more convenient and efficient for the courts, and gives citizens increased legal access, particularly when coupled with the growth in contingency fee payments for lawyers.

In this light, adjusters need to educate themselves on legislation affecting them in Quebec, Ontario and B.C. Potential coverages and “duty to defend” issues need to be reviewed. Insurers have to decide whether to concentrate resources on the preliminary certification process of a potential class action, or the settlement. Reserving strategies, media campaigns, settlement plans, “things that are foreign to us as loss adjusters”, will have to be understood. Companies also need to prepare their legal strategies, particularly by having counsel experienced in class actions ready.

An issue which will stand out for adjusters is the need for informed consent from claimants when settling claims. In the recent Lewis vs. Shell case, a judge determined that claimants must be informed of a pending class action prior to signing off on a settlement. Gibson suggests the standard Insurance Bureau of Canada (IBC) release forms “may not cut it” in meeting this requirement.

Overall, adjusters will be challenged in this new environment, particularly as the pressure is on to have claims settled quickly, the speakers agree. With recent examples from airline economy class fatigue to the effects of the York University strike on students, it is clear this is a phenomenon that is not abating anytime soon.