Careful Construction

Behold, the claims manual! As when building a house, many significant decisions reverberate into the future when insurers and third party administrators (TPAs) draft manuals they hope will guide their claims professionals. Questions and decisions abound. What should they call the document? How detailed should it be? What topics should be included? What risk does the company run by including or excluding certain features? How should the document be disseminated? How will updates and maintenance be handled? In the limited space here, we’ll spotlight some factors you should weigh.

What’s in a Name?

It matters what you call the document that provides claims handling guidance. Companies often give claims manuals other names such as “guidelines,” “handbook,” or “standard operating procedures.” While each title has in common the aim of providing instruction and direction, different labels create varying expectations of adherence and enforcement. For example, “standard operating procedures” suggests detailed instructions that are more exacting than guidelines, which offer general approaches.

Some companies may not title the document “Claims Manual.” They might call it “Claims Professionals’ Guide,” “Claims Guidelines,” or even “Best Practices.” As Shakespeare wrote, “A rose by any other name would smell as sweet.” The name the company gives the document matters less than the need to precede authorship with careful thought about its contents and organization. Even if a company does not have a document titled “Claims Manual,” it is possible that it has a document or collection of documents that function as a de facto claims manual. This can be important in extracontractual litigation where a plaintiff’s attorney attacks the company for not having a claims manual.

There is no single correct name; however, companies that thoughtfully consider the document’s name will minimize unpleasant surprises regarding interpretation by a court or a plaintiff’s attorney. Rest assured that whatever you call the document, there is a possibility that someday it will become a bad faith trial exhibit and be shown to a jury.

One Size Does Not Fit All

No claims manual can address every possible claims handling contingency. Some claims manuals comprise a dozen pages; others exceed 400 pages and include multiple chapters. There is no one right way.

Companies should remind claims professionals in the manual’s introduction or preface that, regardless of how many pages and details the document contains, they should handle each claim based on its own unique facts and circumstances. A claims manual should reinforce flexibility as a part of claims resolution. Without it, claims professionals become mere information processors, and deviations from processes become landmines. (Some companies consciously opt not to have a claims manual, but that’s another discussion.)

The Devil in the Details

In this social media era and age of the selfie stick, we hear about incidents of TMI (too much information) and oversharing. Similarly, hazards flow from claims manual oversharing—some contain too much information; others have too little. If a company creates a claims handbook or standard operating procedures, the document likely will contain detailed instructions for each step of the resolution process. Alternatively, a guideline may articulate general statements about company values and policies, but omit step-by-step details for accomplishing a particular task.

When pondering the level of detail it will include, a company should consider the manual’s purpose. How is the claims professional supposed to use the document? What other documents, resources, or materials are available to them? Is the document aimed at providing a 30,000-foot overview of the claims process, or an in-the-trenches tutorial on each step of loss resolution?

Again, no one right answer exists. In answering, however, companies should consider the risk of being granular. The more microscopic and detailed you are in drafting a claims manual, the more you can expect plaintiff’s attorneys to use that as a template by which to compare the handling of the claim that is the subject of the extracontractual lawsuit. Deviations from your own procedures will be brandished before the jury as evidence of deficient loss resolution and bad faith. Likewise, being too general can spawn accusations that claims professionals are left to their own devices when deciding how (or whether) to adhere to the company’s general guiding principles. Insurers walk a tightrope in choosing whether to be granular or use a broader brush in filling the claims manual with content.

Avoid the Credenza Decoration Effect

Encourage and reinforce a claims staff habit of regularly referring to and using the claims manual. Make the manual easily accessible and readily available to all claims professionals. Manuals can be in the form of hard copies kept at a claims professional’s desk or made electronically available through corporate intranets or websites.

Periodic review of the manual that refreshes its content and the company’s expectations should be a recurring part of claims professional training and for onboarding new employees. If claims professionals never get beyond the manual’s cover, they will miss vital information that supports best practices for claims handling, enhances customer service, and makes their jobs easier. A document that is just for show will end up costing an insurer in extracontractual settlements and judgments.

Eight Decision Points in Crafting the Claims Manual

With these observations in mind, let’s look at eight factors to weigh when designing a claims manual. 

1           Broad brush or granular? Some claims manuals are sweeping statements that skirt fine-line details. Others provide step-by-step guidelines for handling various claims. Perils flow from either approach. Do you want (or need) a 400-page opus? Do you intend for it to be a substantive resource or a broad statement of policies?

2           Has legal counsel vetted the document? Your counsel should review the claims manual periodically because of evolving regulations, litigation results, and statutes. Companies should do this regularly to ensure that the manual is current and does not inadvertently run afoul of court decisions articulating good-faith claims standards. Not just any lawyer will do because not all are authoritative in this realm. Engage one who specializes in defending extracontractual claims.

3           Do we cover all claims handling procedures? Many manuals describe the process of handling a claim throughout its lifecycle. This comprises the time from the opening of a file after a first notice of loss through the time when final payment is made and the claims professional closes the file, with interim steps in between. It also may include guidelines for claims documentation. If the claims unit is paperless, a separate section of procedures should cover document imaging and retention.

4           Do we include service standards? Companies may codify service standards, such as time limits within which claims professionals must make three-point contact and standards for investigation, timeliness, response times to letters, emails, and phone calls. Claims departments and TPAs can use service standards as competitive differentiators to attract new business and to reinforce to existing clients the ethos of customer service. Give consideration before branding your document as “Best Practices.” Policyholder lawyers may argue that such branding raises the bar in terms of what constitutes reasonable resolution practices and warrants a higher level of obligation.

5            What about authority levels for things like reserves and settlements? Financial controls mandate limits for setting reserves, issuing checks, and negotiating settlements. Companies typically stratify such authority by job title and/or claims professional seniority. Whichever yardstick a company uses, a claims manual should reflect authority levels for these financially significant events in a file’s life span.

6           Reference local good-faith statutes and regulations. A claims manual can include or incorporate by reference applicable state good-faith statutes or unfair claims settlement practice acts specific to a locale. The claims manual need not regurgitate the entire statute in the document, but it should at least acknowledge such laws and regulations, reinforcing the company’s expectation that claims handlers will act in good-faith consistent with those statutes. Make claims professionals aware of relevant local statutes pertaining to good-faith claims handling and that such materials are readily available. We wince when reading deposition transcripts in which a claims professional testifies that they didn’t know that the state had an unfair claims practices act in effect. Ouch!

7           Should we include litigation guidelines for outside counsel, both for coverage opinions and defending policyholders? Some companies prefer to have such guidelines in a separate document. Others combine the two and make litigation management a subset of the claims manual. There is no one right way.

8            Do we include personnel procedures? While some companies may have a separate personnel handbook, a claims manual can include topics germane to claims resolution staff that fall under the category of human resources. This could include subjects such as vacation time accrual and allotments, frequency of performance reviews, performance appraisal criteria for claims professionals, discussion of prohibited activities and grounds for termination, reiteration of at-will employment status, and the care and use of company property.

Building a house and drafting a claims manual both start with a solid, strong foundation. Weigh these factors and use them as cornerstones for drafting a claims manual that strengthens sound claims practices and takes your claims professionals’ “game” to the next level.