RPLU 06 Professional Liability Insurance Claims

Diary

A calendar system used to post activities and important dates for the claims professional's follow up actions

Prior Acts Coverage

A claims made policy feature that provides coverage for claims arising during the policy period from medical incidents that happened after the retroactive date and before the current policy's inception date

Mandatory Settlement Conference

A conference required by a judge in which a judge or magistrate tries to facilitate a settlement and which is often required before a case goes to trial

Additional information requested during the initial contact with the policyholder

A copy of the policyholder's file on the claimant; A copy of all contracts with the claimant; A copy of all correspondence with the claimant; Any materials that may be relevant to the claim

Comparative negligence

A defense used in a lawsuit when the plaintiff is alleged to have been negligent and thus caused or contributed to the plaintiff's injury or damages; Does not relieve the defendant from liability but it reduces the amount of damages that may be owed to the plaintiff in proportion to the plantiff's own negligence

Contributory Negligence

A defense used in a lawsuit when the plaintiff is alleged to have been negligent and thus caused or contributed to the plaintiff's injury or damages; Plantiff's are barred from recovering from the named defendants

Claims Made and Reported

A form of liability coverage requiring that the claim not only be made but also reported to the insurer during the same policy period

Global Settlement

A form of settlement in which the settlement of claims against all defendants in the case is negotiated at one time

Structured Settlement

A form of settlement that allows settlement proceeds to be paid out over time to the claimant; Might be advantageous to a claimant in light of the claimant's medical condition, financial/tax situation or age

Settlement Conference

A formal meeting between parties and their attorneys to discuss an attempt to resolve a claim

Independent Adjuster

A local field adjuster who is generally much more economical to use than a law firm and they represent the insurer which allows them to investigate claims, losses and coverage issues without a conflict of interest

Arbitration

A method of alternative dispute resolution that allows the disputing parties to present arguments and evidence to an independent and impartial third party (arbitrator) whose decision is usually binding

Mediation

A non binding method of alternative dispute resolution in which an impartial 3rd party 1) helps the parties develop their own solutions to settle the disputes and 2) facilitates resolution of the parties differences

Claims File Quality Audit

A periodic audit of the claims files to evaluate the claims process and ensure that claims processing is accurate, efficient, timely and compliant

Awareness Provision/Notice of Potential or Probable Claim/Circumstance/Discovery Clause

A policy provision that allows insured to report circumstances they believe may reasonably give rise to a future claim. If the notice complies with the policy terms, then any future claim that is made will be covered under the policy in effect at the time the circumstance was reported

Pure Claims Made Policy

A policy that covers claims made during the policy period for wrongful acts or incidents that happened after any applicable retro date

Panel Counsel List

A pre-approved list of attorneys available by state, geographical area, and specialty from which an insurer or insured may select defense counsel

The CP must exercise sensitivity in investigating a claim because

A professional's reputation is at stake

Prior and Pending Claim or Litigation Exclusion

A provision that excludes claims for which a claim or litigation has commenced or is pending against the policyholder before the policy's inception

Joint and Several Liability

A responsibility that may be imposed on any culpable party to pay the full obligation, regardless of what the party's proportional liability for the loss bears to the total loss; The party who pays the full obligation can seek from other parties their contribution or share of the liability

Liability Analysis

A review of the claim to determine whether the policyholder is liable for the claim

Coverage Analysis

A review to determine whether a claim is covered under the policy

High-Low Agreement

A settlement agreement in which parties to a dispute agree on high and low dollar values for a claim, representing the maximum and minimum payouts for a claim

Reserves

A type of fund that is set aside by insurance companies to pay for estimated future losses and expenses

Reinsurer

A type of insurance company that accepts risk from the insurer that initially wrote the policy, which is called the ceding company or primary insurer

A claim may be defined as

A written demand or lawsuit, A civil, criminal or administrative proceeding, An investigation by a regulatory body, such as the SEC, DoL, EEOC or Pension Benefit Guarantee Corporation

Within 24 hours, most insurers contact the policyholder to

Acknowledge receipt of the claim and provide contact information and the claim file number

As the claim develops, the CO must update the file and diary and

Adjust Reserves

CP must assess whether the late notice by the policyholder

Affected the insurer's ability to adequately defend the insured

Assignment of the claim

After the claim is reviewed it is assigned to a claims professional

Litigation Budget

Allows the CP to anticipate the activities that will be performed by defense counsel and litigation expenses associated with those activities

