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How insurance companies settle cases

how insurance companies settle cases

From the November 2001 Update

Chapter 1. Introduction to the Claims Game

§100 In General

§110 The Game

§111 The Objective: Settlement and Payment

§112 The Means to an End—Salesmanship

§113 The Salespeople

§114 The Product—Pain and Suffering (Damages)

§119 No Sale—Go Straight to Trial

§120 Avoiding Bad Faith

§120.1 How to Avoid Bad Faith Allegations

§130 The Players

§131 The Plaintiff—A Fortuitous Person

§132 The Insured—Protectee

§133 The Agent—Middleman

§134 The Insurer—Protector

§160 Common Insurance Industry Acronyms

§170 Locating Old Policies

§201 Why the Application is Important

Sample: Automobile Application for Insurance

Sample: Homeowners Application for Insurance

§202 The Application as an Escape Device

§203 The Application as a Negotiating Tool

§204 Rescission

§205 Post-Claims Underwriting

§206 Slow Processing Resulting in Coverage

§207 Ratification of a Known Misrepresentation – Waiver

§210 The Automobile Accident

§211 The Policy Comes Alive

§211.1 Claims by the Insured

§211.2 Claims by the Claimant

§211.3 Notice is Notice

§212 Adjusting by the Agent

§212.1 Conflict of Interest

§212.2 Coverage Adjustment

§212.3 Factual Investigation

§220 Agent’s Initial Report to Claims Department

§221 All Lines of Coverage Confirmed

§222 Policy Number Verified

§223 Limitations

§224 Policy Exclusions

§224.1 Unreasonable Insurance Clauses

§224.2 Ambiguous Clauses

§225 Policy Exclusion Rider(s)

§226 Cancellation—Nonpayment of Premiums

Sample: Cancellation Notice

§227 Negligent Misrepresentation of Coverage by Agent

§230 Facts of the Accident

§230.1 Date and Time of Loss

§230.2 Location of Loss

§230.3 Driver’s Name

§230.4 Permissive Driver

§230.5 Vehicle Description

§230.6 The “Black Box”

