Posted On: June 18, 2008, 9:58 am CDT

Posted By: adjustme2

I agree with confused that it is a load of crap- the reason insurance companies settle that kind of claim is because of the following example

Insurance company believes that insured did not cause the loss but they are a defendant in the litigated matter along with several other foam manufacturers. Ins Co projects that to fight this matter to trial will take approx 10 years (maybe more because of the type of claim this is) and insd is unable to PROVE that they DID NOT manufacture the foam and insurance company projects that when they go to trial it will be in the community where the loss occurred - ins co projects that they will NOT prevail with a defense verdict but plaintiffs will win the case and ins co projects that because of the horrid facts of the claim - they jury will probably award plaintiffs and possibly award them more than $25,000,000. Instead of taking a risk with a jury (and a jury is ALWAYS a wild card and unpredictible) they save the costs of litigation (which will probably be in the $10M to $20M range) and settle at an amount they believe will save them $$ in the long run. These types of settlements are not done at the adjuster level but at the level of upper management - the adjuster maintains the claim file - but the decision to settle at $25M is at the level of Claims VP's and probably CEO level. I agree that this is a sorry thing to do but it is done a lot to "compromise the claim and resolve it prior to trial". It may not be "right" morally but in a fiduciary sense - it makes sense because the ins co most likely saved $$ by resolving for $25M.