Although I’ve not yet seen it, I am convinced that somewhere out there is a magazine ad or perhaps a matchbook ad that leads with “Make big money now! You too can be a claims handling expert.” Over the years, I’ve been retained in hundreds of claims handling cases and in that capacity, have seen the work and qualifications of more than a hundred retained claims handling experts—some experienced and competent, some with little relevant experience, but competent, and some with neither attribute. Countering the testimony of the qualified and competent experts is easy, just as it is easy to counter the testimony of the incompetent experts. The real challenge, is dealing with the testimony of the unqualified experts who understand little or nothing about handling claims. These experts search the evidence for “sound bites” to use to skillfully advocate their clients’ positions, playing into the common public mindset that insurers are evil.
A good friend defended Daubert v. Merrell Dow at the trial court level. I remember his excitement following the Supreme Court’s decision, but, at the same time, I wondered how it would apply to insurance bad faith litigation. Handling claims is an art. The only science is at the macro level, determining rates and setting bulk reserves. Fortunately, Daubert has been interpreted to require that non-scientific witnesses have relevant experience and training in order to qualify as experts.
When approached to write an article about Daubert from the viewpoint of a claims professional/claims expert, I saw an opportunity to perhaps strike a small blow against the “matchbook experts.” Rather than try to bluff my way through a legal treatise on Daubert, an undertaking for which I am clearly incompetent, I decided that I would share my perception of some of the shortcomings of some of the matchbook experts I’ve encountered, with the hope that something I say might be useful during Daubert hearings. Perhaps, in some small way, I could help remove some of the “junk science” from insurance bad faith litigation.
Often, the unqualified claims expert can be identified from his or her curriculum vitae, but not always. Time spent employed by an insurer or defending insurance companies does not necessarily equate to claims handling expertise or even familiarity. Occasionally, a few questions during deposition will help identify the “matchbook” experts. I was recently involved in an auto liability case. My opposing expert’s CV revealed that his last insurance company employment was 30 years ago, with a company that wrote only life and health. Later legal experience, as described by the CV, related to employee benefits. During his deposition, this expert asserted that he was qualified based solely on the fact that other courts had found him qualified. His only auto insurance experience turned out to be an accidental death claim where an auto was the cause of death, hardly a basis for opining on the standard of care for handling auto claims.
Even the expert with the impressive CV and the ability to handle himself during deposition may not be truly qualified. Often the expert’s opinions will disclose holes in the claimed qualifications. If an expert is unable to “connect the dots,” starting with errors or mistakes in claims handling, and proceeding through resultant harm and concluding with bad faith, that expert may not have the background and experience to be truly qualified. Following are some examples from my experiences, with which I hope to illustrate some common shortcomings of the matchbook experts.
The qualifications of any expert whose opinions are based on the concept that good faith claims handling requires perfection, are suspect. Perfection is not the standard for claims handling, just as it is not for any other profession. The perfect claims file does not exist, nor does the perfect adjuster. Any claims expert who supports his opinions based solely on the existence of mistakes, is either advocating a position which he or she does not believe, or has no true claims experience upon which to base opinions. Be especially wary of the “expert” who ticks off a litany of errors, most, or in some cases, all of which have nothing to do with the true issues in a case. One does not need any real claims expertise to count the number of days between an inquiry and a response or to determine that a mistake has happened when a claim file is lost to follow-up because of a diary error.
One of my favorite “opinions” relying upon a total irrelevancy was from an expert who concluded that an adjuster’s mistaken reference to a UM (Uninsured Motorist) claim as a UIM (Under Insured Motorist) claim was evidence of bad faith claims handling. The two acronyms really refer to different species of the same coverage. I think it’s safe to assume that if your first reaction to an expert's opinion is “petty!,” then you likely are dealing with an unqualified expert.
A qualified claims handling expert has seen hundreds or thousands of claims files, not just files where claims handling is already in dispute. With such a background, the expert can truly differentiate between simple human error and egregious conduct. When examined on his or her opinions, the qualified expert should be able to identify evidence that a “mistake” was more than human error or perhaps evidence that management turned a blind eye to what started as a simple claims handling error.
Take, for example, the investigation of an incendiary fire that destroyed what was left of the failing business of an Eastern European Jewish immigrant. The insured had motive, opportunity, and was under active investigation by the local authorities. During an interview with the insured, the adjuster doodled a swastika in his notes, which he later attempted to explain to be a Buddhist symbol. Unquestionably the adjuster committed a mistake, but that mistake was evidence of much more than simple human error. It really doesn’t take a qualified expert to tell a jury how bad such conduct was. As egregious as such conduct is, the case was actually considerably worse (or, depending on your point of view, better). A qualified expert was able to identify the discontinuity in the file documentation that led to the production of the doodle. Its absence from the first document production was at least evidence that management knew of such conduct. It was clear that there was no corrective action. With a strong case for management ratification, this was a totally different case. If an “expert” cannot support his opinions with specific references to the evidence, then either he is not truly qualified or he has slipped into the role of advocate or, more likely, both.
Reliance on insurers’ claims manuals is a frequent refuge of the unqualified claims expert. Long gone are the claims manuals written with the naive belief that they would never be seen by the outside world. I remember claims manuals that instructed adjusters to pursue various questionable practices. It has been at least 20 years since I’ve seen such pearls of wisdom in claims manuals.
