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SPRING 2009

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Information for today’s claims professionals

Don’t Judge a Claim by Its Cover Assessing Coverages by the Golden Rule

An Act of (Bad) Faith Not So Fast!

Adjusting Building Restoration Claims Techno-Sleuthing

Medical Compliance Menu

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Contents in this issue spring 2009

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36 14

30

8

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Assessing Coverage by the Golden Rule

Techno-Sleuthing New technology, better data and improved modeling can finger insurance fraudsters.

Best practices mean trying to find coverage and preparing to defend denials.

By richard della rocca

By Janet l. brown

Cover Story

18 The Eye of the Beholder You can’t judge a claim by its cover. Coverage claims are subject to wildy varying interpretations. By Cheryl arvidson

ISO Claims solutions

boehm, brown, fischer, harwood, kelly, and scheihing, P.a.

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Traumatic Brain Injury Poses Long-Term Issues for Insurers

Adjusting Building Restoration Claims By Ronald G. Thornton, cpcu; Jonathon Held; and donna j. popow, j.d., cpcu, aic

New ideas add to the data pool. By Dr. Steven Carter, Psyd, lp Expert advantage

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An Act of (Bad) Faith

40

Litigators are looking for claims handling missteps.

Not So Fast! The validity and interpretation of racing and speed-contest exclusions.

By douglas G. Houser & nicholas l. dazer bullivant houser bailey pc

By john b. drummy kightlinger & gray, llp

cover: Glowimages/Getty Images

CLAIMS ADVISOR | SPRING 2009




We are pleased to announce that EFI Global has joined the Cunningham Lindsey Family of Companies On February 10, 2009, EFI Global, a leader in forensic engineering, fire investigations and environmental services, proudly joined the Cunningham Lindsey family of companies, a global leader in the independent insurance claims industry. This exciting union leverages the strength and success of two industry leaders to form the most comprehensive set of services serving the insurance claims industry and real property markets. Now with a combined network of more than 600 offices in over 70 countries, both organizations are strengthened with broader service offerings, depth of expertise and strategic geographic reach. Following this union, EFI Global will continue to operate under its current name while its logo and corporate identity will be redesigned to incorporate elements from Cunningham Lindsey. Our logo may be changing, but our commitment to deliver client focused solutions that exceed expectations remains as strong as ever.

www.efiglobal.com

www.cunninghamlindsey.com


Contents in this issue, cont’d... spring 2009 6046

60

48

52

46

60

On the Brink of Collapse

Medical Compliance Menu

Temporary bracing mitigates risk of structural failure in construction projects.

Served daily: regulation ragout. You can’t tell what’s what, and it’s sure to give you indigestion. Software providers may have a prescription.

By e. brian webb, p.e., c.m.i. donan engineering co., inc.

52

56

By john gilmartin

mitchell international, inc.

8

The Economic Impact on Temporary Housing Claims How will it affect your policyholders? By aaron Wilson

temporary accommodations

in every issue spring 2009

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Edit: Letter from the Editor

It’s Not Nice to Fool Mother Nature Site-specific weather analysis offers an expert approach to evaluating weather-related claims. By kevin E. hopler & frank lombardo, ccm weatherworks, llc

6

Pulse: Your Responses to Our Online Polls

64

Cool Linx

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The Commish

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Interview: What Makes You Tick?

66

Write: Tips for Better Writing

67

Event: Calendar of Industry Meetings

68

Source: Advertiser Directory

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Story: Claims Adjuster Musings

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CLAIMS ADVISOR | SPRING 2009




Edit I Know What You Mean One of my favorite classes back in college was a communications course. At the time, it was eye opening for me to look at the different ways we not only express our ideas but receive information from those around us. One day, after a lecture about the many layers of communication—verbal and nonverbal—the professor asked us to separate into groups according to our ethnic background. We were then given questions to ask each other: how did your family show love and anger, how did they display acceptance and disappointment, and how did they spend time together. While an American mixed breed, I chose the group that represented my grandfather’s Swiss background. Now my circle was not the most gregarious bunch. Most had grown up in a very proper and reserved environment where discussions were fairly low volume. Raised voices were used sparingly at the height of anger or for very serious situations. The group next to us, however, was quite a different story. They were much louder, more gregarious, and laughed a lot as they reminisced about mealtimes, childhood hilarity and their mothers’ expertise with guilt. In their households, yelling was commonplace and not a reflection of anger but passion. Imagine how easily my group could misinterpret their group. The purpose of the lesson was to address the difficulties in interpreting information and to examine how we process communication with the people in our lives. Are we careful to consider all the

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details before we react? If not, we risk ending up with misinterpretations which can cause unnecessary difficulty in not only personal relationships but in our business relationships as well. Today more than ever, the accurate interpretation of policyholder coverage is critical. At a time when every penny counts, the cost of addressing denial challenges is money down the drain. Correct interpretation of policy coverage saves your company money and increases much needed customer satisfaction and retention. In this issue, we address best practices, ways to boost your skills, and how to increase the value of your organization by being adept at accurately assessing the scope of policy coverage. But by all means, don’t let it end here. There are tremendous resources available to increase your skills—company programs, co-worker knowledge, industry associations and vendors, and countless online tools. Whatever your level of success, avail yourself of every opportunity to continue growing in your ability to assess intended policy coverage. In the end, everybody wins. And don’t we all need that in today’s challenging environment? Until next time...

Information for today’s claims professionals

Spring 2009 VOLUME 3. NUMBER 2

Publisher & Editor Bevrlee J. Lips/editor@claimsadvisor.com Editorial Advisory Board Steven Carter

Expert Advantage

Glenn T. Gibson

Crawford & Company International

Patrick Harmon

IMACC

Patrick Jeremy

PowerGen Claims LLC

James R. Jones

Katie School of Insurance and Financial Services, Illinois State University

Robert Kelso Thomas W. Mallin John McHale Donna J. Popow

Kightlinger and Gray Property Loss Research Bureau Erie Insurance American Institute for CPCU/ Insurance Institute of America

Claims Advisor Staff Managing Editor/Maureen Latimer Contributing Writer/Cheryl Arvidson VP Finance/Michael Marsh VP Information Technology/Michael Kay Web Site Associate/Chris Walters Project Associate/Amanda Pierce Warren Editorial Assistant/Paige Kay Database Associate/Sheila Hoyer Database Associate/Teresa Baran-Carlson Design Assistant/Ashley Jones Design Assistant/Richard Shivers Human Resources/Shannon White Advertising Sales

Bevrlee J. Lips Publisher/Editor editor@claimsadvisor.com

For advertising information, call 866.276.7970 x1357 or e-mail advertise@claimsadvisor.com

Volume 3, Number 2, Claims Advisor (ISSN 1940-0993) is published four times a year in January, April, July and October by Claims Advisor, 537 Deltona Boulevard, Deltona, FL 32725. Printed in the U.S. Copyright © 2009 by Claims Advisor. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited. No charge for subscriptions to qualified claims adjusters and managers. Annual rate for subscriptions to nonqualified individuals is $46 USD. Canadian $70 (in U.S. funds). For individual issues, $12 USD. For reprints, e-mail the editor at editor@claimsadvisor.com POSTMASTER: Send address changes to Claims Advisor, 537 Deltona Blvd., Deltona, FL 32725.

Founder/D. Scott Plakon

Claims Advisor

537 Deltona Boulevard, Deltona, FL 32725 office 866.276.7970 | fax 866.276.7972

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SPRING 2009

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Property Loss Research Bureau Liability Insurance Research Bureau

2009/2010

Educational Opportunities

Regional Adjusters Conferences & Expositions Eastern: June 24 - 25

The Westin Providence Hotel & Rhode Island Convention Center Providence, RI Central: September 9 - 10 The Westin Lombard Yorktown Center Lombard, IL Western: October 20 - 21 Renaissance Austin Hotel Austin, TX These conferences are geared to front-line adjusters, supervisors, and managers and are held in three easy-to-reach locations. The conferences include 28 property and casualty insurance topics that provide up-to-date information on critical claims issues. Approximately 700 insurance professionals attend each Regional Adjusters Conference.

Large Loss Conference

2010 Claims Conference & Insurance Services Expo

November 2 - 4 Tampa Marriott Waterside Tampa, FL

March 21 - 24 San Antonio Marriott Rivercenter & Henry B. Gonzalez Convention Center San Antonio, TX

This Conference explores claims issues associated with the largest property and casualty losses. The audience includes general adjusters, EGAs, large loss claims managers, and service providers who work with them to effectively adjust these claims of $100,000 or more. Workshops include personal lines property, commercial lines property, and casualty claims.

www.plrblargeloss.org

Attend the industry's largest educational conference and expo, hosted in 2010 in San Antonio. More than 100 educational sessions addressing the wide expanse of adjusting challenges will be offered, including adjusting property, business interruption, casualty claims, large loss, property coverage, claims management, special investigation/fraud, subrogation, and technology. The Insurance Services Expo offers an opportunity to visit with and compare the offerings of the country's leading property and casualty insurance service providers. Meet us at the Claims Conference & Expo where you'll discuss and connect with the major issues, resources, and players in the claims industry.

The exposition includes 80 regionally focused service providers with claims-specific services and expertise, beneficial to developing valuable contacts and networking with industry peers.

www.claimsconf.org

www.plrb.org

www.plrb-lirbregionals.org

For more information and to register, please visit www.plrb.org, or call 630-724-2200.

