So, your customer has had a claim that has been denied, but you believe it’s covered. What to do? Well, if you have a time machine handy, the best thing would be to return to the time before policy inception and see if there was an insurable exposure that was overlooked, either the exposure itself or its insurance solution. In other words, being proactive by preventing claim disputes is the best way to resolve them.
However, as Charles Dickens wrote in David Copperfield, “Accidents will occur in the best regulated families.” No matter how good we are as coverage technicians, or how strong our procedures and quality control (QC) efforts are, coverage gaps can arise that result in claim denials.
Some of these denials do not arise from errors or omissions, but rather may simply be premised on policy language that is subject to multiple interpretations. Which interpretation wins depends on how well we move from reactive to proactive by advocating on behalf of the insured.
With that, lets take a cursory look at the issues involved in avoiding claim disputes and the remedies available if prevention is unsuccessful and advocacy is indicated to successfully resolve the dispute.
Avoiding Claim Disputes
Again, the key word here is prevention. In the movie War Games, a teenager hacked a new, automated government defense system thinking it was an online game, only to discover that he had initiated a thermonuclear war missile launch sequence. To make a long movie short, they were able to make an AI program called Joshua understand that such a war was unwinnable by having it play millions of games of Tic Tac Toe until it learned that the only way to win was to not play.
In the case of insurance claims, the best way to win is to not have to engage in a coverage contest. You do that via a three-phase process involving: (1) properly identifying loss exposures; (2) insuring the insurable ones and risk managing the others; then (3) QC-ing policy deliverables to make sure what forms requested are there and what adverse forms not requested need to be removed if possible.
Whether you are an agent, broker, consultant, underwriter, adjuster, risk manager, attorney, regulator or other industry professional, there are at least seven considerations that enable you to avoid or prevent claim disputes: (1) having a good historical perspective of the industry; (2) understanding and embracing foundational industry premises;
(3) engaging in proper policy form drafting and approval; (4) seeking quality training and education; (5) investing time in detailed exposure analysis; (6) implementing sound and practical risk management/insurance processes; and (7) advocating for policyholders and other beneficiaries of insurance.
Resolving Claim Disputes
Another movie, Road House, comes to mind to illustrate the importance of avoiding claim disputes. This movie, which inexplicably did not receive multiple academy awards for its brilliant screenplay and acting, featured a cooler (essentially the head bouncer) named Dalton who had to get his side stitched up at the hospital following a barroom knife fight. Given the number of scars on his torso, the doctor asked him if he ever won a fight, and his response was, “Nobody ever wins a fight.”
In a manner of speaking, that’s true about claim disputes. While one side or the other may technically win the dispute, it’s always far more productive for all parties to never have a dispute. But, the reality, as Dickens wrote, is that disputes do happen.
Perhaps the one upside to a claim dispute is that, if there is a reasonable premise for overturning a claim denial, that provides an opportunity for agents, brokers, consultants and others to demonstrate their value to the policyholder. A customer that never or rarely has a claim, particularly one that buys insurance directly or on a self-service basis, doesn’t understand the importance of having an advocate for the entire process, from exposure analysis to claim resolution. The key word here is advocacy.
However, when advocating on behalf of an insured, the agent, broker or consultant must move carefully, cognizant that the failure to resolve
a claim denial could lead to or bolster an E&O claim if there is a potential for legal liability for the alleged coverage gap. If that possibility is feasible, it’s advisable that the agent, broker or consultant work with the advice of E&O insurance counsel. That being said, in my experience, countless E&O claims could have been prevented by obtaining a reversal of a wrongful or arguable claim denial.
Two Foundational Premises
Our industry is one founded, possibly more than any other, on uberrimae fidei, “the most abundant faith,” or the duty of utmost good faith. This ethical obligation is codified in all states by unfair trade practices and bad faith laws. It is an obligation of all parties to the insurance transaction, including buyers and claimants, as evidenced by fraud statutes.
In its purest ethical form, this duty of utmost good faith is voluntarily followed as a trade practice, as illustrated by this 1983 Travelers Insurance Co. claims manual excerpt: “[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.”
In other words, a foundational industry premise, supported by extensive case law, is that the purpose of insurance is to insure, and in no aspect of the insurance transaction is this more apparent than in the claims process. An insurance claims professional looks for coverage, not a way out of coverage. My experience over the last 30 years supports the viewpoint that the majority of claims professionals seek to do just that. But there are frequently legitimate differences of opinion about the intent of policy language and how clearly it is expressed in the insurance contract.
A second foundational premise is that the mission of the insurance industry and every professional in it is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss. This mission involves both claim avoidance and resolution, both prevention and advocacy. It is steeped in ethics and altruism, both aspirations of true professionals.
The mission begins with preventing claim denials by properly identifying loss exposures, properly insuring them and QC-ing policy deliverables. If that is not entirely successful, the mission continues by advocating for the policyholder if a claim has been improperly denied.
Ethics Awareness Month
The celebration of March as Ethics Awareness Month is an initiative of the CPCU Society that’s supported by most major industry organizations. In promoting professionalism and ethical conduct, the Society has modified its CPCU Oath for adoption by others in the industry:
As an insurance professional, I shall strive at all times to live by the highest standards of professional conduct; I shall strive to ascertain and understand the needs of others and place their interests above my own; I shall strive to maintain and uphold a
standard of honor and integrity that will reflect credit on my profession, my employer and myself.
Next month, we will explore some very specific actions you can take, along with policies and procedures you can implement to minimize the likelihood of an uncovered claim. The remaining articles in this series will be devoted largely to successfully resolving claim denials that were not prevented. In the meantime, don’t forget the purpose of insurance is to insure!
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