§230.7 Alternative Vehicle

§230.8 Exclusions—Intentional Acts

§230.9 Insured’s Attitude

§230.10 Hardships

§230.11 Special Facts—Important People

§230.12 Agent’s Opinion—Instructions

§230.13 Bodily Injury

Chapter 3. Creating the Claims File

§300 In General

§301 How the Claims File is Created

§302 Real and “Dummy” Files Created

§303 Coverage Documentation

§304 Duties of Primary Insurers Owed to Excess Insurers

§310 Fact Finding Team Assignments

§340 Checklist for Coverage Investigations

§350 Checklist for Factual Investigations

§380.1 Insurance Company’s Policy

Chapter 4. Investigating Coverage

§400 In General

§401 Reasonable Expectation of the Insured—Intent

§401.1 Pre-Tender Defense Costs

§401.2 Conspicuous, Plain and Clear Notice of Change in Policy

§401.3 Marketing Brochures

§402 Insurer’s Duty to Avoid Conflict of Interest

§402.1 Avoiding Potential Conflicts

§402.2 Special First Party Conflict of Interest

§403 Agent/Broker Liability

§403.1 Status as Agent or Broker

§403.2 Standard of Care

§403.3 Damages

§403.4 Liability to Third Party

§403.5 Liability to Insurer

§410 Fiduciary Disclosure by the Insurer

§411 Good Faith and Fair Dealings

§412 Cumis-Attorney Disclosure: Third Party

§413 Cumis-Attorney Disclosure: First Party

§413.1 Rationale: Unequal Bargaining Power

§420 Documents Necessary for a Coverage Investigation

§420.1 Insured’s File

§420.2 Application for Insurance

§420.3 Agent’s File

§420.4 Underwriter’s Files

§420.5 Coverage Question Investigation File

§420.6 Factual Investigation File

§420.11 Underwriting Manuals

§440.1 Intentional Conduct by the Insured

§440.2 No Insurable Interest

§440.3 Occurrence Not Within Term

§440.4 Undefined Policy Language

§440.5 Failed Policy Condition

§440.6 Exclusions

§440.6.1 Ambiguous or Deceptive Headings for Exclusions

§440.7 Not a Bodily Injury

§440.8 Policy Limitations

§440.9 Manifested Losses

§440.9.1 Undiscovered Manifestation

§440.9.2 Discovered Manifestation

§440.10 Failure to Plead Damages

§440.11 Prorating Coverage

§440.12 Vehicle Ownership, Maintenance, Use, or Operation

§440.13 Pre-Existing Condition

§440.14 Prejudice

§450 Contract Defenses

§450.1 Fraud/Rescission: Voiding the Policy

§450.2 Mistake and Reformation

§450.3 Policy Cancelled

§450.4 Elimination of Coverage

§450.5 Covered Malicious Torts

§450.6 Partial Defenses

§460 Occurrence Issues

§470 Good Faith Coverage Investigation

§471 Alternative Coverage Investigation

§472 Numerous Theories of Denial—Waiver

§473 Exclusions Must Be Conspicuous, Plain and Clear

Chapter 5. The Factual Investigation

§500 In General

§501 Contact and Control

§501.1 Introduction of a Plaintiff’s Attorney

§502 The Preliminary Investigation

§502.1 Favorable Facts

§502.2 Unfavorable Facts

§503 Duty to Disclose Coverages

§503.1 Duty to the Claimant

§503.2 Duty to the Insured

§503.3 Agent’s Duty to Insurer

§510 Incident Statements (Signed, Unsigned or Recorded)

Sample: Automobile Loss Notice

Sample: Homeowners Loss Notice

§510.1 Checklist for Injury Evaluation

§511 No Personal Contact—Just Forms

§512 Insured Driver

§513 Witness in Insured Vehicle

§514 Witness in Adverse Vehicle

§515 Known Independent Witnesses

§515.1 Police Officers’ Statements or Interviews

§515.2 Tow Truck Drivers

§515.3 Ambulance Driver

§515.4 Unknown Scene—Canvassed Witness

§520 Forms and Documentation

§520.1 Medical Authorization

§520.7.3 Large Fire Losses—PILR

§521 Documentation of Bodily Injury Claims

§521.1 Medical Bills

§521.2 Medical Reports

Sample: Medical Report

§521.3 Lost Wage Reports

Sample: Request for Employee Information

§521.4 Police Reports

§521.5 Death Certificate

§521.6 Coroner’s Report

§521.7 Non-Waiver Agreements

Sample: Non-Waiver Agreement

§521.8 Reservation of Rights Letters

§533 Both First and Third Party

§534 Experts

§534.1 Seat Belt Experts

§534.2 Auto Accident Reconstruction Experts

§534.3 Medical Defense Doctor

§535 Independent Adjusters/Investigators

§542 Property Damage Claims

§542.1 Value of Each Claim

§542.2 Prorating/Compromise

§542.3 Interpleading

§550 Primary/Secondary/Umbrella Policies

§550.1 Insured Driver’s Policy (Third Party Coverage)

§550.2 Insured Driver’s Policy (Non-Owned Auto)

§550.3 Insured Driver’s Policy (First Party—Under/Uninsured)

§550.4 Insured Driver’s Policy (Primary, Secondary and Under/Uninsured Coverage)

§570 Maintenance of the Claim File

§571 30/90 Day Diary

§571.1 Reverses as a Bad Faith Tip-Off

§572 Reverse Bad Faith Letters

Sample: Bad Faith Letter #1

Sample: Bad Faith Letter #2

Sample: Bad Faith Letter #3

Sample: Bad Faith Letter #4

§573 Comparative Bad Faith

§580 Liens and Assignments—“Notice Claimants’’

§581 Medical Providers

§582 Worker’s Compensation

§583 Prior Attorney Representation

§584 Banks/Mortgage Companies

§585 Auto Body Repair Shops

Sample: Auto Body Shop Assignment of Benefits

§590 Unfair Settlement Practices

§591 Misrepresentation/Communication

§592 Reasonable Standards/Prompt Settlement

Chapter 7. Settlement Negotiations and Compromises

§702.7.2 Damages

§702.7.3 Assessment of Liability

§702.7.4 Monetary Damages

§703 Out of Court Dollars

§704 Reciprocal Good Faith Duties

§704.1 Prompt Response to Settlement Demand

§710 Reasonable Settlement Defined

§711 Sources of Standards

§712 Bilateral Duty to Start Negotiations

§713 Innovative Ways to Settle a Case

§720 Support/Documentation of the Settlement Demand

§720.1 Demand vs. Offer to Settle

§720.2 Facts: Police Reports/Statements

§720.3 Law(s): Vehicle Code/Negligence

§720.4 Comparative Fault

§720.5 Damages: Documents/Reports

§720.6 Computations and Conclusions

§720.7 Reasonable Response Time

§730 Written Communications Only—Demands

§730.1 Full Disclosure

§730.2 Failure to Advise Insured

§740 A Trap for Attorneys: Comparative Fault and Policy Limits

§740.1 Negotiate Against the Value of the Case

§750 Compromise Considerations for the Insurer

§760 Compromise Considerations for the Plaintiff

§770 Compromise Considerations for the Plaintiff’s Attorney

§780 Maintaining Your Relationship With the Adjuster

§790 Checklists for Preparing Bodily Injury Settlement Packages

§790.1 Fact Gathering Checklist

§811 Lowballing the Claimant

§831 “Benefits Delayed” is “Benefits Denied”