CLAIMS ADVISOR | SPRING 2009




Assessing Co

Golde

by the

Best practices mean trying to find coverage and preparing to defend denials. By Janet L. Brown

Since the dawn of property insurance when the “Names” of Lloyd’s did gentlemen’s business in London coffee houses, determining if coverage exists for a claim has posed challenges for insurers. Jurisdictional differences and insurers’ various philosophical approaches to coverage analysis make developing and declaring “best practices” difficult. Best practices are linked to the so-called “golden rule”: Do unto others as you would have them do unto you; in other words, if the adjuster had a claim, how would he want his insurer to determine coverage? The five best practices



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in evaluating a coverage issue can be summed up as follows: 1. Read and reread the policy. 2. Look for coverage. 3. If coverage exists, determine what exclusions and/or policy violations might apply. 4. Assess causation and damages even if a coverage problem exists. 5. Know your state’s statutes and retain counsel early if coverage issues are found. The key is to avoid foregone conclusions that no coverage exists. If a problem with coverage is identified, however,

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you had better prepare to defend the denial. Read the Policy In many instances, coverage assessments are conducted based upon online forms, without consulting the underwriters to determine if those forms are actually a part of the policy in effect at the time and place of loss. It is imperative that the decision maker possess and read a complete copy of the insurance policy. The policy should always be reviewed by the carrier in the spirit of granting coverage to the insured where allowed. Most jurisdictions construe

any ambiguity in the policy language against the drafter, which is ordinarily the insurer. Of course, there are some accounts which have policies drafted by agents or brokers in a manuscript format. In those instances, the language might not be construed against the insurance company. Public policy favors finding coverage for an insured who has paid a premium for the insurance protection. During a thorough policy read, you might find exclusions or violations that disqualify the claim. But the one constant on policies is that they vary, so dig for the details. Property policies


Quick Look

overage

C

Assessing coverage is a playground of variables.

C

Best practices include fairness, diligence and communication.

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Litigation is a possibility; be prepared.

en Rule

CLAIMS ADVISOR | SPRING 2009




generally involve either specified or named perils or “all risk” coverages. In the specified or named perils policies, you can hit the “easy” button. Coverage is available only in the event that the peril which caused the damage is named as a covered peril in the policy form. In the newer, all risk policies, coverage is available for any loss unless it is specifically excluded or limited; thus, an insured must merely notify the insurer that property damage has occurred, it was caused by a fortuitous event, and it occurred within the policy period. Once the determination of a fortuitous loss occurs, there is a grant of coverage unless and until an applicable exclusion or limitation is discovered or there is non-compliance by the insured with one or more policy conditions, thereby voiding coverage under the policy. Late notice

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A coverage assessment should begin with an effort to find coverage for the claim.

that prejudices the insurer in its investigation is an example of insured noncompliance with the policy. Fraud on the part of the insured is another. In short, an adjuster’s first best practice is to begin with a determination of whether there is a grant of coverage under the applicable policy. If such coverage exists, you should look to the policy’s exclusionary language and any associ-

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ated limitations to determine whether the existing coverage is removed. If no exclusions or limitations are applicable and no non-compliance with policy conditions is found, then coverage for the loss exists. Parallel Investigation Another best practice for the adjuster is to undertake a parallel investigation of the damages claimed while any coverage issues are being resolved. Most jurisdictions require insurers to assess damages while undertaking the coverage determination in order to prevent delays in compensation to the insured in the event of a finding for coverage. This part of the process does not require any assumptions about the grant of coverage. It is primarily to assess damages. You might find during this investigation, however,

that some damage from a covered peril is insured and some is not. For example, in the event of a windstorm or hurricane loss to a building, the damage to the building is payable, but any interior water damage may be limited or excluded unless there is an opening in the building envelope caused by the covered peril of windstorm. Evaluation may involve site inspections, interviews with the policyholder and/or other witnesses to the events related to the claim, review of documentation submitted to support the claim, and potential involvement of experts to assess the cause of the damage and its measurement. If questions arise as to a determination or finding for or against coverage, it may also involve referral to counsel who knows the law of the jurisdiction and the manner in which the courts


By Michael Kelly


Public policy favors finding coverage for an insured who has paid a premium for the insurance protection. will interpret the policy provisions at issue. In many jurisdictions, timing of the investigation is critical. Some states, through statute or regulation, impose time deadlines on insurers to deny coverage to an insured. For example, in Florida, the legislature recently enacted a “pay or deny” statute requiring that a residential or personal lines insurer communicate a decision on coverage and make payment within 90 days of the claim being reported, in the absence of exigent circumstances. Failure to comply with that statute can result in assessment of interest on any sums ultimately paid and can constitute a violation of the statute. However, the failure to comply does not form the sole basis for any private cause of action brought by the policyholder. In addition to adhering to statutory time limits, it is imperative that communications remain open between the policyholder, the insurer and their respective representatives. Most jurisdictions require a written explanation of the insurer’s decision to either pay or deny a claim. If payment is issued, an explanation of the calculation or basis for the payment is required. If coverage is denied, a written explanation of the

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denial is required with any supporting documentation included within that communication. Prepare to Defend Yourselves It won’t be as bad as a shootout at the O.K. Corral, but denying a claim can attract some heavy guns. Litigation isn’t the only option, though. In the event a claim is denied, both the insured and the insurer have a variety of options to resolve their dispute. The first option is negotiation and/or mediation. Generally speaking, these negotiations and/or mediation efforts are considered confidential and privileged from discovery in any subsequent litigation. Voluntary pre-suit mediations are becoming popular with insurers as a means to attempt to compromise on a coverage issue and provide some benefit to the policyholder for the premium paid, while still withholding full payment for non-covered loss or damage. In the event the dispute involves both causation issues and scope or dollar amounts, the dispute could be resolved via the appraisal process provided for in the insurance policy. Different jurisdictions have varying

Coverage denials can often cause expensive litigation of the contract and extracontractual issues.

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interpretations of when appraisal is an appropriate vehicle for resolution. Most of the time, appraisal is not a means by which coverage issues can be determined and is limited to resolution of dollars. An appraisal proceeding ordinarily focuses on measurement issues, with coverage issues deferred to the court. If neither appraisal nor mediation constitutes an appropriate method for claim resolution, the only other alternative is litigation—otherwise know as the L-word. Coverage litigation often can be very expensive for the insurer depending upon the complexity of the issues to be resolved and/or if the insured takes the position that he is entitled to pursue claims guidelines and internal interpretations of policy provisions. Depending upon the jurisdiction, these types of documents are not always discoverable. If the coverage issue is strictly a matter of law, the parties may elect to resolve the issue by cross motions for summary adjudication; nevertheless, policyholders are adept at creating fact issues to defeat summary judgments on coverage matters. When a coverage denial is issued in a jurisdiction

that provides for bad faith, it could lead to a breach-ofcontract or declaratory-judgment action, which—if won by the plaintiff—can expose the insurer to a bad-faith or extra-contractual lawsuit. The bottom line is that best practices in assessing coverages require that the insurer fully and fairly evaluate the facts and circumstances surrounding a claim, including but not limited to retaining an expert to assist in the determination of the cause of the loss and also legal counsel to advise on the applicable laws and interpretation within the pertinent jurisdiction. Coverage denials can often cause expensive litigation of the contract and extra-contractual issues. The ultimate in best practices is to make a fully informed, fair decision in a timely fashion and to communicate it clearly and concisely to the policyholder or his representative. cA Janet L. Brown is a partner in the Orlando offices of Boehm, Brown, Fischer, Harwood, Kelly and Scheihing, P.A. Her practice concentrates on first-party property insurance coverage issues and insurance bad faith litigation.


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By Ronald G. Thornton, CPCU, Jonathon Held and Donna J. Popow J.D., CPCU, AIC

Remember the days of the wrecking ball? The great crane of destruction would mechanically implant itself; then, as onlookers stared, mouths agape, the iron sphere of death would careen into the side of an aged building, bringing it down to make way for a new and better structure. Well, that drama has recently been giving way to a kinder, gentler method

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of updating. In locales across the nation, many older buildings—particularly those with historical significance—are being rehabilitated or renovated instead of destroyed. The techniques, procedures and financing involved in rehabilitation differ appreciably from ground-up construction and can present some of the most complex and problematic types of claims faced by an adjuster.

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The two methods of non-destructive updating— rehabilitation and renovation—bear on the claims process. Rehabilitation usually requires a change or interruption in the structural integrity of an existing structure. It affects load-bearing structural members and encompasses a change in the fire division characteristics. Renovation, or remodeling, involves the replacement or

removal of partition walls, electrical, plumbing, HVAC, or other systems or interior/ exterior cosmetic alteration, modernization or repair. In both cases, construction does not always go as planned, and sometimes a claim results. The following represents our top-10 list of the major concerns (not in order of importance) that adjusters will likely face, as well as some thoughts about


each to assist in the adjustment process. 1. Valuation of the damages sustained presents the first unique consideration, particularly when looking at a rehabilitation project. Initially, one must consider that the existing structure and its worth are likely to be unrelated to traditional

ACV or replacement cost treatment based on provisions common to builders risk contracts. The primary reason for this is that the existing structures were usually acquired at costs far lower than their replacement cost. Insurance valuation of the existing structure is likely to be on an agreed value basis initially, and there could

be beginning, intermediate and completed-value mileposts as the rehabilitation progresses. 2. Building Code changes are another consideration. The codes today are likely to be quite different from the codes in effect when the building was constructed. Additionally, from the time the plans for restoration are finalized and work

begins to the time when a potential loss occurs during the course of restoration, code changes may be enacted. For example, possible substantial improvement in materials or supporting members might be indicated because of mandated earthquakeresistant construction changes, or new materials might be called for