Today, many insurers have eliminated claims manuals altogether. Others contain little more than the applicable Unfair Claims Practices Act. Some insurers’ manuals, however, set very high standards for their claims personnel that exceed industry custom and practice and the minimum requirements set out in Unfair Claims Practices Acts. Same day contact with claimants and insureds is a laudable goal set by some insurers, but meeting that goal is not always possible. One does not need to be an experienced claims professional to count the days from first report of a claim until the date of contact and compare the answer to a requirement in a claims manual. One does have to have considerable experience to review a claim file and identify conduct that falls below minimum insurance industry standards. The qualified expert will be able to do so, if such conduct occurred.
Many jurors can be made to understand that insurers should not be punished for setting high standards. Bad faith litigation, just like taxation, can be a device for changing behavior. If the goal is to reduce smoking in the population, raise the tax on cigarettes. If the goal is to reduce claims handling to merely adequate, then society should punish those insurers who set high standards that cannot always be met.
A discussion of the lengths to which matchbook experts will go would be incomplete without discussing Unfair Claims Practices Acts. In most states, the acts do a reasonably good job of defining a minimum standard for claims handling. A violation of one or more of such acts’ provisions is not conclusive evidence of bad faith. Qualified claims experts know that occasional violations of Unfair Claims Practices Act are often unpreventable, despite management’s diligent efforts. Files are lost, staff members are taken ill, people forget. Many of these unpreventable violations have nothing to do with the real issues in a particular case. As with other mistakes, the unqualified expert will seize on every technical violation as evidence of bad faith, but will be unable to relate the violations to the real issues and to a cause other than simple human error. Questions exploring the expert's actual experiences maintaining compliance with the Acts will reveal gaps in experience that may be critical to qualification.
Sometimes, those of us who work regularly for or with insurers, lose sight of the common public perception that insurers are evil corporations that will do anything to improve their profit margins. I was recently reminded of this public perception by one of my relatively new adjusters. She came into my office and jokingly asked for her commission. Apparently, a claimant had just told my adjuster that she knew for a fact that insurance companies gave adjusters a share of everything they saved. Obviously, an expert opinion that an insurer’s actions were motivated by greed can be very dangerous when presented to a jury including members believing as my adjuster’s claimant does.
Analysis of the bases for an opinion that a particular claims activity was undertaken by an insurer for financial gain can reveal significant shortcomings in the qualifications of an expert. By way of example, I was recently involved in litigation over the denial of a UM claim based on the mistaken belief that the statute of limitations had run. The statute of limitations conclusion was reached by a local independent adjuster and communicated to a claims administrator in another state 2,000 miles away, who accepted the opinion without independent verification. The UM limit was $25,000. Liability of the uninsured motorist was undisputed. Assuming a causation question was resolved in the insured’s favor, the value of the claim clearly exceeded $25,000. The insured was represented by counsel. The handling of the Collision and Medical Payments claims was exemplary, even in the eyes of the insured’s counsel. The insured’s expert proffered a number of theories in an effort to manufacture a bad faith claim from what any objective analysis would reveal to be a simple mistake.
The expert’s most intriguing theory was that the denial was the product of a conspiracy involving several employees of the independent adjuster, two employees of the claims administrator, and an employee of the insurer, for the purpose of depriving the insured of the $25,000 policy limit. The expert could not point to anything in either the claims files or the depositions of the “conspirators” to support his theory. Additionally, from almost any point of analysis, such an opinion evidences the expert’s clear lack of true insurance claims experience.
First, no experienced claims professional would ever testify truthfully that he or she believed that an experienced personal injury lawyer would simply drop a meritorious claim after receiving an erroneous “no.” At best, the intentional denial might defer the claim a few months. Assuming a 10% return on investments and that the “conspiracy” might delay payment six months, the insurer could earn a whopping $1,250. Anyone who has supervised people, not just claims people, can appreciate the difficulty of getting five people, in three locations, employed by three separate companies, to execute a common plan. The time and expense of coordinating such an undertaking, especially to do so without leaving a written trail, would clearly exceed $1,250. Even if it were possible to plan and execute such a conspiracy at no cost, the denial was certain to draw a lawsuit—a lawsuit for which there was no defense, at least in connection with the contractual claim. No experienced claims professional would ever believe that such a suit could be settled without paying some premium over the policy limit, in addition to attorney’s fees. There's not likely to be much profit left in that $1,250 at the end of the day.
In closing, it’s not always easy to identify the matchbox experts. Sometimes, the lack of qualifications is evident from a curriculum vitae or easily developed during deposition. More often than not, however, the lack of qualifications only surfaces when an expert must resort to sweeping indictments based on common human errors.
Edward J. McKinnon is the President of Claims Resource Management, Inc., which he founded in 1988. Claims Resource Management, Inc. offers claims services to property, casualty, and professional liability insurers and self insurers. Ed is active in several professional activities including the Excess/Surplus Lines Claims Association, the Federation of Defense and Corporate Counsel, and is a Registered Professional Adjuster. Ed is a past President and former member of the Board of Directors of the Excess/Surplus Lines Claims Association. He attended the University of Maryland and Merrit College in Oakland, California, and served with the U.S. Army Intelligence Corps from 1966 through 1969, including service in Vietnam in 1968. From 1969 through 1973 Ed was employed with the General Adjustment Bureau as a multi-line claims adjuster, handling all types of claims from auto and homeowners to large commercial property and casualty losses. From 1973 through 1988 he was employed with the Harbor Insurance Company holding various positions until his retirement in 1988 as Senior Vice President and member of the Harbor Insurance Board of Directors. Ed can be reached at: Claims Resource Management, Inc., P.O. Box 250, Acton, California 93510; ed@crmi.com; (661) 265-6401; Fax: (661) 265-6450.
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