Canadian Underwriter

Controlling Indemnity in Property and Casualty Claims

September 30, 2010   by Laura Kupcis

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A number of ways to control indemnity were offered up by speakers during the Canadian Independent Adjusters’ Association’s Annual Conference.

Check with brokers about policy coverage

Independent adjusters should never make assumptions about coverage in a policy, John Farthing of Cunningham Lindsay International cautioned.

“Know the policy,” Farthing said, adding this can be tricky in an environment where there are so many policies in existence now. Adjusters must be cautious when speaking to insureds and never assume coverage where it might not be available. “Don’t answer a question you don’t know the answer to,” he said. “It just comes back and bites you.”

Making a quick call to the insured’s broker, Farthing said, can clear up any questions or doubts.

As an example of the danger involved in assuming coverage, Farthing cited a commercial insurance case he worked on, in which he assumed the insured had purchased coverage under a business policy. Testing his assumption, he called the broker and found out the insured had denied the coverage when it was offered. Had Farthing not cleared up any doubts about coverage, the insurance company could have been on the hook for the claim, which might have amounted to millions of dollars, he noted.

Assessing damage is step one

The damage assessment process, which can be applied to commercial, residential and industrial losses, must be done in the immediate visitation to the site, Barry Milliner, regional manager for MKA Canada, said.

The first step for adjusters is to get an understanding of what is required at the scene. Milliner recommends that adjusters use survey forms, which cover some of the elements one can commonly expect to look at on a damage site. They are also useful for gathering information, but more importantly serve as a record going forward if the claim is in dispute.

One of the first things that Milliner does when he arrives on scene is to do a preliminary overview of the facility to get an understanding of the type of construction, materials and process involved, and then subsequently obtain any drawings of the site. If a contractor is being brought in, obtain the form of contracts at the get-go; obtain their rates and fee structure at a very early stage in the process. This helps to control the loss going forward, throughout the repair or construction process, Milliner said.

Measuring sales loss

Sales loss measurement is the key in any business interruption assessment, Tony Volpe, partner and vice president with Matson Driscoll & Damico, said. This is done by projecting what the revenue would have been had the incident not occurred. There are a number of ways to project this. The most typical approach is comparing the prior year’s sales for that period and adjusting for growth. When that type of information is not available — be it a new operation or when the operation has changes in nature or size — sales from comparable operations in the region are used.

“The experience just before the loss is obviously the best indicator as to what’s going to happen immediately after the loss,” Volpe said. “There’s no use looking at what’s happened two to three years ago because it’s a different economic climate.”

It is important to understand the business at hand, understand the seasonality of the business, the market, whether it is retail, wholesale or manufacturing and the climate the business is in, he said.

Arbitration and mediation

Nobody expects you to do anything you don’t feel is proper, honest or fair, Larry Gilbertson, arbitrator and mediator with ADR Canada Limited, said.

“As long as you did that, you were doing your job,” he said.

When a file ends up in arbitration or mediation, the required steps to handle a file have already been completed — and hopefully well. “The fact that it gets into an arbitration or mediation or an appraisal doesn’t mean these things haven’t been done well,” he said. “It just means that there is a difference of opinion and we deal with difference of opinions all the time in the claims area.”

Most straightforward answer not the cheapest

In professional liability claims, sometimes the opportunity exists to repair a problem versus paying indemnity dollars, Craig Walker, director of Maltman Group International said. Walker cited a case he worked on where had the more straightforward option been followed, the payout would have been upwards of $600,000. Instead, because of a lot of communication and determination, the payout was only $85,000.

A land surveyor discovered that a house built in a subdivision was encroaching on the neighbour’s lot by about 14 feet. At the time, there was only two homes built in the area out of the planned 10 — the end unit and a middle one. The first thought was that the house, because it was so far over the lot line, would have to be demolished. As luck would have it, the home was owned by the developer’s daughter and she did not want to go through the hassle of tearing down and rebuilding her home. Because there was some extra room to work with on the 10-lot property, the process to re-jig the lot lines was started. Both existing homeowners agreed to the lot line changes, with one requesting some financial compensation, and the municipality signed off on the changes. The developer was compensated slightly as a few of the lots would now be smaller than originally planned, which meant a reduction in value. In this situation, there were repair opportunities that held in the indemnity control, Walker said.

Gathering evidence and information

If you don’t have a good introduction into the claim or the claimant, then you are going to hit a few dead ends or rocky roads, Miles Barber, principal of Network Adjusters Ltd., said. In a liability claim, information needs to be gathered and preserved straightaway in the event of a future court date. This includes straightforward facts such as the date and time of the incident; the location, name and contact information of the claimant; and any witnesses. From there, the adjuster will discuss and review any details of the loss with the policyholder. Information recorded in the incident report should be objective information which comes from the claimant, witness or any observation of the loss scene. “Comments should not include any subjective remarks, and should not include any conclusions that may have been reached regarding a certain matter,” Barber said.

When analyzing the scene, observations should be made regarding the condition inside, outside and surrounding the scene. This includes whether there is any debris, spills or snow, etc. Lighting conditions should be commented on — is it sunny outside, what sort of lighting is inside the building, etc. When taking pictures, take them from the four compass points when viewing the scene of a loss. Certain angles can provide a differenst perspective, perhaps showing inconsistencies in the flooring, or a glare which could affect how the ground appears.

The trial is the end goal

When doing the investigative work, keep in mind that the end point is the trial, Aron Bookman, partner at Carfra Lawton, said. “Imagine yourself in that situation. How are those pieces going to do on the stand?”

Documents that are gathered during the investigation are vitally important in the event of a case. These documents fill in the gaps and timelines, in addition to helping with respect to cross-examining witnesses and establishing fact. The last thing a defense lawyer wants during a case is a document that comes out of nowhere and changes the entire complexion of the case.

When obtaining statements, Bookman recommends using a tape recorder, as they are more effective and truer than having someone sign a written statement. His preference, he said, is to gather information first without taking a statement and then going back at a later date to obtain the statement. He adds that frequently he h
as trouble locating a witness down the line when the case actually makes it to trial. He suggests that adjusters obtain cell phone numbers and email address for witness, which are less likely to change than a work phone number.

When investigating a claim, try and answer four questions: duty, breach, causation and damages, Bookman says.