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because of “green building” code changes. 3. Financial or tax abatement considerations could be necessary. The financing might have been arranged in more favorable economic times, or the economic assumptions underlying the project might have changed appreciably. With many of these projects occurring in inner city or historically significant areas, local municipalities might have granted a lengthy tax abatement period to encourage the investment. Any loss could affect one or both of these considerations. 4. Site Security should be an integral part of the underwriting and loss mitigation process and might prove to be a source of information for adjusting. Renovation and restoration efforts tend to elicit strong community reactions—both positive and negative. More than one project has found itself exposed to thieves, vandals and other intruders. Surveillance cameras or CCTV, neighborhood watch programs, and contractor incentive programs for the community to “watch over” the project can all provide helpful information in the claims adjustment process. 5. Availability of replacement materials of like kind and quality might add to the cost of adjust-

ment, as they are often not available at the local “big box” store or lumberyard. Frequently, renovation projects involve buildings that have different dimensional lumber specs or custom millwork needed to replicate the damaged material, thereby requiring higher claims adjustment considerations. 6. Since renovation projects are often unique to themselves, contractors will procure customized insurance contracts, which have policy provisions to which adjusters must adhere. In reviewing the contract, adjusters must look for soft cost coverage. There is a big distinction between so-called “hard costs” (bricks and mortar) and soft costs. Soft cost issues run the gamut from the tax abatement and debt service previously mentioned to loss of income, loss of rents, delayed opening, additional advertising and promotional expenses, cost of renegotiating leases, and many other innovative, negotiated items. The only way to understand these additional insurance coverages is to obtain a copy of the policy. 7. The approval process can extend the period of restoration. That process can require arduous and drawn out negotiations with permit-granting authorities outside of traditional municipal building

departments, particularly regarding adherence to historical site or newly codified rebuilding standards. 8. The period of indemnity, as measured by the delay in completion of a project, caused by or the result of a loss, can often be difficult to measure, particularly when delay may have been caused by a number of different issues, including repair of the damage, stoppages of work by authorities, and/or forces unrelated to the loss itself. 9. The contract(s) for construction in place from the commencement of construction will affect both the course and the cost of rebuilding. The notion that market pricing will determine repair costs affecting loss adjustment is often outweighed by the practical reality that only those contractors engaged at the project will be involved in the repair of the damage. 10. The need to expedite repairs must be carefully measured against the corresponding effect that expediting may have on the performance of existing work unrelated to the loss and whether the effort to expedite ultimately serves to mitigate the effects of the loss. A final consideration for the claims adjuster unfamiliar with the nuances of these types of claims might be to engage the services of a third-party professional organization that specializes in consulting on renovation claims. With all the variables encountered—historical components, regulatory requirements and code issues, historical significance and methods of valuation—this might be the most prudent step in the entire adjustment process. cA Ronald G. Thornton, CPCU is president & CEO of the Inland Marine Underwriters Association (IMUA). Jonathon Held is president of J.S. Held, Inc., a nationally recognized construction and claims consulting firm. Donna J. Popow (popow@ cpcuiia.org) is senior director of knowledge resources and ethics counsel for the American Institute for CPCU/Insurance Institute of American (the Institutes).

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Glowimages/Getty Images


Quick Look C

Adjusters factor in locale, precedents, company policies when processing claims.

C

Judges and lawyers mess with the mix.

C

Coverages always in flux to address lawsuits, new hazards.

You Can’t Judge a Claim by Its Cover By Cheryl Arvidson

Coverage claims are subject to wildly varying interpretations.

“If a tree falls in a forest and no one is around to hear it, does it make a sound?” For centuries, that philosophical question has been inspiring vigorous discussions of perception and reality. Turn that question around and recast it from a claims perspective: “If a tree falls on a boat, is it covered?” Presumably, the answer would be a simple yes or no, depending on a customer’s policy language—not grounds for debate. Yet Mark Goldwich, now an adjuster in Jacksonville, Fla. who previously spent four years working in a catastrophe claims center for a large, national insurance company, saw firsthand that the answer often was, “That depends.”

Interestingly, it was not policy language that governed the decision but rather how that language was interpreted from one jurisdiction to the next. Discrepancies in coverage interpretation do exist. “When going from state to state, you can see discrepancies in coverage interpretations,” Goldwich says. “Where a tree fell on a boat in a windstorm, if there wasn’t coverage under that policy for wind for that boat being damaged, you might find coverage by calling it a falling object. One insurer would allow that, and another wouldn’t.” If a major storm hit several states over the course of two or three days, there could be different interpre-

tations of coverage language from state to state, he says, and sometimes the coverage interpretations would even change during the course of the storm. Here Come da Judge For the sort of cases that Goldwich witnessed, the cost impact falls pretty much on the insurance underwriter whose operations allow the differing interpretations within its claims division. However, coverage interpretation becomes a multi-million-dollar problem for the entire industry when courts get involved and issue rulings that cast contract language in a very different way than intended when the policy was underwritten. “The fact that similar

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contract language can be interpreted very differently, not just across state lines but within states, either in different courts or in the same court over time, is a huge problem,” says Robert Hartwig, president of the Insurance Information Institute (III). “An insurer writes a policy, underwrites, and prices based on prior interpretations of contract law. If that changes, the underwriting and pricing of the policy is

inadequate because the risk has changed.” Hartwig estimates that on an annual basis, contract disputes could easily cost “tens of millions of dollars and perhaps several hundred million dollars, depending on the situation.” And those figures are based only on the fees to defend and do not reflect the awards in the cases, most of which are settled out of court. A classic example of the far-reaching, costly impact was the wind versus flood coverage dispute after Hurricane Katrina. Although the language on flood exclusion in homeowners policies is nearly identical in every state and has been upheld by many courts, a number of lawsuits were filed seek-

“...on an annual basis, contract disputes could easily cost tens of millions of dollars and perhaps several hundred million dollars, depending on the situation.”

ing to bring coverage for flood damage under a standard homeowners policy. “There is no premium charged or reserves established to pay these kinds of losses, yet insurers are having to pay many millions of dollars to defend themselves in court despite the fact that

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many precedents are on their side,” Hartwig points out. “They won, yes, but it took two years of being dragged through the courts and lots of negative publicity, all to demonstrate that people are entitled to the coverage they purchased, no more and no less.” “It absolutely does add to the cost of insurance when coverage is flipped on its head like it was after Katrina,” says Michael Kay, the online editor of Claims Pages and an adjuster for 15 years. “If the courts had found ultimately that flood was covered, policies would have doubled in premium as a result. This was actually what an insurance company would describe as a legal hazard, where the courts overturn prevailing knowledge in an area.” In the Eye of the Beholder Differing interpretations of coverage are common in auto policies, particularly in the areas of uninsured and underinsured motorists and whether or not it is possible to stack coverages, Kay says. In many states, $25,000 is the minimum that can be purchased for bodily injury for an individual, $50,000 is the minimum for the entire accident, and $25,000 is the minimum for damage to a vehicle. Normally, in the case of a severe accident when the at-fault party has only minimum coverage, a person who has purchased underinsured motorist coverage from his own carrier can collect the difference between the underinsured policy limits and the minimum limits in the policy of the at-fault party. “But where it gets murky,” Kay says, “is that in


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Courts rule emotional injury to be compensated as “bodily.”

...insurers respond to differing interpretations by tightening the policy contract language.

Randy Maniloff, a partner in the business insurance practice group at White and Williams LLP in Philadelphia, prepares a list each year of the 10 most significant coverage decisions from courts around the country. One of the cases making his 2008 list came from the Montana Supreme Court, which significantly changed the interpretation of an insurance policy’s bodily injury coverage to include “emotional injury” of a person who did not suffer bodily injury. The District of Columbia Court of Appeals issued the same sort of ruling. In Allstate Insurance Company v. Wagner-Ellsworth, Terry Wagner-Ellsworth, the driver, struck and seriously injured a child, Matthew Rusk, as he and his brother, Brandon, were crossing the street in front of their elementary school. Brandon witnessed the accident, and Matthew’s mother, Tiffany Rusk, arrived at the scene while her son was still lying on the street. Although Allstate paid the policy limit for Matthew Rusk’s bodily injury claim, his mother filed a lawsuit seeking coverage for the emotional injuries she and her other son suffered, alleging they were damaged because of the bodily injury suffered by Matthew. The Montana Supreme Court held that the policy provided coverage for “damages which an insured person is legally responsible to pay because of bodily injury sustained by any person.” Maniloff noted the Montana court also held that emotional injury for the non-injured party “accompanied by physical manifestation,” such as migraine headaches and a physical response on hearing sirens, constitute “bodily injury as defined by the Allstate policy,” suggesting a possible additional limit of liability.

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some states, lawyers have been successful in convincing courts that this is not the proper method for determining the amount of underinsured motorist coverage that is available,” frequently to the benefit of the at-fault party. “The lawyers are convincing the courts to do these creative things, and what happens is that the plain language of the policy is thrown out.” Another trouble area relates to environmental claims. For example, when a Texas court concluded that mold was covered under a standard homeowners insurance policy, it triggered a wave of litigation and cost insurers big bucks in defense costs. Even though few other jurisdictions agreed with that finding, essentially all homeowners policies nationwide ended up being changed to guard against the possibility of future mold claims. “It involves all lines— personal and commercial, such as general liability and umbrella liability,” says Randy Maniloff, a partner in the business insurance practice group at White

and Williams LLP in Philadelphia, who is writing a book on differing coverage interpretations. “The very nature of the court system—based on state sovereignty—makes it inevitable that different states will interpret policy language differently. Also, whether certain policy language is ambiguous is a subjective question, and different judges will see things differently. There are even disputes between judges within the same state over how to interpret the same policy language.” Donald Malecki, a principal at Malecki Deimling Nielander & Associates, an insurance risk and management consulting firm in Erlanger, Ky., says differing interpretations of the same language is not only “a big problem” but an irritation. “I am really shocked at some of these decisions, and I get really annoyed,” says Malecki, who has been in the business nearly 50 years, has written 10 books on insurance issues, and is frequently an expert witness in insurance cases. “I have got to think at some times, it is how the judge feels in the morning or whether opposing counsel is tired or whether it is raining or sunny outside” that forms the decision. Even if the claims cases may seem capricious, Hartwig says, insurers have no choice but to defend themselves in court. “Many lawyers will try to worm their way into a contract, then try to erode prior precedent. Insurers are always having to defend the integrity of the contract, and that means generally the language in the


contract,” according to Hartwig. “You have to be willing to spend the time and the money to make the point. It is well beyond defending the case at hand. You are also guarding against future claims and cases.” In addition to mounting a legal defense, insurers respond to differing interpretations by tightening the policy contract language. “Policies are constantly being updated and revised to address changing legal circumstances and challenges,” Hartwig says. “If there is a case that appears to breach the contract, clarifying language may be issued in subsequent policies.” In the end, Hartwig contends, although these cases frequently are described as “victories for consumers, this kind of decision puts the insurer on the hook potentially for billions of dollars in losses that they have not included in the price charged or reserved for. And that, down the road, could create a cost of tens of billions of dollars that ultimately is borne by consumers. There is no free lunch.” Neither is there any obvious solution to the problem. “There is simply no way to put an end to the situation,” said Maniloff. “It is inherent in the very nature of insurance and our legal system. First, an insurance policy is a fixed document. Its terms are set out at the beginning and do not change. However, its purpose is to address fortuitous risks, of which there could be an infinite number. In other words, a static and fixed document is required to respond to an unknown and variable number of circumstances. Thus, it is inevitable that disputes will arise over the scope of the coverage. “Unless a policy covers a very specifically defined risk, such as life insurance or title insurance, the question of what was ‘intended to be covered’ will be in the eye of the cA beholder.” Cheryl Arvidson is a Claims Advisor contributing writer.

