Dirty Tricks?

I recently read a vigorously worded document published by the American Association for Justice (formerly the Association of Trial Lawyers of America--ATLA®--an organization that supported plaintiff trial lawyers) entitled Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse . Even though the document reads like an alarmist commercial for plaintiff law firms, it got me thinking about a series of half-day seminars on claims management principles I delivered to groups of property casualty insurance agents a few years ago. The objective was to familiarize agents with the claims process and help them become more effective as coaches and claims advocates for their insureds.

The class was usually relatively sedate until we started discussing how an insurance company handles claims. Many of the agents already had fairly well-formed opinions on that topic, i.e., they were convinced the claims process took unnecessarily long, that it was needlessly complex and inconvenient, and that claims payments were delayed and unfairly minimized by claims adjusters who they believed were rewarded by insurance companies for underpaying claims. Some of the agents had been involved in or had heard about at least one nightmare claims situation, the details of which they always enjoyed sharing with the group. So while I was often surprised by the students' general lack of knowledge and understanding of the claims handling process, I was never surprised by their fascination with the "dirty tricks" they were convinced claims handlers commonly used to minimize claims payments.

I thought it was important for the agents to understand all of the forces that exerted influence on the claims handling process, so I gave them a quick overview of the elements of fair claims practices regulations that had been implemented in many states, including this list of some of the prohibited behaviors in California:

• Misrepresenting coverage
• Failing to acknowledge and act reasonably promptly upon communications
• Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims
• Failing to affirm or deny coverage of claims within a reasonable time after proof of loss
• Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims
• Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds.
• Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
• Directly advising a claimant not to obtain the services of an attorney.
• Misleading a claimant as to the applicable statute of limitations.

Once the agents realized that California didn't just dream up this list of prohibited behaviors, once they understood that claims adjusters had indeed been doing these things in California, and that was why the behaviors had been prohibited, they were intrigued. At that point, to illustrate the impact regulation has had on claims handling, I would tell them stories about some of the things claims adjusters were taught to do before fair claims practices regulations were in place, back in the 1970s, when I worked as an adjuster. Like refusing to reveal policy coverage limits, or negotiating to "save something on the policy limit" (Supervisor to Adjuster: If we are going to pay out the full policy limit, why do we need you?), or "controlling" cases (contacting a claimant quickly to establish a relationship and encourage him/her to deal with you directly, without an attorney involved) or engineering "drop-check" settlements (sending out an unsolicited check along with a release to attempt to settle a claim.) I would also relate the urban legend about an insurance company claims officer who introduced a short-lived loss cost management program that had a catchy name, something like "Operation 3%." It supposedly worked like this: once the adjuster figured out what a claim was worth, he (adjusters were almost always men back then) would deduct 3% from the number and that would become the new maximum to be paid on the claim.

With the exception of "Operation 3%," these probably were not really dirty tricks--they weren't illegal or unethical-- they were simply best practices at that time. The agents would usually agree, although a few would remain unshaken in their belief that adjusters are rewarded for underpaying claims. And they wouldn't budge, even when I described how most insurance companies routinely reviewed closed files to assess claim handling quality, and when they found an underpayment they immediately corrected it.

If those insurance agents were any indication, there is a receptive audience out there for publications such as Tricks of the Trade. Google "dirty tricks used by adjusters" and you will get a quarter of a million results, many of which are links to law firm websites shrilly warning consumers about ploys, tactics and dirty tricks used by adjusters. Unspeakable, heinous and despicable tricks such as attempting to talk with a claimant, or to get a claimant's statement, or to secure a medical authorization form.

"Some matters are simply contentious" wrote Sara Sheridan recently in a Huffington Post blog totally unrelated to claims. Indeed.