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Newsletters » INSURANCE/CLAIMS

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Skewering Trial "Myths" Lets Risk Managers Add Value in Litigation
October Risk Management Tip of the Month
By Kevin M. Quinley CPCU, ARM AIC, AIM, ARe

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Claims Software

The earth is flat.

Man will never fly.

Madonna will never turn 50.

All are urban legends and myths. Myths aren’t confined to these chestnuts, though. In litigation, certain myths still inhibit the effectiveness of risk managers in bringing their skills and value to the litigation and trial process. Let’s look at four such myths…

Myth #1: The risk manager should back off. Some think that risk managers shouldn’t concern themselves with trials. Don't they have enough to do in terms of managing insurance, dealing with brokers, overseeing safety programs and their own department’s budgets?

A bad trial result can hit a company's image, stock price, competitive position, degrade its image among vendors and business partners, etc. From an enterprise standpoint, much is at risk when any matter goes to trial, whether it is insured or uninsured. Thus, savvy risk managers will see involvement in and management of the trial process as a legitimate subset of the risk manager’s bailiwick.

Myth #2: The insurer will take care of everything. In a perfect world, an insurer’s decision to roll the dice at trial would be the product of substantial thought and deliberation.

In the real world, this can be far from the case. In the real world, beleaguered claim adjusters may be drowning amidst hundreds of claim files.

Insurer decision-making and approval processes are so bureaucratic that the adjuster does not wish to go to supervisors to get approval for high reserve changes or authorizations that could lead to a case settling before trial.

Even if you have insurance, there may be plenty to worry about. Like:

  • In its zeal to trim costs, has the insurer saddled you with a jackleg lawyer?
  • Has it given you good lawyers but constrained them with so many cost restrictions that they’re entering a gunfight with a squirt gun?
  • Is it trying a case which could be and should be settled?
  • Is it rolling the dice on a case which could blow above your policy limits, leaving you with an uninsured excess liability exposure?
  • Is it taking to trial a case which has some counts - like punitive damages - that aren’t insured if a jury goes nuts?
  • Is it trying a case in which it has not calculated or communicated the downside risk?
If the insurer roils the dice and loses, it may be "capped" by its policy limits. By contrast, you have no "cap"! Risk managers must pick up the pieces, deal with bad publicity, the reputational hit, the air let out of your stock price, the new opportunities for your competitors, the shaken confidence of suppliers, business partners and customers.

Myth #3. The insurer will do what it damn well pleases.… Often, this prerogative is embedded in the policy language, which explicitly gives the insurance company the right to defend or settle any claim and to control the defense. BUT .. some constraints can keep insurers from having free rein.

For example, the policy may have a self insured retention (SIR). If so, and if the trial value is within that self-insured retention, risk managers have a powerful argument as to why they should steer the ship.

Second, if the insurance company has asserted any coverage defense or has issued a reservation of rights letter, it relinquishes some ability to manage the claim. Such gestures in many states give policyholders the right to select their own independent counsel, to be paid at the insurance company’s expense.

Third, if insurance company rides roughshod over the policyholder’s interests, it may invite bad faith claims. Rattling the "bad faith" saber can sometimes temper imperious conduct on the part of insurer claim departments.

Myth #4. Leave legal matters to the Legal Department. Should the risk manager be involved in managing trials, especially if the risk manager isn’t an attorney by background and doesn’t have a law degree? Shouldn't risk managers cede here to the legal department?

The best approach is one of cheerful collaboration and cooperation between the risk management department and the legal department. Risk managers know how an adverse trial result can materially impact future cost of risk, including but not limited to insurance pricing. Risk managers understand that even a successful trial result may often result in transaction costs that also adversely impact future cost of risk.

Also, risk managers -- often drawn from insurance or brokering backgrounds themselves - realize the constraints imposed by the fact that an insurance company is managing a case toward trial.

Unicorns, gators in New York City sewers and Sasquatch are myths.

The preceding risk management myths have less notoriety but can still spook many risk managers, inhibiting their ability to bring their insights and expertise to bear on the trial process. Breaking free of these myths can help risk managers engage deeper with the trial process, thereby taming costs, enhancing communications and getting better outcomes.

Insurance claim expert and author Kevin Quinley has helped thousands of claim professionals boost their productivity. Visit his blog, THE CLAIMS COACH, at http://claimscoach.blogspot.com Get your FREE monthly productivity newsletter, CLAIMS CAFFEINE, by emailing claims_caffeine-subscribe@yahoogroups.com or kquinley@cox.net.

Related Links:
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