Chapter Seven – Claims Settlement
Provide an overview of the issues that may affect a claims settlement.
In first party losses, what provides the basis for settlement?
What date is used as the basis to evaluate property for replacement cost coverage for a building loss under a property policy?
How does replacement cost coverage operate in a personal lines property policy?
The policy and contract language in first party and third party claims provides the basis for settlements. In first party losses, the policy contract stipulates the principles on which the settlement will be based. In Third party losses, settlements generally must compensate the third party of injuries to the extent that the law finds the insured legally liable. Fines and punitive damages are generally excluded from coverage.
Overview of some issues that might affect a claims settlement:
1. After resolution of a claim and negotiations are complete, the loss adjuster sends a cheque .
2. The claim could be denied which could lead to litigation or an alternative dispute resolution.
3. Once the claim is paid the insurance company may have recourse through subrogation against the third party
4. Salvaged property can be sold to recover some costs.
5. Some insurers may not have their own claims administration facilities and may rely on outside vendors
6. There may be limited number of adjusters to work on claims
7. Adjusters are limited with their settlement authority.
Policy wordings set the date of loss as the date of evaluation. Replacement cost coverage is commonly in place in personal line property insurance. It covers:
1. Building and contents
2. Repairs carried out with materials of similar kind and quality or the cost of new articles of similar kind, quality, usefulness, quality for recovery without deduction for depreciation.
3. The decision to replace is based on what option is cheaper
4. repair or replacement must take place as soon as possible following the loss.
5. Sometimes the insurer will pay cash value and upon replacement will reimburse the insured.
Introduction to Claims Settlement
- settlement stage represents the resolution of a claim
- claims process differs in liability claims in that a release is generally obtained from the third party claimant
- once a claim is paid the insurance company may have recourse against a third party who is liable for damages
The Basis of Claims Settlement
- contract is basis of settlement
- policy contract stipulates the precise way in which the settlement will be based
- adjuster looks to the policy wording
- limitations under the policy for specific terms are applied in addition to the overall limit of insurance applicable to the policy
- very common for replacement cost coverage to be in place especially in personal lines policies
- decision to repair or replace is based on whichever option is least expensive
- building coverage, additional qualifiers apply
- contents coverage, certain property is exempted from replacement
- formula of replacement cost-depreciation-actual case value is commonly used
- some cases a functional replacement theory may satisfy the parties
- direct repair by an auto body shop or replacement of equipment of a similar type
- in an unvalued policy the amount of insurance is not the amount that will be paid in the event of a loss
Demonstrate how you would apply a deductible to a claims settlement.
How are deductibles most commonly applied to loss settlements?
Explain how a total loss would be settled under a valued policy.
The most common way a deductible is applied is to reduce the amount of settlement by the amount of the deductible. Most personal lines policies a straight deductible is applied to each loss.
An aggregate deductible is common for larger commercial risks and is a substantial amount that is applied as a whole to all claims that occur during the policy year. Once this deductible is met the balance of claims is paid without deductible.
Less common is a franchise deductible in which any loss valued below the franchise amount is self insured, anything about is paid in full.
How to Apply Deductibles
- most policies have a deductible to consider
- settlement amount is adjusted by the amount by which the loss or damage by an insured peril exceeds the amount of the deductible
- limitation on specified property applies
Valued Policies
- defines how much an insurer will pay upon the total loss of the insured property
- When a total loss occurs, no further proof is required, the insured collects the total amount of insurance
- Any item identified and insured for a fixed amount could be limited to the actual cash value up to the insurance limit.
Calculate the apportionment among insurers on losses that are insured by overlapping property policies.
Explain how a claim would be settled under two policies of insurance covering the same property when one of the policies schedules and describes the policy specifically.
How would a claim be settled under two policies when both of them cover the property specifically?
How would a claim be settled when coverage is available under two policies, one that specifically covers baggage when on a holiday and the other a homeowner’s policy?
Explain the limit of liability rule as it applies to overlapping coverage settlement calculations.
Overlapping Property Insurance page 7 - 9
- principle of indemnity operates when the insured has two or more policies that cover the same property; the insured cannot collect twice
- described property is covered by the primary over the general
- when both coverages are specific or both general, each pays its proportionate amount.