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An Act of (Bad) F Litigators are looking for claims handling missteps. By Douglas G. Houser and Nicholas L. Dazer

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Quick Look C

Adjusters can make—or break— bad faith claims.

C

Claims handling missteps can be avoided through best practices and thinking like a jury.

C

Written communication creates a record that helps or hurts.

f

Faith A claimant, an adjuster and an attorney meet at the courthouse… The beginning of a joke or a horrifying premonition? If you are denying—or even limiting— first party insurance coverage, justifiably or not, be prepared to face a bad faith

claim. And a high-stakes claim at that. Given the potential cost of contractual and punitive damages attending bad faith decisions against insurers, it pays for claims professionals to be on the alert from the get-go. Even when the

insurance company is in the process of reasonably investigating a potential coverage issue, the insured or the insured’s counsel may start accusing the insurance company of bad faith. Accusations of bad faith against insurers usu-

ally involve allegations that the insurance company has been unreasonably delaying either its investigation or announcement of its coverage position; that the insurer has been making unfair or excessive document requests or requests for examina-

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Avoiding bad faith claims by promoting “good faith” at all points in the investigation and claims handling process is key. tions under oath; or that the insurance company has “already made up its mind” before the investigation is even complete. Such accusations may be accompanied by a formal letter of complaint to the state insurance department, which has the potential to raise eyebrows

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at all levels within the insurance company and create even more hassles for the claims person working in the trenches. Avoiding bad faith claims by promoting “good faith” at all points in the investigation and claims handling process is key. So is adequately documenting good faith facts, in case anyone later questions how the claim was handled. It may also be expedient to hire a skilled and experienced insurance coverage attorney to assist with communications with the claimant, either directly or through materials ghost-written by coverage counsel and then printed on the insurance company’s letterhead. The following four actions should set the stage

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for defensible denial of coverage and assist in combating bad faith claims.

1.

Fully Reserve Rights and Preserve All Possible Defenses Whenever there is any question regarding coverage or the amount of the loss, an insurer should always proceed under a full reservation of rights and preserve all possible defenses. It is sometimes difficult to know at the very beginning of a claim exactly which policy provision may come into play later, so be sure your Reservation of Rights letters include an appropriately broad “catch-all” provision. Language similar to the following may be suitable: There may be other policy provisions, conditions,

limitations, and exclusions that are applicable to this loss yet not explicitly set forth in this letter. This letter is not intended to be a waiver of any provisions, conditions, limitations, or exclusions in the policy. Read the policy carefully. No waiver or estoppel of any kind is intended nor should be inferred. Thank you. Lastly, be sure to provide the insured with updated Reservation of Rights letters as the investigation progresses and additional facts or coverage issues come to light. In order to minimize your coverage counsel from becoming a witness later in prospective litigation, Reservation of Rights letters should be signed by the company’s adjuster.


2.

Employ Good Faith Claims Handling Practices There are a number of basic claims handling practices that communicate good faith on the part of the insurance company. In addition, an adjuster should be familiar with claims handling regulations and any special time requirements in the state whose law applies to the loss. Maintain an open mind while the investigation is pending. Do not start the investigation knowing what the result will be. Investigate the claim in a light favorable to the insured. Consider all possibilities and remember that both the preponderance of case law and juries will construe most “ties” in favor of the insured. Prepare every written communication with the expectation that it may someday be viewed by a judge or jury. Do not presume that your claim file is privileged or confidential, even if you have labeled it as such. Privilege and confidentiality are legal determinations that are not your decision. Assume that your file will be read by others. Also assume that any embarrassing language will be seen on a very large screen by a curious and sometimes hostile jury. Accordingly, take care to document “good faith” in every written communication you prepare in relation to a file. Always treat the claimant with courtesy and respect. Aside from basic customer service issues, your good faith and respectful treatment of the plaintiff will be good evidence against any later claim of bad faith claims handling. On the other hand, any treatment of the claimant that appears to be bullying could be viewed harshly in a later bad faith claim. Promptly respond in writing to letters or calls from the insured or the insured’s representative. While it is important to respond promptly to telephone messages, a follow-up letter explaining the company’s position should always be sent. View every letter and written communication as an opportunity to demonstrate your good faith and reasonable investigation. Your letters should be clear and always move the investigation

process along. Be proactive. Keep the insured advised of all developments and remind him that the company is doing all it can to move the claim along and reach a determination as quickly as possible. Provide the claimant, in a timely manner, a blank proof of loss form that complies with state law. Do not unreasonably insist on several rounds of proofs of loss if the information necessary to evaluate the claim fairly has been provided. Grant the claimant’s reason-

able requests for extensions of time in which to file proofs of loss, find replacement items, submit requested documents, or submit to examinations under oath. The goal is to be reasonable at all times. When the spotlight is on your actions and someone asks, “Who did that?” you want to be able to confidently raise your hand and say, “I did and let me tell you why.” Granting requests for extensions provides another opportunity to document the insurance company’s continuing good faith. Be sure to document

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that, while the company is pleased to accommodate the request for extension, the company does want to move the claim along as quickly as possible, and that the delay necessitated by the extension should never be unfairly claimed by the insured as a delay for which the insurance company should be responsible.

3.

Deal Firmly But Respectfully with an Uncooperative Claimant In this scenario, the insurance company has reserved its rights and informed the insured that there is a potential issue with coverage and requested documents and an examination under oath in order to investigate the claim. The

insured resists producing the requested documents and does not provide dates on which the examination will take place. This insured needs to be politely reminded that the insurance contract’s provisions regarding duties in case of loss are preconditions to any potential coverage and that, if the insured continues to resist complying with its contractual duties, it may lose whatever rights it might have had under the policy. Of course, a documented pattern of the insured’s noncompliance with contractual duties could support denial of the claim on that basis, if such a denial is warranted, and should provide a very powerful defense to any future claim of bad faith.

4.

Clearly State that an Investigation Does Not Mean a Denial Some claimants may insist that they need not produce documents or otherwise cooperate with the insurance company’s investigation because the company has already announced it has a coverage question and therefore nothing the insured can do will change the company’s mind. It is imperative that communications with the insured during the claims handling process make clear that the investigation is continuing and that the company has not yet reached a decision, but also that the company would like to conclude the investigation as soon as possible. In all claims, remember

the rule of reasonableness. Bad faith exposure can be minimized by maintaining good communication with the insured, treating the insured respectfully, moving the claim along as quickly as possible, and maintaining a claims file that demonstrates the company’s good faith efforts throughout the process. cA Douglas G. Houser and Nicholas L. Dazer are shareholders with Bullivant Houser Bailey PC based in Portland, Ore.

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Quick Look C

Industry losing tens of billions annually to fraud.

C

High-tech software can link claims parties to claims history and trends.

C

Expedited processes free up time for claims staff to ID fraud.

TechnoSleuthing New technology, better data and improved modeling can finger insurance fraudsters. 30

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By Richard Della Rocca

It’s difficult to overstate the importance of battling insurance fraud. Even under normal economic conditions, tens of billions of dollars are lost every year through payment of fraudulent and inflated insurance claims. In today’s recessionary climate, the impact of fraud-related losses rises considerably. Coupled with


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continuing pressures on insurer investment portfolios, this unnecessary outflow of cash is detrimental to the industry’s fiscal health. Claims fraud takes many forms and infiltrates every line of business. The problem is not limited to experienced criminals who may work singly or in tandem with crooked physicians, phony treatment centers, and hired “claimants.” With job losses and foreclosures surging, even individuals

with no prior criminal history are falsifying insurance information—from padding actual claims to reporting home break-ins that never occurred— to obtain cash. Collecting and Analyzing Data Is Key Effective fraud detection depends upon the ability to collect and analyze vast amounts of data and identify activities and patterns that are indicative of potential fraud. For years,

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the industry has submitted claims information to the ISO ClaimSearch database, which currently holds more than 600 million claim records across all lines of insurance. A critical first step in determining whether a claim is meritorious or suspicious is to review the individual’s claims history. When insurers input claims into the ISO ClaimSearch system, they automatically receive a report that indicates if any of the fields—from name to Social Security number to address—match prior claims in the system. Adjusters will examine those matches closely, looking for patterns of claims with similar participants, injuries, loss descriptions, or targeted businesses. With further inquiry, insurers can investigate to see if there are red flags that could point to fraud. Examples include the claimant who uses several post office boxes, the chiropractor who is used repeatedly in slip-andfall incidents, and the Social Security number that is associated with more than one name. But well-grounded suspicions are just the starting point. Investigating and building a case is a much more complicated task. The good news is that technological developments are strengthening insurers’ ability to analyze data more thoroughly and manage investigations more efficiently. Link Analysis and Data Visualization Link analysis and data visualization software tools look for links between data elements, such as all claims linked to the same VIN number. Link analysis software can search through millions of pieces of data and connect the element to every other data element with which it has a relationship. Through a combination of such powerful sorting technology and data visualization software that generates a graphic display of the data connections, investigators can quickly see direct and indirect relationships among multiple pieces of data, such as parties linked to multiple addresses, telephone numbers, vehicles, and claims. These tools can reveal connections within company data, data from


The good news is that technological developments are strengthening insurers’ ability to analyze data more thoroughly and manage investigations more efficiently.

external sources, or a combination of sources, providing claims investigators insight and knowledge to make decisions about which claims to investigate further. Such systems also can create presentationquality graphics that support law enforcement activities and criminal prosecution where warranted.

vanced analysis tools, insurance investigators can supplement tips, referrals and their own suspicions. These tools compress weeks of complex analysis into minutes, reducing the time needed for analysis and allowing investigators to work more productively.

