CLAIM DENIALS

Ask any insurance buyer about the effects of the tightened insurance market, and you are sure to hear about increased costs, unavailability of insurance and/or restrictive coverage terms and conditions in the insurance coverage that is available.

Ask insurance buyers who have experienced a claim or loss and you are likely to hear about the uphill battle that was waged to secure coverage for the claim. In the seller's market that we find ourselves in today, coverage denials and/or reservation-of-rights letters are the norm and policyholders are having to enlist the assistance of legal counsel or other coverage experts to provide assistance and guidance in order to enforce their rights under their insurance contracts.

At the Fall 2002 Conference of the Society of Risk Management Consultants, Richard D. Gund, JD, CPCU, Director of Legal Affairs with Barney & Barney, LLC in San Diego, California, led a lively presentation on this subject entitled, "Why Your Claim Has Been Denied (or Delayed) and What You Can Do About It."

First, what is at the root of the growing rash of claim denials? According to Mr. Gund, it started with the Reduction in Force (RIF). As insurers searched for ways to cut costs during the prolonged soft market, senior members of claims departments (the most knowledgeable and, not surprisingly, the highest paid) were thinned from the ranks. Given the need for skill, knowledge, education, experience and training, the RIF has had a significant impact on claims departments.

But it seems that, in many cases, there is once again an irrational fear. Even where it is clear that there are benefits to be derived and that the risks being assumed do not pose a serious threat to the goals of the organization, the fear of not having insurance in place to cover a loss weighs heavily on the side of buying insurance. Many insurance buyers seem to be saying, "I know, I know, but I just feel safer."

The "new recruits" brought in to fill the ranks, according to Mr. Gund, are better educated in a formal sense, having attended or graduated from college. Unfortunately, these individuals often lack in-depth coverage knowledge, suffer from a lack of mentoring (due to the RIF), and are overloaded and inexperienced. Gund went on to share a story about a General Liability claim involving a forklift that was denied because of the automobile exclusion. Coverage issues so basic, yet so foreign to the inexperienced, leave policyholders looking for help.

Insurers are now turning more often to what Mr. Gund refers to as the new claim handler, the coverage counsel. These individuals are "better educated than the adjuster" and are "trained to avoid conceding anything." In addition, coverage counsel "inoculates (the) carrier against 'Bad Faith.'"

What can policyholders do? Gund had several suggestions. When a claim is tendered to an insurance company, the individual communicating with the insurer should be knowledgeable. The claim should be tendered on a timely basis and include an accurate statement of the claim and facts. While perhaps so basic, often overlooked is the need to make sure that the tendered claim is actually received by the insurer or the agent/broker on behalf of the insurer. Tendering claims to an agent/broker has the added benefit of being one more source to look to in the event the claim is not tendered to (or actually received by) the insurance company.

You have now tendered your claim to the insurer and received a reservation of rights letter or a denial. Don't panic just yet, according to Gund. Be sure to read and understand the exclusions that have been cited as to why your claim is not (or may not be) covered. Often, these are "off-the-shelf" responses and may not apply to the circumstances of your claim. Are court cases cited to support the insurance company's denial of the claim? Be sure to review those cases and be certain that the facts actually apply to your case.

Still no satisfaction? Where do policyholder's go from here? Many policyholders are looking to their own coverage counsel when facing claim denials or disputes. As insurance companies look to tighten their belts and reduce costs, claims departments and ultimately policyholders stand to lose. At an increasing rate, policyholders are finding the need to look beyond the terms and conditions of their insurance contracts to enforce their rights. They are looking to their own coverage counsel for assistance and guidance.

-- Charles H. Cox

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