Incurred But Not Reported (IBNR) Reserves

An amount of funds established for losses that have happened but have not yet been reported to the insurer and for losses that are not yet fully developed

Indemnity Reserves

An amount of funds established for the payment of settlements, awards, judgements, or losses paid on the policyholder's behalf

In House Counsel

An attorney an insurer employs to provide a defense for the policyholder; Commonly used in commercial general liability insurance and rarely used in PLI

Coverage Counsel

An attorney the insurer retains to render a legal opinion about whether coverage under the policy exists for a particular claim

Policyholder Counsel

An attorney the policyholder selects to provide defense for a claim

Cumis Counsel/Independent Counsel

An attorney the policyholder selects when a conflict exists between the policyholder and insurer

Outside Counsel

An attorney who is selected from outside the panel counsel list to provide defense counsel for a policyholder (normally used when panel attorney is not available)

Third Party Administrator (TPA)

An independent administrator that, for a fee, handles administrative claims services for an insurance company or self insured account

Reservation of Rights (ROR) Letter

An insurer's letter 1) notifying the policyholder that potential coverage issues may exist regarding a reported claim and 2) reserving the insurer's right to not pay a claim or part of a claim that is determined not to be covered under the policy

Early notification may allow the insurer to

Anticipate potential losses and defenses, Preserve evidence, Gather facts, Prepare a defense, Reduce the time to settlement, and Mitigate losses

Criteria used for assigning a claim to the CP

Claim type and severity; Complexity and severity of the cases; Product line; Geography; Case load per CP; New claims per month per CP; Closing rates per CP

A key factor in the policyholder's overall satisfaction with the insurer is the

Claims experience

Reserving sets aside money for

Claims known to the insurer but not yet paid for AND Claims that have happened but are not yet reported to the insurer, known as IBNR claims

Verification of covered loss

Claims process first determines if the policy covers the loss; must consider other variables such as other policies, date of wrongful act, date the claims was made, the definition of a claim

Factual Investigation/Liability Analysis

Claims professional conducts an investigation of the facts and circumstances surrounding the claim; policyholder may be contacted to gain additional details and facts; key witnesses or 3rd parties may be contacted and interviewed; CP reviews the policyholder's client file/records in detail and any other relevant document the claimant and policyholder provided; following the review the CP may be able to make an initial liability analysis which sets the course of the claim's adjustment process and assists the CP in determining what additional information is necessary to finally determine the policyholder's liability; CP works to identify and develop the appropriate defenses that can be asserted on the the policyholder's behalf to ether defeat or mitigate the claim being made; CP investigates whether other parties' negligence may have caused or contributed to the damages the claimant sustained; CP is responsible for developing a disposition strategy to resolve the claim that has been made; CP determines if an expert is needed to determine whether the policyholder acted within the standard of care and will retain the expert and consider the expert's opinion in developing a disposition strategy

Contact

Claims professional will contact within 24 hours of receipt of the claim to confirm receipt; claims professional will provide the claim number and claims professional's contact information; claims professional may also seek additional information at this time

Key elements of a coverage analysis

Critical dates; Insuring agreement; Definition of a claim; Definition of professional services; Exclusions

Date concepts that are fundamental to the claims process

Date of wrongful act, Date a claim is made against the insured or date the insured first becomes aware of the potential claim, Date a claim or potential claim is reported to the insurer, Date a lawsuit is filed and served

Claims professional functions in the claims process

Determine coverage, investigate the claim, collaborate with defense counsel, analyze the insured's liability, assess the claims' value, negotiate the settlement, authorize payment and attempt to resolve the claims in a timely manner

Key elements of a liability analysis

Duty is owed to the claimant; Duty is breached; Injury/Damages are suffered; Injury/damages are caused by the breach

Common types of PLI policies against which claims will be made

E&O/Non-Medical Professional/Miscellaneous E&O, D&O, Medical Professional Liability, Fidelity & Crime Liability, Fiduciary Liability, Employment Practices Liability

When does the claims process begin?

Either with the claimant making a claim against an insured for an alleged error or wrongful act committed during the rendering of professional services OR An insured becoming aware of facts or circumstances that could give rise to a claim

What are 2 key processes for developing the facts of a case?