- agreement of guiding principles sets out various scenarios and provides formulas to facilitate prompt payment of a claim to an insured
- Rule 1deals with specifically described or scheduled property
- Rule 2 applies where two or more policies insure specifically described property or individually itemized articles, whether or not for a specified amount
- Rule 3 makes the trip transit certificate or baggage policy primary insurance except when there is specific insurance on the same property
- Rule 14 the limit of liability under each policy is determined as though no other insurance existed and what applies is the least of the amount of insurance, or the amount of the loss, or amount payable after applying any policy limitation.
- when sum of limits of liabilities is less than the whole loss, each policy pays its limit of liability
Discuss the process for recovering funds owed in a subrogation file.
What legal steps could an insurer take to enforce judgement in a subrogation situation?
In subrogation situations, what are some particular issues of importance to the adjuster when it comes to providing notice to an entity responsible for the damages.
What issues may arise with respect to salvage and the insurance adjuster?
What options does an insurer have once an insured submits a proof of loss?
When recovery is possible, the adjuster provides notice and sends a demand letter. The party’s ability to pay must be assessed before commencing action. When involving an auto claim, a judgement makes it easier.
When the party is willing to pay the subrogated demand buit no insurance, the adjuster may negotiate a repayment plan. The party is asked to sign a promissory note so it can be referred to collections if fail to pay.
If police arrest for the damages claimed, the insurer can arrange criminal compensation.
Claims against an entity must be made to the right parties within a set number of days.
Subrogation Opportunities
- legal steps to enforce judgment
- if subrogation recovery is pursued and a default judgment is secured, then the lawyers acting for the insurer serve the wrongdoer with the judgment. If that fails to produce recovery, then the lawyers register a writ of seizure and sale for the amount of the judgment with the sheriff. For further action refer it to collections.
- should the police arrest a party for the damages claimed, the insurer can arrange a criminal compensation order under the Criminal Code
- notice of claim to the right parties is required within a set time
- conflict of interest in subrogation
- fairness and confidentiality must be observed
Confidentiality and Information Sharing
- claims file contents should be kept confidential
Submission of Proof of Loss
- Only insured submits a completed proof of loss and the insurer has sixty days to pay the claim
- When the proof of loss is completed the statutory declaration must be verified
- Completed proof of loss forms are not required from an insured on third party liability claims
Explain what a loss adjuster can do when faced with additional costs on a claim.
Describe 3 possible reasons why the loss adjuster may be faced with additional costs on a claim from a contractor.
Additional Costs
- When additional costs are submitted by auto body shops the adjuster should consider:
- Did the contractor hired to do the work under price the job
- Did some items respond to repairs or cleaning
- Was there a change in the scope of the damage? Hidden damage?
Exaggerated Claims
- Review the example citing Richter et al v. General Accident. This is a case of opportunistic fraud which meets the threshold of fraud.
Discuss how a loss adjuster might handle the various issues that could arise when denying a claim.
Identify an effective technique a loss adjuster might use to deny a claim to an insured.
What contractual rights does the insurer lose once a claim is denied?
Denying a Claim
· Deliver the news promptly
· Use specific and clear language to explain why the claim was not covered
· Insured may not have purchased coverage that was available. Advise agent or broker before giving the news. If agent cant prove offered, then may be sued.
· Any lies or deceitful representation may vitiate the claim.
· If insured fails to provide all required docs, loss adjuster should notify in writing.
· Be prepared to explain the options available to the insured
· Follow-up with a letter to confirm the denial
· Only part of the claim might be denied
· Policy conditions cannot be enforced after denial
· It is not a requirement that claims be denied in writing
· Conflict management skills will come in handy to calm volatile situations:
o maintain calm
o apologize for the insured's loss
o acknowledge feelings
o consider what might aggravate the insured
o be aware of any anger
o be innovative with what may bring the incident to a polite and positive close
Explain how limitation periods operate and how the discoverability rule applies.
What is a release and what is its purpose?
What are the limitations imposed upon an insured with respect to litigation against an insurer?
What is the discoverability rule?
Why would an adjuster preface the contents of a letter with the words” without prejudice?
Limitation period is the prescribed time in which a plaintiff has an opportunity to bring legal action. After a limitation period passes, a lawsuit will not usually be permitted to proceed, maybe exception though. Legislation requires that losses must be paid in 60 days after completion of proof of loss. Once the insured has complied, they may sue after 60 days. Policy wording usually stipulate bringing action within one year. In quebec, 3 years.