claims executives and representatives from ISO and the National Insurance Crime Bureau (NICB) developed plans to improve industry resources in the fight against fraud by improving the data reporting process to ISO ClaimSearch. As a result of this joint effort, the group implemented several fraud data initiatives aimed at making ISO ClaimSearch even more actionable for fraud detection and investigations. While developments in data collection and analytic methods are

Strides in Data and Processing Even the most advanced claims analysis capability is dependent upon the quality of the data being analyzed. In recent years, an industry fraud-data working group composed of senior

Predictive Modeling Predictive modeling systems analyze current and historical data to make predictions about the future. This technology has been used for years in the financial services industry to generate credit scores. Increasingly, predictive modeling is being applied to insurance to predict the probability that a particular claim is suspicious. One example is a scenario-based model that assigns a numerical ranking to a claim based on the likelihood of fraud. The system compares the attributes of a current claim against proven fraud indicators, using the same rules that are applied by experienced claims professionals when they manually evaluate claims. The model scores the claim to reveal the likelihood of fraud. This score provides adjusters with a quick and easy way to distinguish between suspicious and meritorious claims. Other analytic techniques are being applied to the insurance fraud problem. These include statistically based predictive models that analyze characteristics of known fraudulent claims to identify good predictors of fraud that can be applied to new, incoming claims; neural network technology to uncover emerging fraud patterns; and text mining applications that can analyze the vast amount of claims information contained in documents and notes to find additional clues of fraudulent behavior. By drawing upon all of these ad-

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significantly improving insurers’ ability to identify potential fraud, additional technological improvements can improve claims workflow. Such advances are making managing claims investigations faster, easier and, ultimately, more effective. For example, claims fraud investigations require careful planning, coordination, analysis and documentation. Case management software for special investigative units (SIU) can provide investigators with a computerized system to organize notes and case files. This allows SIUs to better handle insurance investigations and provides at-a-glance status reports to streamline many of the processes for investigations. These applications can track daily activity,

to-do lists, time, mileage and expenses. By handling many administrative functions, these systems give investigators more time for analysis. This software also can allow SIU managers to monitor investigation activity and measure the performance and productivity of their operations. ISO ClaimSearch also offers an integrated Web portal to access external and public records information. Claims handlers and investigators can easily verify Social Security numbers or addresses, find unlisted phone numbers, and check whether a physician has been sanctioned. As they research claims, claims staff can request additional information, including event data recorder information, medical records, and motor vehicle reports.

The ability to access this information directly, rather than repeatedly leaving the system to search for information on the Internet, results in a huge cumulative time savings in the course of a claims handler’s day. In addition, insurers can report questionable claims to the NICB and state fraud bureaus directly through the system. Technology Working for Insurers in Numerous Ways Insurers’ ability to fight insurance fraud has improved dramatically in recent years from advancements in data sharing and technology. The field of data analysis has been revolutionized by link analysis, data visualization, predictive modeling, and other analytics. The ISO ClaimSearch database has been enhanced

to collect better-quality data, a process that continues to be bolstered by the industrywide conversion to Universal Format. Process improvements, such as one-click access to public records and case management software, help streamline claims investigations. Other process improvements—integrated suspicious claims referrals and regulatory reporting, for example—free up more time for analysis. All of these continually evolving technologies work in concert to help insurers detect and prosecute fraud and, ultimately, to improve their bottom line. cA Richard Della Rocca is vice president of ISO Claims Solutions.

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Traumat Brain

Poses

New studies add to the data pool. By Dr. Steven Carter, PsyD, LP

Natasha Richardson, a 45-year-old actress, recently died from an epidural hematoma that developed after she struck her head in a fall during a private ski lesson at Mount Tremblant. Her death was likely preventable. She refused transport to a local hospital in the ambulance summoned by the ski patrol and instead returned to her hotel. By the time that she decided to accept care, she was outside the “golden hour� that is critical to survival from trau-

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Issues


Quick Look C

tic Injury

Traumatic brain injury survival rates increase, but post-trauma complications occur—even years later.

C

New studies provide initial actuarial data on future health risks for survivors.

C

Insurers might be able to better plan rates and coverage using improved data.

s Long-Term for Insurers

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matic brain injuries (TBI) and could not be saved. Her death was unnecessary and an uncommon outcome. Increased Survival, Increased Long-Term Risk The survival rate for TBI

patients has dramatically increased in recent years. TBI survivors often request compensation not merely for the acute injuries and chronic impairments they are actually manifesting, but also for their risk of devel-

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oping additional disorders in the future, a concept commonly referred to as epidemiological risk. Epidemiological risk: The likelihood that a population will develop a specific disorder and the distribution and determinants of the disorder in that population. Epilepsy commonly results from trauma to the skull and brain. A study published this year in the journal Epilepsia concluded that seizures occur in about 15%–20% of patients with severe brain trauma. About 5% of the chronic cases of seizure disorder in the gen-

eral population are attributable to a prior TBI. Penetrating brain injury results in a risk of post-traumatic epilepsy of approximately 50%; whereas, non-penetrating head injury with focal contusions and intracranial hemorrhages increases the risk to approximately 30%. The First Reference Study of Epilepsy Risk After TBI A forthcoming article in the journal Lancet is considered the first “reference study” for determining the epidemiological risk of a TBI claimant developing post-traumatic epilepsy. The population-based study consisted of 1,605,216


TABLE 1

TABLE 2

Short-Term Risk of Epilepsy After TBI

Risk of Epilepsy Over 10 Years After TBI

RELATIVE RISK

95% CONFIDENCE INTERVAL

Mild

2.22

2.07 to 2.38

Severe

7.40

Skull Fracture

2.17

INJURY TYPE

RELATIVE RISK

95% CONFIDENCE INTERVAL

Mild

1.51

1.24 to 1.85

6.16 to 8.89

Severe

4.29

2.04 to 9.00

1.73 to 2.71

Skull Fracture

2.06

1.37 to 3.11

people born in Denmark—78,500 experienced at least one head injury, and more than 17,400 had epilepsy. Of the persons with epilepsy, 1,017 had a head injury prior to diagnosis. Table 1 shows the “relative risk” for developing epilepsy after suffering each injury type. Relative risk is the probability of having a seizure after the injury divided by the probability of having a seizure without the injury. The exact risk can never be known with complete certainty because of measurement error present in any study. The confidence interval is the range in which the actual risk is likely to fall if measurement error could be eliminated. Dire Findings These results indicate that a typical person will be more than twice as likely to experience a seizure after a mild TBI and between 7.5 to 9 times as likely to have a seizure after a severe TBI. These are momentous findings, but the situation is actually worse for people older than 15 years of age, with a family history of epilepsy, or females. In older claimants, mild TBI increased the risk by 3.5 times and severe injury by more than 12 times. Patients with a family history of epilepsy are 6 times more likely to have a seizure after a mild injury and 10 times more likely after a severe injury. The risk for women is slightly higher in all groups.

INJURY TYPE

persons with severe injuries or skull fractures even 10 years after the TBI or skull fracture.

has not been impressive. Nonetheless, it is the only treatment currently available, and this forthcoming study indicates that it may need to be continued much longer than has typically been the case to date. These results will be published in the Lancet this spring and gradually begin to influence clinical practice as physicians and neuropsychologists become aware of them. This might result in additional financial exposure for insurers. These risks should be considered when setting case reserves in a head injury case. cA

What Do We Do? Tables 1 and 2 summarize the risk for a group of people. There is no easy way to predict the risk for a single claimant because the risk varies in a complex way that is influenced by age, injury severity, family history, and sex. There are no biomarkers that can predict which claimants will eventually develop epilepsy. There are no methods for continuously monitoring patients for the onset of seizure disorders. Video electroencephalography (EEG) remains the gold standard but is rarely conducted beyond 24hours because of its high cost. Drug treatment started immediately after TBI is common, but its effectiveness in preventing post-traumatic epilepsy

Dr. Steven Carter, PsyD, LP is CEO of Expert Advantage® (www.Expert-Advantage.com), which provides medical evidence analysis, independent examinations and testimony nationwide. He can be reached at (218) 749-3107 or stevencarter@mchsi.com.

Continuing Risk This new reference study is also the first to clearly indicate the long-term epidemiological risk of developing epilepsy after TBI. As shown above in Table 2, the risk remains high for

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The Validity and Interpretation of Racing and Speed-Contest Exclusions 40

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g

Quick Look C

Even with exclusions for speed contests, racing-related auto claims are not cut and dried.

C

Courts will consider public policy and exact coverage wording to determine the validity of exclusions.

By John B. Drummy

It is late Friday afternoon. The sun and the mild temperature have conspired to draw your colleagues out of the office, and you have decided to follow their lead. Just as you are about to turn off the office lights, the phone rings. The weekend will have to wait a bit longer. A junior claim represen-

tative is on the other end of the line. It seems the 17-yearold son of a named insured, while driving the insured vehicle, was involved in a serious accident with the operator of another vehicle. The son was at fault. Both the son and the driver of the other vehicle suffered significant injuries. The insured has made a claim

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under the medical payments coverage of the policy, and the attorney for the other driver has submitted proof of injuries easily justifying a policy limits offer if the liability coverage is applicable. Standard stuff, so why the call? You inquire further and learn that shortly prior to the accident, the son of the named insured met another young man and, after some testosterone-fueled banter regarding the respective merits of their vehicles, they decided to settle their disagreement on a two-lane highway. They agreed to race to a point, approximately one half mile away, where the road began a sharp turn to the left. The vehicles lined up facing north, one using the lane reserved for oncoming traffic. The starter stood between the vehicles, raised his arms to signal the drivers to prepare,

and then dropped his arms to start the race. The vehicles were neck-and-neck initially, but the insured eventually pulled ahead. Both vehicles achieved a speed greatly in excess of the speed limit. Shortly before the finish line, the other driver concluded that he had lost the race and pulled into the right lane behind the insured and began to decelerate. The insured saw the other driver pull in behind him and concluded he had won the race. As the insured continued down the road, he too began to decelerate but was still exceeding the speed limit as he crossed the finish line and entered the curve. About halfway through the curve, he lost control of the vehicle, spun and crossed the center line, striking the vehicle driven by the claimant. The junior claim representative wants to know what he