Fact gathering and investigation

Intake/Open File

First step in processing a claim; claim file number assigned; opened within 24 hours of the initial report since timely handling of the claim is cruicial

File Management

Helps the CP take necessary actions to help move the claim towards resolution, records the actions the CP takes and maintains a detailed record of events and comments that occur during the process of managing the claim

Claims Processing Models

In-house claims department, Third-Party Administrator, Outside monitoring law firm

Reasons insureds are reluctant to report claims

Insureds believe or hope that the potential claim will simply go away, Insureds believe that notifying their insurers will increase premiums or cause the payment of deductibles, An agent/broker issue causes a delay in notification, Insured believes that no error was made so the claim is invalid

Fair and prompt payment of the claim

Insurer is required to provide fair and prompt payment of a claim if it is covered under the policy

Steps in the claims process

Intake/Open File; Assignment of Claim, Contact, Coverage Determination, Factual Investigation/Liability Analysis; Reserving Process; Claims Systems File Management; Resolution/Settlement/Close Claim

Claims professional and defense counsel work together to establish a

Litigation budget

Fiduciary insurance claims

Loss resulting from a fiduciary's breach of duty or resulting from an error omission in the administration of employee benefit plans

In-house claims department

Many insurers maintain a claims department that completes all facets of claims in-house by employed claims professionals

Prompt reporting of a claim to the insurer is critical because

Many policies provide that the claim made to the insured must also be reported to the insurer during the policy's term or risk losing coverage; late notice of claim might affect the insurer's ability to adequately defend the policyholder or preserve evidence; late notice might also adversely affect the insurer's ability to mitigate the damages

Fidelity and Crime insurance claims

May arise from customers and/or organizations that have suffered a wrong caused by some type of crime, such as an error in banking transactions, embezzlement, loss of funds or securities

E&O insurance claims

May arise from individuals and often take the form of a lawsuit, such as when an architect makes an error in a design and is sued by the building's owner; Usually an allegation includes an error or negligence in the provision of professional services that results in some type of financial loss to the claimant

Failure to notify the policyholder in a prompt manner of potential coverage issues

May be considered a waiver of those issues, thus requiring the insurer to ultimately pay for the non-covered calim

Fair Claim Practice regulations

May stipulate that any form of notice by anyone may require an insurer to respond or at least investigate the claim

National Association of Insurance Commissioners (NAIC)

Most state laws are modeled after this and prohibit unfair claim practices such as Refusing to pay claims without conducting a reasonable investigation and Not attempting to get equitable, prompt, and fair settlements of claims, or not working in good faith

Claims Professional's responsibilites

Obtain facts and circumstances surrounding the claim, determine the extent of coverage provided and analyze the insured's liability and damages involved in the claim

Resolution/Settlement/Close File

Once a claim has been resolved, through either a settlement or judgment, the CP makes the necessary payment to the injured parties, including payments for indemnity and allocated loss adjustment expenses; if the policy contains a deductible that the policy holder has not yet satisfied, then the CP may take the necessary steps to collect the deductible; once all loss and expense payments have been made, the CP closes the claim file

Reserving process

Once the CP has enough information to determine a preliminary estimate of the claim's potential value, the CP establishes an opening claim file reserve which is a projection of how much the CP thinks the claim will ultimately cost; reserves may be adjusted to reflect changes as the claim progresses; goal is to establish the reserve, based on the claim's ultimate value as early as possible in the life of the claim

Assistance to the insured after the loss

One objective in claims processing is to maintain a cooperative and professional relationship with the insured

The notice of claim from the insurer contain at least

Policyholder's written descriptive narrative about the client's claim; Dates services were rendered by the policyholder; Names of who provided the services; Other parties that may be involved or have information about the claim; Policyholder's view of the claim being made by the client; Copy of the client file, if possible; If suit or another form of proceeding has been filed against the policyholder, then those documents also must be sent to the insurer with the claims notices

What is the insured's role in the claims process?

Provide requested documents, Authorize records, Not make a payment, assume any obligation or incur any expense without the insurer's consent, Assist the insurer with the claim's defense

Claims Professional's Actions to help maintain effective communication with policyholder

Set reasonable policyholder expectations about the claims process and time frames involved; Explain information or documents needed from the policyholder; Alert the policyholder promptly to any potential coverage issues if known; Explain the litigation process, if a lawsuit is filed and coach the policyholder through the process

The CP can maintain effective communication by

Setting policyholder expectations for the claims process

Determining the amount of a loss payment is one function of the

Settlement process

Outside Monitoring law firm

Similar to a TPA but they use claims counsel in the processing claims

Claims Systems/File Management

The CP manages the claim file as the claim progresses towards a resolution using a diary or calendar system to post activities and to serve as a reminder of important dates for follow-up activities; proper use allows the CP to track the progress of the many claims being handled; CP monitors the case reserves to insure that the reserves are adequate and reflect the exposures presented by the claim

Who plays the most significant role in managing the insurer's relationship with the insured?