§831.1 Unfair Leveraging

§831.2 Excess Coverage

§831.3 Economic Pressure

§831.4 Claims Maze

§831.5 Need Insured’s Cooperation First

§910 First Party Denials

§911 No Insurable Interest

§917.1 Criminal Act

§918 Policy Cancellations

§919 Date of Loss Outside Policy Term

§920 Policy Exclusions

§921 Exclusion Riders

§921.1 Driver Exclusion

§921.2 Vehicle Exclusion

§921.3 Territory Exclusion

§922 Punitive Damages, Penalties, and Fines

§923 Family Member Exclusion Void: Public Policy

§930 Word Games

§931 Not a “Vehicle”

§932 Not an “Insured”

§933 Not an “Agent”

§934 Not an “Accident”

§935 Not a “Roof”

Chapter 10. Action Letter Outlines

§1000 In General

§1001 Voluntary Motivation

§1002 Involuntary Motivation

§1003 Ten Tips for Writing Effective Letters

§1010 Letters by the Attorney

§1011 Letter to the Adverse Motorist

§1012 Letter to the Agent

§1013 Introductory Letter to the Claims Representative

§1014 Letter to an Unresponsive Claims Adjuster

§1015 Letter to the Home Office of the Insurance Company

§1016 Letter to the Insurance Commissioner

§1017 Discovery Letter to the Insurance Adjuster

Sample: Discovery Letter to Insurance Adjuster

§1020 Time Limit/Policy Limit Demand Letters

Sample: Time Limit/Policy Limit Demand Letter to Adjuster

Chapter 11. Releases and Covenants

§1100 In General

§1101 Release or Covenant Not to


Sample: Release of All Claims

§1121.1 Open Release

§1122 Signed Releases

§1123 Witnessed/Notarized Releases

§1124 When No Release is Signed—Walk Away Settlements

§1125 Signing Multiple Releases

§1126 Recording Releases Over the Telephone

§1127 Reserving Extra Contractual Damages

§1128 Good Faith Release and Multiple Parties

§1129 Parents Release Indemnity Agreement

§1129.1 Court Approved Settlements with Minors

§1130 Breaking the Written/Signed Release

§1131 Fraud or Misrepresentation in the Inducement to Sign a Release

Chapter 12. How to Estimate Bodily Injury Settlements

§1200 In General

§1201 What is a Settlement Offer?

§1202 What is the Scope of Bodily Injury Settlements?

§1203 What is the Basis of Bodily Injury Settlements?