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should do. The named insured is pressuring him to pay the medical expenses incurred by his son, and the attorney for the claimant is threatening to sue the insured for compensatory and punitive damages if the limits of the liability coverage are not paid immediately. You know the policy booklet cover to cover and are aware that it contains an exclusion, applicable to all coverages, for racing and speed contests. You quickly review the exclusion, and it appears to apply. Should you tell the junior claim representative to deny all claims and let the weekend begin? Not so fast! You are, of course, aware that insurers have the right to limit coverage of risks and, therefore, liability, by imposing exceptions to coverage so long as the exclusions are not inconsistent with public policy. You also know that, to be effective, the exclusion must be clearly expressed. The facts as reported raise three issues you will need to resolve before accepting or denying coverage. First, would application of the exclusion violate the public policy of the applicable state? Second, did the insured engage in a racing contest or speed contest within the meaning of the exclusion? Third, was the insured still engaged in a racing contest or speed contest at the time of the accident? Does the Exclusion Violate Public Policy? As applied to the facts, the issue will be whether the public policy of your state prohibits attempts to limit liability coverage or medical payments coverage. For example, in Krempel v. Noltze, 164 N.W.2d 227 (Wis. 1969), the court held that an exclusion from coverage while an automobile

was used in a prearranged racing or speed contest was invalid because it ran afoul of a statute that provided that no automobile policy shall exclude from coverage “[t]he operation, manipulation or use of such motor vehicle for unlawful purposes.” The court noted that another statute made it unlawful to engage in any race or speed contest upon any highway. Did the Insured Engage in a Racing or Speed Contest within the Meaning of the Policy? There are few cases nationwide interpreting this type of provision. According to one secondary authority, “The few cases dealing with clauses of this type involved slightly dissimilar verbiage and widely differing fact situations, with the result that no general rule of law can be formulated respecting their construction.” 23 A.L.R.3d 1444. If there is a guiding principle that can be discerned from cases interpreting such clauses, it is that “[w]ords, like people, are judged by the company they keep.” Anderson v. Southeastern Fidelity Ins. Co., 307 S.E.2d 499 (1983). In County Mutual Ins. Co. v. Bergman, 185 N.E.2d 513 (Ill. Ct. App. 1962), the insured, Bergman, and the driver of the other vehicle, Hieser, admitted talking to each other moments prior to the accident but denied there was an agreement to race or any conversation about a race. Testimony of independent witnesses supported the conclusion that the vehicles were engaged in a race or speed contest. The policy contained nine separate exclusion clauses, and each clause except the first was limited to a


single subject. The first clause provided that the policy did not apply “to any automobile while used as a public or livery conveyance, or while being operated in any prearranged race or competitive speed test, or while rented or leased to others.” The insurer filed a complaint asking for a declaratory judgment that there was no coverage for the suit against Bergman. The court rejected the insurer’s contention that the exclusion should be construed as though it read “any race or speed contest,” and said that since the insurer had seen fit to confine the exclusion to a “prearranged” race, or a “competitive” speed test, it did not intend to exclude all races and all speed contests. Furthermore, the court pointed out that the racing exclusion was part of a clause which dealt with exclusion of ventures of a commercial nature and said that, therefore, the phrase “prearranged race or competitive speed contest” should be construed to mean a race or speed contest of a commercial or business type, so as to make the entire exclusion conform to the singlesubject pattern of the other exclusion clauses. In Alabama Farm Bureau Mutual Cas. Ins. Co. v. Goodman, 188 So.2d 268 (Ala. 1966), the son of the insured agreed with a bicyclist to race to a certain point on a public road, and each bet a dollar that he could reach the point first. The bicyclist was given a head start. The insured auto eventually overtook and struck the bicyclist, causing his death. The policy contained an exclusion which provided that the insurance did not apply under any coverage “if the injury or damage is

caused by an automobile race or competitive speed test.” The insurer contended that the death of the bicyclist was caused by a “competitive speed test.” The court noted that “competition” had been defined as the act of seeking or endeavoring to gain what another is endeavoring to gain at the same time; that “speed” had been defined as an act or state of moving swiftly; and that “test” had been defined as a critical examination or decisive trial. Concluding that there was no ambiguity in the words “competitive

speed contest,” the court said that giving such words their common meaning, it was convinced the facts clearly showed that the bicyclist and the insured driver were engaged in a competitive speed test, and therefore there was no coverage for the subject accident. In Detroit Automobile Inter-Insurance Exchange v. Bishop, 180 N.W.2d 35 (Mich. Ct. App. 1970), the son of the named insured, age 17, wagered three dollars with two other young men that, from a standing start, he could

drive the insured vehicle along a two mile stretch of public highway within an elapsed time of two minutes and fifteen seconds. While being timed, the son accelerated his vehicle and soon attained a speed in excess of 70 miles per hour. He noticed a child in the road, applied his brakes, skidded and struck the child, causing her death. The insurance policy excluded liability as to “any automobile while operated in any prearranged race or speed contest.” The insurer argued that what occurred was a

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“prearranged race or speed contest” citing the Goodman case discussed immediately above. The insured argued that the policy in the Goodman case did not contain the word “prearranged,” as did the policy at issue, and relied upon the Bergman case discussed above. Like the court in Bergman, the court in Bishop examined the other exclusions in the policy, noting: [N]one of the other use exclusions appear to expose the owner to such ruinous liability arising from what is, in many cases, an unpredictable teenage frolic. If this commonplace exposure of parents and other entrustors of automobiles is to be excluded from coverage, the policy should, we think, speak more clearly than the one before [us]. The court “concluded that the exclusion in the policy for a ‘prearranged race or speed contest’ describes a race or speed contest which has been more elaborately planned than the impulsive, spur-of-the-moment raceagainst-time which occurred in this case.” In Yosemite Ins. Co. v. Meisner, 561 P.2d 185 (Or. 1977), the insured operated an automobile repair shop. A friend came to the shop for a repair, and a discussion ensued as to the merits of a four-speed versus a three-speed transmission. The insured and his friend decided to take to the street to determine which of the automobiles had the more effective transmission. While the comparison was being made, the insured became involved in an accident with two other vehicles. The policy, a garage liability policy, contained the following exclusion: This insurance does not

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apply…to bodily injury or property damages arising out of the…operation…of any…automobile …while being used in any prearranged or organized racing speed or demolition contest or in any stunting activity or in practice or preparation for any such contest or activity…. With respect to the issue of whether the insured had engaged in a race, the court said: “It is our opinion that pitting the acceleration of one transmission against the other is a race or speed contest.” The court also concluded the contest was “prearranged” within the meaning of the policy. Finally, in Anderson v. Southeastern Fidelity Ins. Co., the insured, Pillsbury, encountered Williams at an intersection. Either Williams or his passenger challenged Pillsbury to a “drag race” and a race ensued. Some distance down the road, railroad tracks crossed the road. Pillsbury was aware of the crossing and let up on his accelerator. As Williams passed over the crossing, he lost control and collided with a vehicle going the opposite direction, then went into the path of the Pillsbury vehicle. As a result of the three-car collision, Williams was killed and those in the other vehicles were injured. Pillsbury’s policy contained the following exclusion: “This policy does not apply: (a) Under any of the coverages to any automobile…while used or operated in any racing event, speed contest or exhibition.” The court judged that the phrase “any racing event” could be subordinated to the final term, “exhibition,” and that, as written, the language could not serve to exclude liability coverage for the event in question.

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The court also took note of the public policy of the state of Georgia “enunciated in the advent of compulsory motor vehicle liability insurance: that persons who are injured should have an adequate recourse for the recovery of their damages.” Did the Accident Occur While the Insured Was Engaged in a Racing or Speed Contest? In other words, had the racing contest or speed contest ended prior to the accident? There is a paucity of case law interpreting the terms “while operated in” or “while used in” typically found in exclusions of this type. The few cases that do exist follow one of two conflicting approaches. The first approach terminates the applicability of the exclusion at the same time the event terminates (when a winner is determined), even if the additional risk created by the event has not dissipated. In American Standard Insurance Company v. Tournor, 185 N.W.2d 267 (Neb. 1971), the insured, Larry Tournor, and another driver, Gary Stevenson, arranged to have a “drag race” on a quarter-mile section of a public highway. Michael Tournor, the brother of Larry, drove his vehicle north past the finish line and parked with his lights out to observe. By the time he reached approximately the halfway point of the quarter-mile strip, Stevenson gave up the race, decelerated and pulled into the right-hand lane behind Larry Tournor’s car. Tournor saw Stevenson’s lights in his rearview mirror, ceased accelerating, and proceeded to an intersection to turn around. Before he arrived at the intersection, the Michael Tournor car, which had been parked nearby, suddenly pulled onto

the highway in front of the Larry Tournor vehicle, and the two vehicles met almost head-on. At the point of the collision, Larry’s speed was still an estimated 60 to 70 miles per hour. The insurer for Larry Tournor’s vehicle filed an action to determine whether a clause in the policy applied to exclude coverage for the accident. The exclusion read as follows: This policy does not apply: Under any of the coverages, a. to any automobile (1) while rented to or leased to others by the insured, (2) while used as a public or livery conveyance, or (3) while used in any pre-arranged racing or speed contest…. A jury trial was waived and the trial court held that the exclusion was not applicable because “any prearranged race or speed contest shown by the evidence was fully terminated prior to the collision.” The insurer appealed. The Nebraska Supreme Court, by a 4-3 margin, affirmed the judgment of the trial court, writing: The word “while” connotes a specific segment of time. The word “in” can mean “in the course of” or “during.” Either construction terminates the exclusion at the identical time the excluded event terminates. Such a construction is particularly indicated when a non-commercial race is held on a public highway, where policy coverage is specific and intended both before and after the occurrence of the excluded race. The majority agreed with the trial court’s conclusion that the event ended before the accident. Three justices would have applied the exclusion.