The Claims Professional

Case Reserves

The amount that claims professionals estimate will be needed to cover the expenses and potential losses involved in a specific claim and that they estimate will cover claims that have been reported but not yet settled or adjudicated.

Conditions that must be met for coverage to apply

The claim must first be made during the policy period, The error from which the claim arises must occur subsequent to the policy's retroactive date, if the policy provides Prior Acts coverage, The claim must be reported within the designated extended reporting period, if the policy contains language to that effect, If the first notice to the insured is a lawsuit, then that lawsuit must be filed subsequent to the date contained in any Prior and Pending Exclusion, if the policy includes such an exclusion

Unallocated Loss Adjustment Expenses (ULAE)

The claims adjustment expenses that are not allocated to a specific claim and that typically include expenses such as rent, utilities or other overhead expenses

Allocated Loss Adjustment Expenses (ALAE)

The defense costs that can be directly allocated to an individual claim, such as defense attorney fees, expert witness fees, etc

Allocation

The determination of the amount of insured versus uninsured losses, when some of the allegations are covered by the policy and others are not

Defense Reserves

The funds set aside for the payment of allocated loss adjustment expenses incurred defending the policyholder

Loss Adjustment Expenses (LAE) Reserves

The funds set aside to pay the expenses the insurer incurs arising from the adjustment of the claim; LAE includes Allocated and Unallocated (expenses)

Attorney Management Guidelines

The guidelines provided by the Claims Department to the defense counsel that include a guidance on case management procedures; witnesses and experts; and settlement, reporting and billing procedures

Monitoring or Coverage Counsel

The insurer's attorney who monitors the litigation, who advises the insurer on policy coverage and obligations and who may work with the insured's counsel to achieve more cost effective litigation and settlement

Subrogation

The policy provision providing that in the event of any payment under the policy, the insurer will be allowed to assume the insured's rights of recovery against any other person or organization that is responsible for the loss

Unfair Claim Practices

The specific practices of insurers regarding claims management and settlement that are prohibited by fair claims practices statutes in the different states

Fair Claims Practices

The state laws that regulate the claims practices of insurers to ensure that claims are managed in a way that is equitable, accurate and fair

One key responsibility of the CP is to alert the policyholder

To coverage issues

EPLI insurance claims

Typically arise from an alleged wrongful act involving an employment-related action such as discrimination or harassment

Coverage Determination

Upon receipt of the claim, the CP immediately begins a coverage analysis to determine if the claim or any part of the claim is covered; CP reviews the policy, including all forms and endorsements and compares the policy's language to the allegations made in the claim; CP reviews all of the policy's terms and conditions, including endorsement and exclusions; CP may also review the application and underwriting file; CP checks the critical information presented in the claim such as the date the claim was reported and the date of the alleged wrongful act to confirm whether the claim falls within the dates of the policy period; CP compares the allegations being made to the policy's insuring agreement, exclusions and other policy provisions to determine if any of the allegations are covered; if any part of the claim is not covered the CP advises the policyholder of the coverage limitation; if the claim is in the form of a lawsuit and it is determined that an obligation to defend is owed under the policy, the CP assigns the claim to defense counsel and continues to work with the defense counsel to help move the claim toward resolution

Third-Party Administrator (TPA)

Used by some insurers, especially captive insurance companies, trusts and risk retention groups; performs the claims adjusting and reporting functions on the insurer's behalf and may oversee and handle all aspects of the claims process or may only perform specific, designated functions within the process, for a fee

D&O insurance claims

Usually administrative, regulatory or investigative in nature and often arise from class action lawsuits orSEC proceedings; usually demands are for monetary damages; usually filed by shareholders filing a class action suit or a derivative laswsuit

Claims processing objectives

Verification of covered loss, Fair and prompt payment of the claim, Assistance to the insured after the loss, Supervising claims processing and setting reserves

MedPLI claims

usually take the form of lawsuits arising from the errors or negligence of a professional arising out of the rendering of medical services; commonly involve injury to an individual and may take many years to develop and settle