§1203.1 Disputed Liability or Damages

§1203.2 Undisputed Liability or Damage

§1210 Categories of Bodily Injury Damages

§1210.1 Current Damages

§1210.2 Future Damages

§1210.3 Rehabilitation Damages

§1210.4 Punitive Damages

§1210.5 Loss of Enjoyment of Life Damages

§1210.6 Loss of Inheritance

§1210.7 Loss of Consortium

§1220 Thirteen Steps in Evaluating A Bodily Injury Claim

§1220.1 Step One: Legal Liability of the Defendant

§1220.2 Step Two: Credibility and Quality of the Plaintiff

§1220.3 Step Three: Credibility of Plaintiff’s Doctor

§1220.4 Step Four: Pre-Existing Injuries

§1220.4.1 No Accounting

§1220.4.2 Independent Accounting

§1220.4.3 Double Conditional Accounting

§1220.4.4 Single Conditional Accounting

§1220.5 Step Five: Current Medical Expenses

§1220.6 Step Six: Current General Damages

§1220.6.1 Low Range Example

§1220.6.2 Mid Range Example

§1220.6.3 High Range Example

§1220.7 Step Seven: Current Lost Wages or Income

§1220.8 Step Eight: Future Medical Expenses—Projected

§1220.9 Step Nine: Future General Damages

§1220.9.1 Low Range Example

§1220.9.2 Mid Range Example

§1220.9.3 High Range Example

§1220.9.4 Special Note: Lifetime General Damages

§1220.10 Step Ten: Future Lost Wages or Income—Projected

§1220.11 Step Eleven: The Vocational/Professional Rehabilitation Expenses

§1220.12 Step Twelve: Punitive Damages

§1220.13 Step Thirteen: Loss of Enjoyment of Life Damages

§1230 Physical Capacities Evaluation

Sample Form: The Pain Questionnaire

Sample Form: Neck Disability Index

Sample Form: Physical Capacities Evaluation

§1240 Sample Bodily Injury and Negotiation Work Sheet

Key Points to Remember

Chapter 13. Underinsured Motorist Coverage

§1300 Elements of Coverage

§1301 The Insured Claimant’s Auto Policy Must Contain Coverage

§1302 The Claimant Must Sustain A Bodily Injury

§1303 The Claimant Must Be Legally Entitled to Recover from the Underinsured Motorist

§1304 The Underinsured Motorist Must Be Insured—Otherwise an Uninsured Motorist Claim

§1305 The Underinsured Motorist Must Have Bodily Injury Coverage with Limits Less than the Claimant’s Underinsured Limits

§1306 The Insured Claimant’s Insurer Stands in the Shoes of the Underinsured Motorist

§1306.1 Potential Conflict of Interest

§1306.2 Avoiding Bad Faith by the Insurer

§1307 Arbitration of Disputes

§1307.1 Legal Liability

§1307.2 Damages

§1307.3 Total Damages—Not Policy Limits Damages

§1310 Procedure

§1311 The Insured Claimant’s Bodily Injury Claim Must be in Excess of the Underinsured Motorist’s Policy Limits

§1312 Putting the Underinsured’s Insurer on Certified Written Notice of Underinsured Coverage Claim

§1313 File Suit Against Underinsured Motorist

§1314 Get “Permission” from the Underinsurance Insurer to Settle with Underinsured Motorist

§1314.1 Exception

§1320 Offset and Exclusions

§1321 Excess Bodily Injury Claims of Both Policies

§1322 Computation of the “Total” Value of the Bodily Injury

§1322.1 Reasonable Expectation of the Insured Claimant—Policy Limits Due Without Offset

§1322.2 Collateral Source Doctrine May Apply—No Offset

§1322.3 Exhaustion of Primary Limits of Liability

§1390 Punitive Damages

Key Points to Remember

Chapter 14. How To Take a Claims Representative’s Deposition

§1400 Pre-Deposition Homework

§1410 Subpoenaed Documentation

§1410.1 The Claims File

§1410.2 The Claims Manual

§1410.3 The Policy Manual

§1410.4 The Claims Representative’s Personnel File

§1410.4.1 Job Description

§1410.4.2 Goals for Previous Year of Employment

§1410.4.3 Goals for Current Year of Employment

§1410.4.4 Promotions or Demotions—Why?

§1410.4.5 Case Load Count

§1410.4.6 Enrolled Courses and Education

§1410.4.7 General Duties and Responsibilities

§1410.4.8 Longevity-Old Timer or Rookie?

§1410.4.9 Why was the Claims Representative Assigned this Particular File?

§1410.6.2 Changes

§1410.6.3 Discoverability

§1410.6.4 Reinsurance Documents

§1410.7 The Agent’s Policy File

§1410.8 The Agent’s Claims File

§1410.9 The Reinsurance Treaty

§1410.10 The Reinsurance Claims File

§1410.11 The Underwriting File

§1410.12 Training Manuals/Publications

§1410.16.2 Peace of Mind

§1410.16.3 Trust

§1410.16.4 Compliance with Unfair Claims Practices Acts

§1410.17 Employee’s Orientation Manual

§1410.18 Log of Public/Policy Holder Complaints

§1410.19 Register of Complaints

§1410.20 Company Guidelines for Letter Writing

§1410.21 Chart of Claims Network—Chain of Command

§1410.22 Financial Reports

§1410.23 Ethical Codes to Which the Insurer Subscribes

§1410.24 Outline: Request for Production of Documents

§1410.25 Bad Faith Lawsuits

§1410.26 Reserves

§1410.27 Video Magazines

§1420 Interrogatories to the Claims Representative

§1430 The Deposition Notice

§1431 Has the Claims Representative Brought All Claims Files?