The discoverability rule states that the cause of action arises when the plaintiff discovers the material facts that give rise to the claim. Under this rule the limitation period is shorter but does not start to run until the plaintiff discovers the situation that led to a claim.
Releases
- Insurer will ask a claimant to sign a release when a settlement has been reached
- Release is legally binding contract that the insurer will initiate when a third party claim has been settled
Settlement Cheque Payees
- Insurer might have to pay a loss twice if it fails to recognize a loss payee on a cheque to the insured
- Mortgage clause or endorsement protects the mortgagee when the insured breaches a policy condition
Salvage
- portion of goods or property which has been saved or remains after a loss
- items have been replaced for the insured may still have some usefulness and some residual value
- adjuster must move the salvage promptly in some cases
- police may recover items stolen in a theft or burglary
- police will not release the goods unless they have proof of ownership
- ownership of property must be established and control of property discussed with the insured and loss payees
- adjusters must check what is available when a loss occurs
Without Prejudice
- encouraging resolution of disputes is in the public interest
- concessions during negotiation will be withdrawn before trial
- parties are encouraged to reach a compromise before the case goes to trial
Outline the main stages of civil procedure at the provincial level.
What do pleadings accomplish in civil procedure?
Discuss the loss adjuster’s role in a lawsuit.
Why is a court search performed?
What two types of legal costs are incurred in litigation?
Civil Procedure
- wronged party initiates a lawsuit to enforce a right or to seek a remedy in a court of law
- civil procedure is the body of law governing how the court operates
- litigation is unpredictable
- unexpected facts may emerge after the trial has begun
- litigation is costly
Pleadings
- inform both parties to the action of the fact situation and set the boundaries for the litigation
- include a statement of claim files by the plaintiff to which the defendants files a statement of defence and any counterclaims
Pleadings are the written statements of fact and the law filed by the parties to a lawsuit
- first notice of litigation is the statement of claim
- notice of action (Ontario and New Brunswick)
- writ of summons in all other provinces
- statement of defence-the defendant admits or denies the allegations with factual and legal arguments
- counterclaim is filed and reply to plaintiffs may admit or deny any additional issues raised in the counterclaim
- motions can be made for particulars
- defendant submits to the jurisdiction of the court by making an appearance to announce the action will be defended
- notice of intent to defend grants an extension to the deadline for filing a statement of defence
- claim is not contested the plaintiff will ask for damages in a default judgment
Lawsuits and the Adjuster
- adjuster may deal directly with the third party lawyer making appropriate arrangements to guard against a judgment in default
- consent necessary for an adjuster to act
- adjuster must describe how the insured was served the document
- relevant documents that are not privileged must be produced when required
- lawyers get to questions opposing parties at examinations of discovery
Pre-Trial and Trial
- lawyers will file a certificate of readiness to signal the court to set a date for trial
- pre-trial conferences in some provinces allow a judge to hear evidence and consider documentation presented by both sides
- any matter that needs to be dealt with first will be identified
- any time either side can settle
- trials without a jury a judge will hand down an oral decision
- lawyers must prepare a memorandum or settlement for the judge and ask that the action be dismissed
- judgments include decisions concerning liability and damage issues
- when a party has not been successful in an action the decision may be appealed if the lawyer shows an error in law
The Courts
Two court systems
- provincial and federal court system
Provincial Court Systems
- most courts structured into small claims courts, trial courts and appellate courts
- small claims courts have limited monetary level usually between 3,000 and 25,000
Review the summary of Provincial Differences in the Levels of Civil Courts
Court Search
- lawyers must file a statement of claim to protect
- lawyer will issue a statement of claim but will not have it served right away
- actions searches are conducted to determine if there is any pending litigation
- court must have jurisdiction over the matter before it can hear the case
- facts determine the jurisdiction
Costs to an Action
Solicitor and Client Costs
- when a lawyer is hired the client will incur solicitor and client costs; the lawyer's fees and cost of disbursements
- fees depend on the seniority and experience of the lawyer
- disbursements might include court expenses, expert witnesses costs, surveys and photographs
Party and Party Costs
- successful part can recover party and party costs from opposing party
- amount is usually less than solicitor and client costs
- successful party prepares a bill of costs subject to a taxing master's rev
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