10. Settling the Claim - Negotiation Flashcards
Responding to the claim: Accept and Pay
- claimant has proven damages
- adjuster determines settlement amount based on investigation
- If amount is close to claimant’s offer, adjuster comes to agreement with claimant and issues settlement check
*** small differences should be settled in favor of the claimant
*** adjuster can settle directly with claimants and write checks for the insurer, without Draft Authority adjuster must submit settlement for approval
Responding to the claim: Reject and Deny
some reasons why an adjuster may deny a claim:
- the damages aren’t covered
- the claim is fraudulent
- the claimant can’t prove damages
- the loss occurred outside the policy period
Responding to the claim: Negotiate with the Claimant
- damage is covered
- claimant is asking for more than insurer is willing to pay
- adjuster must negotiate to find an amount that will settle the claim
Responding to the claim: is negotiation possible?
Adjusters must know the exact amount they the insurer is willing to pay to settle prior to investing time in the negotiations process
no negotiations:
- when dollar amount difference is too small
- when dollar amount difference is too great
- for punitive damages
( if no negotiations are possible then proceed to dispute resolution )
Responding to the claim: Dispute Resolution
Adjuster/Claimant Negotiation
- Only works when both parties are motivated to settle
- Easiest, lowest-cost negotiation option
Alternative Dispute Resolution Methods
- Arbitration
- Mediation
- Appraisal
- Declaratory Judgement
- Litigation (letting the claim go to court) (least common)
Last Resort for responding to a claim? Litigation
- can be expensive and unpredictable
- adjuster’s primary motivation: settle claim promptly and efficiently without litigation.
Dispute Resolution: Arbitration
Opposing party agrees to a decision from a neutral third party.
- Arbitrator is a neutral third party
- Arbitrator’s decision is legally binding
- Costs less to taxpayers than a court of law
- Less formal atmosphere allows more evidence
- Arbitrators often have more expertise than juries
Dispute Resolution: Mediation
Similar to a third party, however the third parties decision is not binding. Mediator plays an advisory role.
- Mediator is a neutral third party
- Mediator only advises on the negotiation
- Mediator’s decision is not legally binding
- Settlement is only legally binding if both parties agree to it
- Either party may “walk away” (impasse)
Consequences for failure to appear at mediation:
- severe for the insurer: contempt of court and/or penalties
- mild for plaintiff: no penalty or minor penalty
Dispute Resolution: Appraisal
- a definite disagreement must exist prior to appraisal
- each side chooses an appraiser
- both appraisers agree on an umpire
- agreement by any two of the three is binding
- appraisal only decides settlement amount, not whether coverage exists in the first place
Dispute Resolution: Declaratory Judgement Action
- court declares the legal rights of both parties
- court does NOT decide how to resolve the case
- disputing parties then use the court’s decision to come to settlement
Dispute Resolution: Litigation
- last resort method of claim resolution
- taking a claim to court can be:
- expensive
- unpredictable
- possible even after binding negotiations
Settlement
When two parties in a dispute reach an agreement
- the insure and the claimant agree on:
- how much will be paid
- terms & conditions of payment
- when a settlement is reached, the claimant:
- gives up her right to seek any further
damages - gives up the right to sue
- ( as long as the insurer follows the terms of the settlement )
- gives up her right to seek any further
Settlement Options: Full Release Settlement
- also called “full release of all claims and settlement agreement
- all damages paid at once
- most common settlement option
- insurer pays immediate, single “lump sum” to claimant
- claimant signs Full Release Form that releases the insurer from additional claims
Settlement Options: Scheduled Payment Release
- also called “open-ended release” or “Rehabilitation Settlement”
- insurer agrees to pay all compensatory damages (both special and general) up to the point of settlement
- insurer also pays for certain future “incidentals” related to the claim
- most commonly used in Workers Comp claims
Settlement Options: Payment of Property Damage; Bodily Injury Pending
- involves claims that have property damage and bodily injury
- insurer indemnifies all property damages while it awaits the proper indemnification for bodily injury
- ( claimant must be in condition in which he can understand this settlement option )
Settlement Options: Advance Payment Settlement
- used when the claimant’s damages are mostly bodily injury and the claimant is unable to work
- involves a series of partial payments that will be subtracted when the final settlement amount is determined
- decreases chances of lawsuit
Settlement Options: No Release Settlement
- also called “walk-away” settlement
- insurer pays the bills submitted by the claimant
- signing and cashing a check substitutes for the release form
Settlement Options: Structured Settlement
- series of smaller payments over time
- reserved for largest claims
- insurer often must pay a portion up front
Negotiation
A process by which two opposing parties attempt to merge their respective interests in order to yield a balanced and beneficial outcome for both parties
Liability claims vs. Property damage claims
Liability damage claims
- harder to assign dollar amounts
- factor in issues like mental duress and comparative negligence
Property damage claims
- cost to repair or replace is simple and straightforward
Negotiation: The Preliminaries
Before negotiations begin, an adjuster must determine:
- Is there coverage?
* peril is covered
* policy is active, etc. - What is the insured’s liability? (liability claims only)
- What are the damages?
* special damages
* general damages
(NO NEGOTIATING PUNITIVE DAMAGES)
Prior to negotiations, the adjuster must:
- complete investigation
- complete estimate
- know the circumstances
- be clear about objectives
- understand possible obstacles
Negotiation Tips: Minor Details
Solving simple, trivial matters can get negotiations unstuck
- saying “I’m sorry” for a clerical error or a frustrating misunderstanding
- pinpoint and rectify minor issues with the claimant right off the bat
Negotiation Tips: The “Give and Take”
- approach negotiations with an open mind
- impossible to prevail on every point
- conceding some points increases likelihood of opposing party conceding points
- inflexible prevents negotiation and causes frustration
