Why Every Claims Handler Needs Written Claims Guidelines

There’s a bad faith lawsuit going on right now in the South that has been raising eyebrows throughout the insurance community.

A judge will decide whether a bad-faith lawsuit will be won by the Plaintiff claiming that a lack of timely settlement traced back to the carrier not having any written claims procedures or guidelines in place. The carrier, which employs about 50 people and has only one or two claims adjusters on staff, argues that it’s too small to have written guidelines. But is being “small” an acceptable reason for not having some procedures in place? Does one measure size in terms of employees? Claims staff? Premium rankings? Number of locations? Any way you look at it, small companies do not get a pass.

In this suit, which began in 2006, a plaintiff won a clear liability case. After being awarded a six-figure settlement because the carrier “dragged its feet” in making a settlement offer, she began a new suit, in 2010 claiming bad faith in that the claims should have been settled earlier and that failure to settle earlier violates the state’s Unfair Practices statute, which traces back to no clear written claim guidelines existing at the carrier. If she is awarded damages, this could be a wake-up call for any claims operations to “say what they do and do what they say.” By the way, every state has laws that prohibit unfair, deceptive, or discriminatory claims practices.

Of course, the debate over the need for written claims procedures is not new. Many carriers resist writing procedures because they are afraid that an opposing attorney will use those procedures to “catch” them in a minor deviation. Plaintiffs argue that no written procedures make it seem as if carriers are making up policy as they go along. Semantically speaking, “procedures” imply a more rigid “do this then do that” document etched in stone while guidelines (e.g., Best Practices guidelines) offer more flexibility — wiggle room — by phrasing that is suggestive rather than prescriptive in tone and suggests situations in which guidelines may not apply.

In a January 2010 article in Claims (“Putting Procedures in Writing”), Kevin Quinley makes clear that while carriers feel that they are unwise to commit to definite procedures that would offer opposing attorneys ammunition if they should deviate from them, it is best to have some written ‘guidelines” that help assure that an insurance firm can’t be accused of making it up as they go along.

What would be the implications of a possible six-figure award to a plaintiff who may successfully relate lack of procedures to an “unfair claims practice,” regardless of a claims handler’s organization’s size?

This could not only have an impact on carriers large and small but also on TPAs, independent adjusting firms, municipalities, and SIU departments. It could also affect claims departments at utilities, corporations, and at self-insureds.

As someone who presents writing seminars throughout the insurance community, I urge clients to consider the value in writing down their claims process. I do this not only because it may be good for my business but because it can protect my clients from the embarrassment of having no guidelines to show a judge, jury or plaintiff.

There is a strong link between many bad faith lawsuits and a lack of guidelines or poorly documented files. The timeliness of a settlement would not be an issue if a claims handler had direction as to moving a claim along. In the lawsuit mentioned, I was not surprised to find that vagueness permeated the claims file, with adjusters musing indecisively about settlement but never following through to make an offer, mediate, or at least meet with opposing attorneys to discuss a settlement offer.

Also, the claims file revealed conclusory statements that, alone, might have fueled a bad faith suit. In one file, an adjuster characterized the plaintiff as “thin-skinned” while another adjuster referred to a witness as “the type of guy who wears lots of jewelry, tight pants, and big rings.”

In an effort to have the clearest and most concise best practices guidelines in the industry, one small Florida TPA devoted a large chunk of its 2010 training budget to having their guidelines completely overhauled, resulting in 18 state-of-the-art claims guidelines in everything from General Liability and Workers Compensation to Large Loss Reporting and Litigation Management.

In the real world of claims, adjusters spend most of their days just putting out fires. However, many claims executives realize that a lack of claims guidelines may be one

4-alarm fire that only continual writing skills training and editorial attention can put out once and for all.

Blake is director of The Communication Workshop, which presents seminars and webinars in claims writing nationwide. Reach him through through his website, writingworkshop.com