The Policy Slipup

Green Bay Packers quarterback Aaron Rodgers guides his team into Chicago Bears territory on Dec. 29, 2013, each squad fighting for a playoff slot. Rodgers takes the snap, drops back, and passes to wide receiver Randall Cobb, who runs to the end zone for a 48-yard touchdown. Amazingly, Cobb is uncovered by a Chicago defender. The defensive breakdown left a wide-open wide receiver and television booth analysts shaking their heads. In football parlance, this is a “blown coverage.”

Blown coverages transcend the gridiron, though. They can seep into insurance claims. Coverage is a bedrock component of claims handling but often gets short shrift as the orphan stepchild in the triumvirate of coverage, liability, and damages. There is an unspoken sense that liability and damages are “where it’s at.” Analyzing coverage seems so, well, b-o-r-i-n-g.

Nevertheless, if there is no coverage, you do not pass GO and do not collect $200…or policy proceeds. If there is no coverage, then—to an extent—liability and damages are moot. Further, more bad-faith claims arise from coverage issues than from disputes over liability or damages. A skilled claims professional must embrace best practices when handling insurance coverage.

What 10 fatal coverage mistakes can entrap unwary claim professionals? Let’s eavesdrop on the thinking of a (purely fictitious) adjuster when encountering coverage questions.

1 Don’t read the insurance policy.

You’ve probably seen it hundreds of times, right? Policies are all pretty much the same. Plus, they are so boring that distributing them widely could put the manufacturer of Ambien out of business.

Solution: READ THE POLICY! Not just a sample copy of the policy, but the actual policy that applies to the loss. Don’t skim. Dig in and read the policy. This includes endorsements, amendments, or schedules that list additional insureds. Do not rely on memories from having seen similar policies in past claims.

2 Avoid getting an underwriting perspective.

"Underwriters? Are you kidding? We don’t talk to those people. They’re in a different world and possibly even on a different floor of the building. If I ask them, they’ll either tell me everything is covered or say it’s my job, not theirs, to determine coverage.”

Antidote: Touch base with the underwriter on coverage questions, particularly sensitive ones or gray area situations. Do not cop out by looking to underwriters to make the tough calls or decisions, but do get the underwriter’s perspective, for what it’s worth, to see what he or she thinks about the situation and the availability of coverage. Is there anything the adjuster might be overlooking that the underwriter can shed light on that could bear materially on the decision to cover or decline?

3 Don’t bother getting the agent/broker perspective.

“You’ve got to be kidding. Most of the time, they’re simply salespeople. In fact, a seasoned general adjuster told me once, ‘When it comes to claims, an insurance broker is just a glorified public adjuster.’ What could they possibly add to the equation in reaching a sound decision with regard to coverage?”

Answer: Well, maybe plenty! Again, the adjuster is not looking to the broker or agent to make tough claims “calls,” but sometimes the intermediary can shed light on coverage, a perspective which the adjuster should weigh. While brokers likely will advocate for the policyholder, nevertheless, the adjuster should use the agent or broker as a sounding board. See if there are any facts or angles on the coverage issue that the adjuster may have overlooked.

4 Bypass the round table. 

“Don’t we have enough meetings? Who wants to open the kimono and expose the claim file to criticism? I risk losing face due to decisions I’ve made or did not make on the claim file. This is not a postmortem of the claim; it’s more like vivisection and about as pleasant. Also, it is a time-consuming hassle trying to get everyone’s calendars together to schedule a round table.”

Remedy: Two heads are better than one. This applies to coverage analysis and decisions. Superb coverage adjusters bounce ideas off of co-workers, supervisors, and bosses. They proactively schedule round-table meetings among claims staff on ticklish coverage situations and avail themselves of the expertise around them to get various perspectives before making hasty decisions.

5 Seek reasons to contest coverage.

“Hey, let’s play hardball. The way to stand out is to be a vigilant guardian of the company bank vault. I’m going to make absolutely sure that, if there’s any exclusion I can hang my denial on, I will do it. So I approach each file looking to deny coverage and cultivate a reputation as a hard-nosed claims professional. Maybe that way I can get noticed, get ahead, and get promoted!”

Fix: Approach coverage analysis and determination on a level playing field, not looking for ways to deny coverage or grasping at straws. Adjusters, ask yourselves, “How might a neutral trier-of-fact interpret this exclusion or condition?” Superb coverage adjusters do not over-weigh factors that undercut coverage or discount features boosting a pro-coverage stance.