§1432 Have the Claims Representative Bring the Claims Manual

§1440 The Deposition—Introduction

§1440.1 Video Depositions

§1440.2 Setting the Stage for Your Examination

§1450 The Deposition—Foundation

Chapter 15. Bad Faith—Bad News

§1500 General Principles and Definitions

§1501.1 Non Insurance Companies - HMO

§1502 Extra-Contractual Damages

§1503 Assignment of Bad Faith

§1504 Lien Rather than Assignment

§1505 A Working Definition of Bad Faith

§1505.1 The Unreasonable

§1505.2 Withholding

§1505.3 Policy Benefits

§1505.4 Without Proper Cause—Excuse

§1505.5 Equitable Subrogation

§1514 Retrospective Premiums

§1520 First Party Bad Faith

§1521 Implied-in-Law Covenant

§1521.1 Use of Unfair Claims Practices Statutes

§1522 Fiduciary Duties Owed the Insured

§1523 ERISA

§1524 Premature Arbitration by Insurer

§1524.1 Bad Faith Arbitration

§1525 Third Party Beneficiary-Insured

§1526 Additional Insureds

§1530 Bad Faith Wrongful Death

§1540 Theories of Extra-Contractual Damages for First Party Claimants

§1541 Common Law Bad Faith

§1542 Examples of Unreasonable Withholding

§1542.1 Deceptive Claims Practices

§1542.2 Intimidation Claims Practices

§1542.3 Failure to Communicate

§1542.4 Failure to Educate

§1542.5 Capricious Cut-Off of Benefits

§1542.6 Arbitrary Declaratory Relief

§1542.7 Failure to be Objective

§1542.8 Distorted Policy Interpretation

§1542.9 Unreasonable Delay of Payment

§1542.10 Failure to Thoroughly Investigate

§1542.11 Failure to Reconsider Denial

§1542.12 Breaches of Unreasonableness During Litigation

§1544 Statutory Bad Faith

§1545 Exception to the “Fairly Debatable Rule”

§1546 Denial of Claim Based on Void Exclusion

§1547 Fraud

§1548 Insurer’s Negligent Release of the Insured’s Claim Against a Third Party

§1550.7 Case Law

§1550.8 Lack of Coverage Under Policy

§1550.9 Return of Third Party Bad Faith in California

§1550.10 Strict Liability

§1551 Coaching the IME Doctor

§1552 Information Sharing by SIUs

§1560 Defenses to Bad Faith Actions

§1561 Statutory Privilege

§1562 No Unreasonable Withholding

§1570 Damages

§1571 Tort or Extra-Contractual Damages

§1572 Contractual Damages

§1572.1 Non-Adjunct Bad Faith Cases

§1573 Punitive Damages

§1501A Campbell v. State Farm Insurance

§1501.1A Update

§1502A Middler v. State Farm Insurance Companies

§1503A State Farm Fire and Casualty Company v. Superior Court (Taylor)

§1507A State Farm Auto Insurance Company takes a $1.2 Billion Hit

§1508A Teresa Goodrich v. Aetna U.S. Health Care of California, Inc.

§1509A Diamond v. General American Insurance Company

Chapter 15B. Common Claim Myths

§1500B In General

§1510B Myth #1: “Threatening to File Suit Will Soften Adjuster’s Position”

§1520B Myth #2: “Insurers and Adjusters Use ‘Three-Times-Specials’ Formula”

§1530B Myth #3: “It’ll Be More Expensive to Defend Than to Settle”

§1540B Myth #4: “Time Limit Demands Usually Expedite Adjuster Responses”

§1550B Myth #5: “Adjusters Receive Bonuses Based on What They ‘Save’ Off a Claim”

§1560B Myth #6: “Adjusters Cannot Evaluate Cases as Well as Attorneys”

Chapter 16. Settling the $5,000 to $75,000 Bodily Injury Claim

§1600 Introduction: The “Bread-and-Butter” Case

§1610 This is Not the Lottery

§1620 Limited Partnership

§1630 Funding the Settlement

§1640 Finding the Funder

§1650 Preparation for Preliminary Negotiations

§1660 The Sale—What the Case is Worth

Chapter 17. Uninsured Motorist Claims

§1710 Definition of Uninsured Motorist Vehicle

§1831.13 No Release

§1831.14 Admitted Ambiguity in Policy

§1831.15 Like Kind and Quality Parts

§1831.16 Depreciation Tables and Betterment

§1831.17 Glass Breakage

§1831.18 Conference Report on Fair Insurance Claims Adjustment—Preamble

§1831.19 Guiding Principles Relating to Auto Insurance Claims

§1831.31 Inter-Insurance Arbitration Agreement

§1831.32 Staffing Ratio—Adjusters to Caseload

§1831.33 Education

§1831.33.1 Claims Schools

§1831.33.2 On the Job Training

§1831.33.3 Continuing Education

§1831.34 Those Other Doctors

§1831.35 Coverage Inclusions and Exclusions

§1831.36 Excess Liability Insurer’s Duties

Category: Insurance

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