2-D SETTLING THE CLAIM

Question 1

Responding to the Claim

Answer 1

Claim = Formal request to settle

Question 2

When a claimant submits a claim, the adjuster can:

Answer 2

1. Accept the request and pay the claim
2. Reject the request and deny the claim
3. Negotiate a settlement with claimant
4. Use an alternative dispute resolution method

Question 3

Accept the Request and Pay the Claim

Answer 3

● 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 may issue a settlement check

Note: small differences should be settled in favor of the claimant.

Question 4

“Draft Authority”:

Answer 4

● Adjuster can settle directly with claimants and write checks for the insurer
● Often limited to a certain amount (e.g. $5,000)
● Without Draft Authority, adjuster must submit settlement for approval

Question 5

Draft Authority Example

Answer 5

Jenny is an adjuster working for XYZ Insurance and has draft authority for 1st-party property claims with a limit of $5,000. Jenny has just finished writing up an estimate for Bob, who hit a deer in the road and caused $3,500 in damage to his pick-up truck. Because the type of claim and the settlement amount fall within Jenny’s draft authority, she writes Bob a check for $3,500 and submits her report and supporting documentation to XYZ Insurance. If Jenny did not have draft authority, she would have to submit her report and documentation to XYZ Insurance, and Bob would wait to receive a check directly from the insurer.

Question 6

Refuse and Deny

Answer 6

Reject the Request and Refuse to Pay the Claim

Question 7

Reject the Request and Refuse to Pay the Claim:

Answer 7

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

Question 8

Negotiate with the claimant:

Answer 8

● 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

Question 9

Adjusters must know the exact amount that the insurer is willing to pay to _____ ​before
investing time in the negotiation process.

Answer 9

settle

Question 10

No negotiations:

Answer 10

● When dollar amount difference is too small
● When dollar amount difference is too great
● For punitive damages

Question 11

Dispute Resolution

Answer 11

Adjuster/claimant negotiation

Question 12

Adjuster/claimant negotiation:

Answer 12

● Only works when both parties are motivated to settle

● Easiest, lowest-cost negotiation option

Question 13

Alternative Dispute Resolution Methods

Answer 13

● Arbitration
● Mediation
● Apprai​sal
● Declaratory Judgment
● Litigation (letting the claim go to court)

Question 14

Litigation should be ​___ ___

Answer 14

last resort

● Can be expensive and unpredictable
● Adjuster’s primary motivation: settle claim promptly and efficiently without
‘litigation’

Question 15

Dispute Resolution: Arbitration

Answer 15

● 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

Question 16

Dispute Resolution: Mediation

Answer 16

● Mediator is a neutral third party
● Mediator only advises in 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)

Question 17

Consequences for failure to appear at mediation:

Answer 17

● Severe for the adjuster – contempt of court and/or penalties
● Mild for the plaintiff – no penalty or minor penalty

Question 18

Dispute Resolution: Appraisal

Answer 18

● 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, N​OT WHETHER COVERAGE EXISTS IN THE FIRST PLACE

Question 19

Dispute Resolution: Declaratory Judgment Action

Answer 19

● 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

Question 20

Litigation​:

Answer 20

last resort method of claim resolution

Question 21

(Litigation) Taking a claim to court can be:

Answer 21

● Expensive
● Unpredictable
● Possible even after binding negotiations

Question 22

Four Options when Responding to a Claim:

Answer 22

1. Accept the request and pay the claim
2. Reject the request and deny the claim: requires written explanation
3. Negotiate a settlement: when claimant’s offer is within a reasonable range of
   the insurer’s offer
4. Dispute Resolution:
   a. arbitration
   b. mediation
   c. appraisal
   d. declaratory judgment

Question 23

Settlement

Answer 23

When two parties in a dispute reach an agreement

The insurer 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

Question 24

Full Release Settlement

Answer 24

● 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

Question 25

Scheduled Payment Release

Answer 25

● Also called “Open-ended Release,” or “Rehabilitation Settlement”
● The insurer agrees to pay all compensatory damages (both special and
general) up to the point of settlement
● The insurer also pays for “incidentals” for future costs related to the claim
● Most often used in workers compensation claims

Question 26

Payment of Property Damage; Bodily Injury Pending

Answer 26

● Involves claims that have property damage along with a bodily injury
● The insurer indemnifies all property damages​ w​ hile awaiting settlement for
bodily injury
● Claimant must be in a condition in which he can understand this settlement
option

Question 27

Advance Payment Settlement

Answer 27

● Used when the claimant’s damages are mostly bodily injury and the claimant is unable to work
● Insurer makes a series of partial payments and then subtracts them from the final settlement amount
● Decreases chances of lawsuit

Question 28

No Release Settlement

Answer 28

● Also called “Walk-away” settlement
● Insurer pays the bills submitted by the claimant
● Signing and cashing a check substitutes for the release form

Question 29

No Release Settlement Example

Answer 29

The back of an indemnification check may state: “By endorsement, the payee on this check agrees to release XYZ Insurance from all further payments….”

Question 30

Structured Settlement

Answer 30

● Series of smaller payments over time
● Reserved for largest claims
● Insurer often must pay a portion up front

Question 31

Settlement Options:

Answer 31

● Full Release:​ insurer writes one check to cover all damages; claimant signs a full release form
● Scheduled Payment Release:​ insurer pays all compensatory damages and agrees to pay certain future “incidentals”
● Payment of Property Damage; Bodily Injury Pending:​ insurer indemnifies for property damage first; then bodily injury, when the amount is available
● Advance Payment:​ insurer makes multiple partial payments until the final settlement is agreed upon
● No Release Form:​ insurer cuts a check for the amount of the damages, but the claimant is not required to sign a release form
● Structured Settlement:​ breaks up the indemnity into a series of smaller payments