In-house counsel are often frustrated when claims they are working on are settled without their consent. Here’s why …. most companies do not spend time negotating their account instructions. Most don’t know what the account instructions are. They are a well-kept secret.
Prior to settlement of claims, the carrier should contact the company for settlement authority on all claims over a certain threshold of, for example, $5,000 or $10,000.
The company should be “consulted” before any lump sum settlement is offered. The more input the company wants, the lower the settlement threshold should be. For example, if a company wants to be actively involved in decision-making they can state “the company retains settlement authority for all workers compensation claims over $5,000 and all products liability claims over $1.”
There is a world of difference between an insurer having to “consult” its insured and having to obtain its “consent” prior to settling a claim. You want the former. If the insurer agrees to “consult” its client prior to settlement, the client may not have the power to alter the course of the claim.
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A very rude awakening is in store for the company with a $500,000 deductible when a claim is settled against the wishes of the litigation manager, particularly when the settlement amount is within the client’s retention level.
In one large auto case, a plaintiff who had been a meat cutter for 20 years alleged his carpel tunnel syndrome was from the impact of the auto accident. It’s possible, but perhaps there is another cause – meatcutting. In-house counsel will surely look into this, but if the insurer has full authority they can settle the claim without your consent.
The defendant company’s in-house attorney hired a medical expert to review medical causality. Yet, even though it knew of the company’s involvement and interest in the case, the insurer settled the case without the consent of its insured client. That was a rude awakening for counsel.This occurred because the company had previously given the insurance carrier $100,000 of “field authority” even though the company had a $250,000 deductible on auto claims and the settlement was, essentially, all the companys money.
From a company’s perspective, a settlement decision can impact well beyond bottom-line considerations. Injudicious settlements can affect a company’s labor policy, its workers compensation practices, the reputation of its products and its susceptibility to future claims. For instance, an insurers denial of a legitimate workers compensation claim can adversely affect the labor climate.
Managing claims and litigation is nearly impossible without complete and explicit account servicing instructions (ASI). Also known as account instructions, claim service instructions or account handling instructions, ASI represent the agreement or understanding between the insured and the field adjusters at the insurer’s branch offices that guides the handling of all suits and claims, both litigated and non-litigated. These instructions should be disseminated to all your branch offices across the country.
The ASI includes information about how claims are to be handled in every line of insurance including workers compensation, products liability and automobile insurance. (Third-party administrators who provide claims servicing without insurance also use ASI to guide their adjusters.)
After ASI are negotiated, the insured must familiarize all internal claims handling personnel with the provisions of the ASI and provide them with a written copy to ensure they understand the responsibilities for key areas of claims handling. In addition to containing policyholder information and details about coverage and dissemination of data (loss runs), ASI can also contain other lesser-known guidelines.
For example, the referral of medical reports to a physician consultant for preparation of a letter to set up an independent medical examination (IME), or a requirement saying subrogation can be waived only upon receipt of a written evaluation and agreement by the company. In implementing an aggressive claims and litigation management program, a company is, in effect, “taking control” of its claims, exerting more authority in the handling of claims and becoming much more involved in their claims management.
When a company chooses to become more involved in “managing” as distinguished from “monitoring,” the roles and responsibilities of all parties, including the company and the insurance carriers, must be clearly delineated to avoid overlaps as well as gaps. In as much as in-house counsel frequently manages litigation and claims, while the risk manager establishes the ASI, the two departments discuss in advance, what to include in the ASI.
In-house counsel makes a list of all claims handling problems, then reviews and discusses it with the risk managers for solutions to be incorporated into the ASI.
While a company can actively negotiate for items it believes to be of sufficient importance, the carrier’s approach will normally run counter to the company’s approach. The carrier may seek to define as few issues as possible in writing; sometimes reassuring the company certain key items will be done as a matter of course (i.e., as “standard operating practice”).
The company needs to be aware of this, realizing it is prudent to put as much as possible in writing to avoid future problems and misunderstandings. It is not uncommon for a litigation manager to encounter problems that would not have occurred if “it had been in writing.” For example, a company may be “assured” it can select the local counsel of its choice. This verbal assurance from the carrier may work adequately until those who made these agreements move to other employers or are no longer involved with the account.
In general, the more risk a company has retained, the more control the insurer will relinquish. In a guaranteed cost program, for example, the insurer will relinquish almost no control because the exposure and expense are borne by the insurer. In a loss sensitive program, the insurer will negotiate to give a company more control.(WCxKit) In a loss-sensitive program with a very large deductible (e.g., $500,000) most companies can negotiate for a very high level of control close to what they would have if they were self-insured.
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact: [email protected] or 860-553-6604.
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