2/D - Settling the Claim

Question 1

Responding to the Claim

Answer 1

Claim = Formal request to settle

When a claimant submits a claim, the adjuster can:

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 2

Accept and Pay

Answer 2

1. Accept the Request and Pay the Claim
   - 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.

“Draft Authority”

• 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 3

Refuse and Deny

Answer 3

2. Reject the Request and Refuse to Pay the Claim

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 4

Negotiate

Answer 4

3. 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

Question 5

Is Negotiation Possible?

Answer 5

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

No negotiations:

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

Question 6

Dispute Resolution

Answer 6

Adjuster/claimant negotiation:

• Only works when both parties are motivated to settle
• Easiest, lowest-cost negotiation option

4. Alternative Dispute Resolution Methods
   - Arbitration
   - Mediation
   - Appraisal
   - Declaratory Judgment
   - Litigation (letting the claim go to court)

Litigation should be last resort

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

Question 7

Arbitration

Answer 7

Dispute Resolution: Arbitration

• 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 8

Mediation

Answer 8

Dispute Resolution: Mediation

• 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)

Consequences for failure to appear at mediation:

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

Question 9

Appraisal

Answer 9

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

Question 10

Declaratory Judgment Action

Answer 10

Dispute Resolution: Declaratory Judgment 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

Question 11

Litigation

Answer 11

Litigation: Last resort method of claim resolution

Taking a claim to court can be:

• Expensive
• Unpredictable
• Possible even after binding negotiations

Question 12

Settlement Options

Answer 12

Settlement
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 13

Full Release

Answer 13

1. 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

Question 14

Scheduled Release

Answer 14

2. Scheduled Payment Release
   - 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 15

Payment of Property Damage; Bodily Injury Pending

Answer 15

3. Payment of Property Damage; Bodily Injury Pending
   - Involves claims that have property damage along with a bodily injury
   - The insurer indemnifies all property damages while awaiting settlement for bodily injury
   - Claimant must be in a condition in which he can understand this settlement option

Question 16

Advance Payment

Answer 16

4. Advance Payment Settlement
   - 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 17

No Release

Answer 17

5. 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

Question 18

Structured Settlement

Answer 18

6. Structured Settlement
   - Series of smaller payments over time
   - Reserved for largest claims
   - Insurer often must pay a portion up front