Justice Newton, writing for the dissent, said: In a drag race, the engagement in the race may involve more than occurs over the designated course. If two cars are to approach the starting line at a designated speed, the approach is also part of the race. In view of the fact that in a race the participants cannot stop immediately at the finish line, it seems that the slowing down and stopping is also essentially a part of the race although it occurs beyond the finish line. The cars are still being used in a race or speed contest although the winner has been determined. The second approach, suggested by the dissent in Tournor, considers whether the insured’s participation in the event was a proximate cause of the accident—in other words, whether the risk created by the participation in the event contributed to the accident. If so, the

exclusion is applicable. Farmers Insurance Exchange v. Peters, 502 S.W.2d 319 (Mo. 1973), is the leading example of this approach. In Peters, the son of the insured was driving the insured vehicle when he and his passenger agreed to engage some others in automobile races. The race in question was to cover a flat strip of highway and end at a bridge. The son of the insured pulled ahead, at speeds estimated at 80 to 100 miles per hour, and crossed the bridge first. Thereafter, the son lost control and both he and his passenger were fatally injured in the resulting accident. The policy contained the following exclusion: The insurance afforded under Parts I (Liability), II (Uninsured Motorist), III (Medical), and IV (Comprehensive and Collision) does not apply under any of the coverages . . . (2) while the automobile is being operated by any person in any prear-

ranged race or competitive speed test. The claimants argued that the accident occurred after the race was over and, thus, that the exclusion was not applicable at the moment of the accident. The case was tried to the court, which found that there was no coverage. The claimants thereafter appealed. In considering whether “the automobile [was] engaged in a race at the time of the casualty,” the court reviewed the Tournor decision, as well as cases considering the continuing liability of one claiming to have broken off participation of a motor vehicle race. It then concluded as follows: (1) That absent any statutory prohibition against the same, it was within the province of the insurer to exclude coverage from those results flowing from the additional hazards created by a prearranged race or speed test; (2) That the legitimate purpose of such an exclusion was to avoid

the additional hazards while they existed and not just during that period of time wherein a winner of the race was being determined; and (3) That whether or not such additional hazards continued to exist beyond the finish line, to such a degree that they reasonably might be called the proximate cause of the casualty, was a question to be resolved by the trier of the facts. The trial judge, upon waiver of a jury, did so in this case, and we do not find the conclusion reached to be erroneous. The Finish Line! Having carefully considered the public policy of your state and the terms and framework of the exclusion as applied to the facts of the claim, you will be in a position to make a “winning” determination cA of coverage. John B. Drummy is with Kightlinger & Gray, LLP. He can be reached at jdrummy@ k-glaw.com.


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ink apse

Quick Look C

Skimping on temporary bracing boosts risk of structural failure during construction.

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Pictures tell the story of common cases.

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Adjusters need to know building, bracing and load details to determine compliance and causes.

Temporary bracing mitigates risk of structural failure in construction projects. By E. Brian Webb, P.E., C.M.I.

What goes up must come down, right? While the laws of physics are themselves naturally noble, when they’re brought to bear on a building that’s supposed to stay up, they can be truly noxious. They also pose a special problem for those charged with determining the cause of collapse. If you’ve been working in the insurance or construction industry for even a short time, you’ve likely experienced the devastating impact of structural collapses. Installation of temporary construction bracing is a critical component to each phase of a successful construction project, but sometimes it is forgotten or purposely neglected. Failure to install adequate temporary bracing can have catastrophic consequences to the overall project schedule, customer

satisfaction, profit margin, and worker safety. All building types, whether residential, commercial, agricultural or industrial, are designed to withstand forces from wind, snow, gravity, earthquake and people, as well as numerous other sources. Regardless of the type of force, the building is generally designed to transfer that load into the foundation and, ultimately, into the earth upon which the building is based. The path that the force takes to get to the foundation is called the “load path.” Often, loads are applied into a single component of a building, such as a basement wall or a roof truss. These individual components are not able to resist the force of the load on their own, and they must work synergistically

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Photograph 1 Unbraced basement wall collapses.

Photograph 2 Unbraced wall severely compromised.

Basement Wall Failure Basement walls are designed and constructed to resist the lateral pressure of the soil against the foundation of the house. Once construction is completed, the basement walls are restrained laterally by the footing or basement floor slab at the bottom, and by the floor structure at the top. Until the first-floor structure is in place, the walls are incapable of resisting lateral soil pressure without adequate temporary bracing to prevent collapse; otherwise, they would simply topple over.

Photograph 3 Inadequate bracing bowing under load.

In the instance shown here, the basement walls of a four-family condominium building had been erected of concrete masonry units (CMU blocks). All of the walls were properly constructed per the applicable building code; however, temporary construction bracing had been installed on only about half of the walls. Photograph 1 shows a wall that collapsed, and Photograph 2 shows a wall that has pushed inward but has not yet collapsed. Neither of these walls had been braced prior to their failures, and yielded under the normal force of lateral soil pressure. As can also happen, Photograph 3 shows temporary bracing that had been installed but that had subsequently bowed under load. This was because the bracing member was not strong enough to hold the normal lateral soil load placed onto it by the wall. Photograph 4 shows a similar condition where plenty of bracing was installed, but the wall on the right bowed slightly inward because one of the braces had buckled. In this case, temporary bracing was provided, but it was undersized to handle the load.

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Photograph 4

Undersized brace buckles (see center brace on right.)


...it is reasonable to expect a properly braced building under construction to withstand forces that approach those prescribed by local building codes for completed structures.

with the other components of the building. During various phases of the construction process, the load path is incomplete. Loads placed into certain components of an incomplete structure are not able to properly migrate into the foundation. This can result in overloading and failure of the member—and even progressive failure of additional building components. To prevent this, temporary bracing must be installed to resist any short-term loads until the structure is complete. The bracing must be strong enough to resist the load and safely transfer it to the ground. In addition, it must be placed in the correct location to carry the load and prevent overloading of the permanent components of the building. When completed, every building or structure should have the strength, stiffness and stability to withstand the stresses of anticipated external forces without excessive movement or deflection. During construction, however, the structural elements that increase stiffness and stability may not be in place

yet, leaving the primary structural members vulnerable to otherwise non-damaging forces. The purpose of temporary bracing is to provide the interim stability and stiffness required until all structural elements of the building are assembled. Temporary bracing also serves to dampen the energy accumulated in a structure as it deflects or “sways.” This effect is most noticeable during gusting winds that, despite not being damaging alone, can increasingly push a structure with more force than the previous gust due to latent energy. Properly installed temporary bracing will prevent this cumulative energy from developing and will transfer these intermittent forces to the ground. Unfortunately, temporary construction bracing is often left up to the discretion of the contractor or subcontractor. A knowledgeable contractor (or one who has previously been the victim of a bracing-related construction failure) will likely never omit temporary bracing. However, contractors who are working with a tight deadline, or those looking to rush to the next job, may skimp on temporary construction bracing or omit it completely. This increases the risk of partial or complete failure of the structure or its components during construction. How many times have you heard a contractor say, “I’ve been doing it this way for over 30 years”? Any contractor who fails to install temporary bracing because he’s “done it that way for 30 years” is long overdue for a failure. [See sidebars for common examples of inadequate temporary bracing-related failures.] Even properly braced structures can collapse if

Photograph 5 Inadequately braced trusses collapse.

Photograph 6 When trusses fail, walls go too.

Truss Failure in Structures Under Construction Wooden trusses (or any truss for that matter) are designed to span between at least two bearing points while carrying a load. Trusses are designed to be economical and are very flimsy until they are installed and permanently braced by roof sheathing or other building components. It is not uncommon to have a 2-inch wide truss that spans more than 60 feet. Failure to provide temporary supports to brace the unstable trusses during erection can have catastrophic consequences. Photograph 5 shows newly set roof trusses that failed (similar to dominoes) due to inadequate temporary bracing support. Not only will the trusses need to be scrapped, but the exterior walls will also need to be repaired or reconstructed because they were pulled inward by the failing trusses, as shown in Photograph 6.

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they are subjected to sufficient forces. However, it is reasonable to expect a properly braced building under construction to withstand forces that approach those prescribed by local building codes for completed structures. Ultimately, the builder is responsible for the stability of a structure under construction. Understanding the forces that act on a structure is key to planning for the temporary measures necessary to protect it from potential collapse. When construction failures lead to project delays, damaged materials, and reduced profits, contractors often look to their insurance companies to recover their losses. In the absence of severe weather or other obvious causes, insurance claims professionals should give immediate consideration to the likelihood of inadequate temporary bracing as a root cause of, or at least a con-

tributing factor to, the loss. Collapses that occur during construction can be difficult to investigate since the resulting debris is never neat and orderly. Failures often result in piles of broken lumber, masonry, bricks, mud, and other items that make determination of the exact cause difficult. However, knowledge of how a building is integrally constructed can help uncover the presence of any temporary bracing that might have been in place at the time of the collapse. A copy of the construction drawings should be consulted, and the assistance of a professional engineer could be warranted to determine the cause of the collapse. cA E. Brian Webb, P.E., is an employee of Donan Engineering Co., Inc. Donan Engineering has successfully investigated thousands of construction-related failures throughout the Midwestern United States.

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Photograph 7

Prematurely applied second-floor sheathing invites wind damage.

Photograph 8 After winds of 40 mph.

The Order of Construction As illustrated above, inclusion of temporary bracing during construction is paramount, but of near equal importance is the order in which a building is constructed. Take, for example, the house under construction shown in Photograph 7. For reasons unknown, the builder decided to apply the exterior wall sheathing to the second floor first. This greatly increased the “sail area” on which wind could act, resulting in significantly increased temporary lateral loads. To compound matters, the builder installed bracing to resist forces in the east-west plane only, leaving the north-south plane unbraced. As Murphy’s Law would have it, winds of approximately 40 mph originating from the south resulted in the complete collapse of the structure, as shown in Photograph 8. Had the second floor been unsheathed (reduced load), or had there been bracing to resist forces in the north-south plane (increased strength), the collapse could have been prevented.


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The on

How will it affect your policyholders? By Aaron Wilson

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Quick Look C

The foreclosure crisis has introduced increased risk for policyholders in the temporary housing market.

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Arson and evictions threaten insureds staying in vulnerable properties.