6 Shoot the devil’s (insured’s) advocate.

“Are we a claims office or a debating society? I don’t need a devil’s advocate. I have enough advocates chewing on me as it is—the insured, the claimant, the claimant’s attorney, my boss, the public adjuster, the home office, etc. Also, I’m busy putting out fires from my high caseload. I don’t have time for reflective thought in order to concoct reasons why my coverage defense might be as porous as a screen door on a submarine. Throw it against the wall and see what sticks!”

Solution: Walk a mile or more in the policyholder’s shoes. Dispassionately view the landscape from the insured’s vantage point. Ask “what if” questions about how the policyholder might argue different points. Think of holes that opposing counsel or others could poke in your coverage stance. Are there multiple ways that a particular word or phrase might be interpreted? Is there a key word in the policy that is a linchpin of the adjuster’s coverage reservation or denial or a term not defined in the policy? Could the term have different shades of meaning that could impact the availability or nonexistence of coverage? If so, why are we not awarding the tie (à la baseball) to the policyholder?

7 You don’t need coverage counsel.

“This isn’t cold fusion. It’s interpreting an insurance policy. Everywhere I turn, I bump into lawyers. I get carpal tunnel syndrome signing checks to cover their bills. I’ll simply put the denial or reservation of rights out there. If the policyholder pushes back, I’ll get outside counsel and pay for a legal opinion. Plus, we’re way over budget on our legal spend for the quarter.”

Alternative: Superb coverage adjusters know that, no matter how smart and thorough they are, they have limitations. Before acting precipitously, they seek the advice and counsel of outside attorneys. They do not seek a rubber stamp but, rather, an attorney who will give them an objective assessment as to the strength or porosity of a coverage stance.

8 Acquire tunnel vision.

“I’m looking only at the four corners of the insurance policy and have no interest in trying to understand the larger business ramifications of coverage decisions. You can’t make an omelet without breaking eggs. I’m not pandering to the peanut gallery by making coverage decisions based on political or business considerations. I’m like Joe Friday, ‘Just the facts, ma’am!’”

Contrast: Superb coverage adjusters realize that business relationships are often at stake in coverage decisions. This does not mean that the adjuster interprets coverage based on what will be most popular. However, the best seek to understand the business ramifications of each decision.

9 If you lose, take your lumps and move on to the next claim.

Each claim is unique, just like each snowflake. If the insurance company gets stuck paying a claim that you felt was rightly denied from a coverage standpoint, chalk it up to bad luck or an anti-insurance company judicial system, and move on to the next case. Let underwriters worry about tightening wording or policy exclusions. They’re probably too busy and preoccupied to entertain any feedback from adjusters anyway.

Remedy: Whenever an adjuster feels the company has gotten tagged with a claim that it had no business covering, superb coverage adjusters execute on a feedback loop with the underwriting staff. They bring it to the attention of underwriters. They might (diplomatically) suggest policy wording revisions which could close such loopholes. At minimum, they sensitize underwriting to the fact that certain types of risks are being addressed that the pricing structure may not have contemplated. As the philosopher George Santayana said, “Those who do not learn from the past are condemned to repeat it.”

10 Incentivize claim staff to be the kings and queens of denial.

Competition breeds effort, so reward adjusters who “collect pelts” and publicize claim denials. When you get a claim denial that is upheld by a court, post it on the bulletin board where everyone can see. Track the number of claim denials that each adjuster makes, capture the metric in personnel files, and make it a component of the annual personnel review. That which gets measured gets done, so maybe if you start measuring claim denials, adjusters will more vigilantly assert coverage defenses.

Alternative: Superb claim operations do not measure professional effectiveness by the number of cases denied or the number of reservation of rights letters sent. While they vigilantly spot coverage issues and act on them, they do not keep score or see it as a badge of honor to decline coverage. In past bad-faith cases, an insurance company’s scorecard-like tracking of coverage denials was seen as an issue. Collecting pelts can create a dysfunctional culture and become a petri dish for bad-faith claims.

These responses are aspirational standards and do not necessarily represent the current standard of care for adjusters or claim operations. Therein lies the challenge.

Coverage-savvy adjusters are valuable assets to their organizations. They contest claims that merit resistance and deliver on the promise when coverage is in order. They avoid hasty decisions that can lose customers or risk bad-faith lawsuits. Avoid these 10 pitfalls and embrace best practices in handling insurance coverage to become a claims all-star on your winning team!