Winning Complex Claims
In handling complex claims, risk managers are often dealing with an underlying claim as well as litigation related to the insurance company’s denial of coverage.
Whether the insurer denies a defense or indemnification on the underlying claim, or provides a defense as it reserves its rights, risk managers need to keep their eye mostly on that underlying claim.
That’s a situation that requires a lot of coordination as well as making sure the attorney on the underlying claim takes instructions from the policyholder, not the insurance company, said Karen Golden, director of risk management and real estate for Kraft Foods Group. Golden presented on the issue at the 2014 RIMS Annual Conference and Expo in Denver with Ty Childress, a partner and head of the insurance recovery group at Jones Day.
“The client is the one the attorney must represent,” Golden said, even though the insurance company may be providing the attorney.
The only information the insurance company needs to determine coverage is a copy of the complaint for the underlying litigation and the policy itself, Childress said.
The burden of proof is on the policyholder to show that the claim is covered, said Golden. And then the insurer has the burden of proof to point to exclusions or other reasons why coverage is not available.
That’s when the insurer usually throws the “kitchen sink” of policy terms at the risk manager in denying coverage or a defense, or when it provides a defense but under a reservation of rights.
The content of communication from the risk manager is crucial.
Letters to insurers are not confidential, and may be part of the discovery process as litigation proceeds, Childress said. Issues of strategy or management options related to the underlying claim should not be included in communication to insurance companies.
Don’t tell the insurer anything you wouldn’t tell the plaintiff’s counsel, said Childress.
Risk managers must respond to requests for information from the insurance company on the underlying claim “as long as it’s not related to the coverage issue,” Golden said.
Oftentimes, Childress said, those requests for information from the insurer’s adjusters are duplicative.
He spoke of one client who has been dealing with 100 similar claims and the same insurance adjuster has asked for the same information in 60 letters. It was information that was provided to the adjuster in 2008, but the letters keep coming.
“They never read the response,” he said, noting that such a situation aids the policyholder when the coverage litigation comes to court.
When insurance companies request all files related to the underlying claim, risk managers are within their rights to say they will make the information available at their offices or provide copies for a per-page fee, especially if many boxes of information are involved.
In addition, communication with brokers should be strictly restrained as well. “Never, ever, ask your broker if a claim is covered,” Childress said. Should the answer be negative, it will undermine the company’s position in the litigation on whether the policy was triggered.
And as communication on the underlying claim progresses, the risk manager should have a file of all notes to and from the third party administrator, as well as create written documents related to all phone conversations and meetings.
“Don’t always rely on that TPA’s [claims] system to have evidence of the information you provided to the adjuster as part of the claim,” Golden said.
Before any communication with the insurer occurs, however, risk managers should decide on a comprehensive claims strategy that manages the claim that may involve multiple policies, parties and coverage years.
Do they want a defense or just to notify the insurer of possible coverage? Are there sensitive policy renewal or fronting policy issues? Is the claim covered by the organization’s program or is the organization listed as an additional insured on another organization’s policy? What are the limits and exposure periods? Are there prior, potentially related claims? Are predecessor entities involved?
“You have to decide what you want the insurer to do,” Childress said.