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Housing risk mitigators can provide pre-relocation services and foreclosure response advice.

? Last year at this time did you expect the major changes on Wall Street or the massive intervention in the markets by the federal government? Everyone knows someone who has been affected, and many are blaming careless risk taking and poor lending practices in the home mortgage market. When mortgages became delinquent or went into foreclosure, huge

exposures and “toxic assets� resulted. The effects of the housing crisis spread to almost all companies, industries and sectors—some with disastrous effects and some with only collateral damage. Banks are being bailed out, the automobile industry teeters on collapse and icons of American business have failed. A persistent factor affecting property policy-

holders and their claims adjustors is foreclosure. In 2007, before the meltdown, the housing industry saw 10.3 of 1000 homes go into foreclosure. Rick Sharga, senior vice president of Realty Trac, the leading online foreclosure expert, expects this will continue into 2009, noting that one in every 54 homes received a foreclosure notice during the past year. Even with all the

moratoria on foreclosures and the mortgage relief by the government, December 2008 was a record month for foreclosures at a staggering 41% increase over just one year before. In total, 2008 foreclosures were up 81% over 2007 and 225% over 2006, with geography and demographics playing a factor in the statistics. Nevada, Florida and Arizona lead the states in the

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number of foreclosures, with Nevada topping the list with a 125% increase over 2007. So what does all this mean to the temporary housing market and an adjuster’s ability to deliver quality service to the policyholder? It means that policyholders may find themselves in tenuous circumstances where the proverbial rug may be pulled out from under them any day by a foreclosure. In addition to the normal victims of property loss who need temporary housing, now many former homeowners are renters—or would-be renters—which means those trying to rent or find accommodations due to property disasters may find shortages of temporary housing. The deluge of foreclosures can impact an adjuster’s delivery of services to the policyholder in the following ways:

1.

Policyholders may be told to leave foreclosed temporary housing. Chip Cummings, author of Mortgage Myths, says that over 20% of all foreclosures are rental properties. This means that two out of every 10 of your policyholders already in temporary housing could be at high risk of having their rental foreclosed. When a foreclosure takes place, the tenants in the property have little or no rights, and what rights exist vary state by state. The bottom line is that a new property owner can evict a tenant within a matter of days even though these same tenants have a contract of lease in place with the former landlord. Trusting tenants have no idea if,

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or when, they may receive an eviction notice from the landlord’s bank.

2.

Your temporarily housed insureds may be at greater risk from arson. “Desperate times cause decent people to do desperate things,” says Joe Toscano of the International Association of Arson Investigators. David Rioux, vice president of Corporate Security and Investigative Services for Erie Insurance, explains the plight of one desperado: “One example is a gentleman in northwestern Pennsylvania with a suspicious home fire. Despite a checkered credit history, the homeowner was able to eventually secure refinancing last year with an adjustable rate mortgage at an attractive 6.5% rate. Prior to the fire, the homeowner was notified of a rate change to 15.5%....” Many of us have heard similar tales from carriers across the country and now see arson investigations on the rise. Not only does this affect the house, but it means that your policyholder who is temporarily housed in an arson-risk or arson-affected property has elevated risks.

3.

There’s ample temporary housing but…with a catch. On the bright side, there are more cost-effective housing offerings due to the increased inventory. This competitive rental market, at all price points, means there is ample availability of properties. But, even in the bright spot, there are cautions. Because erstwhile homeowners are now going into

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apartments, the apartment waiting lists are filling up. This is preventing some current policyholders who are lodged in apartments to be denied lease extensions because someone new is already slated to occupy the property. This means that it is critical that you have a housing vendor that manages the process for the entire stay.

4.

Beware of credit issues. In these tough economic times, fewer and fewer individuals have credit cards with available credit for use during a claim. We have seen a severe need to place policyholders in hotels via an alternative method of payment since few policyholders can put hotels on their credit card any longer.


Every adjuster needs to be aware of potential pitfalls and have a plan on how to handle them before policyholders are affected. • Foreclosure Actions An ounce of prevention. Prepare for the problem before the renter moves into the home. Ask your housing provider to check if there is a pre-foreclosure action pending and to do credit checks on potential landlords. The fees associated with this step are miniscule compared to the cost of another relocation. Never let your policyholder

pay rent to the landlord in advance without seeing a current mortgage statement. 

Handling a foreclosure during a claim. Know how you will handle the situation if the temporary housing you’ve placed your client in goes into foreclosure. Your policyholder may be legally required to continue to pay rent to the current owner, but look into the legality of having them pay rent into an escrow account. They should also contact an attorney who specializes in foreclosure property issues. Have your housing company contact the bank to see if they can continue to stay through the claim duration.

contractors guarantee a completion date. • Hotel Solutions Advancing money or direct billing for a hotel may not always be the easiest or most timely solution if the policyholder is in need of a room at 2 a.m. Choose a housing provider that can put the hotel on its card and invoice you later. With the complexities facing adjusters, and insurers in general these days, housing risk mitigation programs can be a valuable aid. Providers of these services can do upfront work, such as checking for pre-foreclosure actions and negotiating potential lease extensions prior to your placement of

• Arson Actions Every adjuster knows how to handle suspected arson. Engage your investigative unit and put the policyholder in a hotel until the cause is determined.

Aaron Wilson is president and chief executive officer of Temporary Accommodations. He can be reached at (800) 548-5196 or awilson@temporaryaccommodations.net.

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• Housing Solutions Although housing options are abundant, there are still policyholders who are moving into apartment rentals. A few years ago, it would have been easy to extend a lease. Now, however, it may be necessary to negotiate that up front. Be sure your housing provider has done that, and let the lessor know as early as possible when an extension is needed. Additionally, insist that your

an insured in temporary housing. They can also guide the insurer through the process of dealing with a foreclosed temporary unit. Some offer a hotel program that puts policyholder stays on a company credit card 24/7/365. Ask your housing vendor what programs it has in place for situations facing policyholders in today’s shaky market, and make sure your provider is asking the right questions of landlords up front to mitigate your company’s and your policyholders’ risk. cA

Renew online today. It’s as easy as 1-2-3! SUBSCRIBER ID: 643WUV2CCC John Smith ABC Insurance Company 123 Maple Street Anytown ST 12345-4221

Enter your Subscriber ID (see magazine label) or your e-mail address in the “My Claims Advisor ” box and update or complete your subscription. You can enter missing info, make corrections and choose the settings that work best for your busy schedule. It’s easy!

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Quick Look C

Weather-related claims costs have risen exponentially.

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Fraud and poor claims investigations lead to unwarranted payouts.

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Forensic meteorologists evaluate site-specific data to validate or refute claims.

Site-specific weather analysis offers an expert approach to evaluating weather-related claims. By Kevin E. Hopler and Frank Lombardo, CCM

“Fooling Mother Nature� was the message behind a television commercial for margarine back in the 1970s, and today the insurance industry is at her again as it continues battling with an unprecedented number of fraudulent weatherrelated claims associated with constantly changing weather conditions across wide swaths of the U.S. However, as more claimants are finding out, you may be able to fool Mother Nature, but not the weather expert. With huge advances in the science of meteorology, a weather expert can sniff out the clues of weather-related claims fraud in the industry. With the cost of damages from natural catastrophes and weather-related incidents rising exponentially over the past century, insurers have increased vigilance over the claims and payout process. Due to the variability and spontaneity of weather, insurance companies nationwide are confronted with hundreds of new claims each day: personal injury, property damage, motor vehicle accidents and, occasionally, widespread catastrophe. Embedded in

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Figure 1

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Looking for Weather-Event Markers Research collected from the National Oceanic and Atmospheric Administration (NOAA) indicates an average of over 1,000 damaging-tornado reports submitted annually across the U.S., which amounts to more than a billion dollars in property damage (Figure 1). A tornado derived from a supercell thunderstorm is one of nature’s deadliest and most violent storms with potential for devastation of a single site in only seconds. A tornado or funnel cloud can strike quickly, disappear, and touch down again with little advance warning. The path of an average tornado can be tracked to some degree but can quickly change direction. In the case of a widespread, powerful, tornado outbreak, there will be extensive visible evidence to justify the claim. However, there are numerous cases when a policyholder submits a tornado claim in a suburban or rural location. Was this the case of isolated tornado damage on a single property, or was the damage unrelated to weather? In this claim, a professional meteorologist will collect the necessary weather data, research it, and apply expertise to determine the likelihood of the event. Floods cause widespread damage across the U.S. and can affect entire river basins in multiple states. A flash flood is a much more localized event confined to a small or isolated sub-region. Flash floods typically stem from an intensifying thunderstorm that produces rainfall rates that can exceed one to three inches in

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1200

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PROPERTY DAMAGE (IN $ MILLIONS)

Average Annual Damaging Weather Reports vs. Estimated Property Damage

sionals can determine the likelihood that weather was a causative factor in a claim. NUMBER OF EVENTS REPORTED

those claims…that’s right— fraud. Recent fraudulent claim investigations include filings from hurricane Katrina, large hailstorms in Ohio, and alleged lightning strikes on personal property. No matter the type of weather-related claim, investigation by adjusters is needed to determine validity. While claims due to weather are encountered year round, the complexity of summer-related claims increases significantly due to the “mesoscale,” or localized intensity of thunderstorms. Figure 1 displays thousands of damaging weather reports, resulting in hundreds of millions in property damage every year. With large numbers such as these, claims professionals need a reliable source for weather data to substantiate incoming claims. Although not all claims require a full, detailed analysis of the weather conditions, some more-complex claims that stem from a severe thunderstorm could benefit greatly from the expertise of a forensic meteorologist who can undertake a site-specific weather analysis. These include inquiries due to tornadoes, flash flood, hail, damaging winds, and lightning. There are a large number of private consulting firms that will conduct a thorough and detailed investigative analysis to identify the type, duration and intensity of weather conditions at a particular location, date and time. Many firms even have a certified consulting meteorologist on staff, which greatly enhances the qualifications of the individual and firm. Through the employment of an expert meteorologist and increasingly advanced weather data, claims profes-

0

0 Tornado

Hail

Wind

Lightning

type of weather event Source: National Oceanic and Atmospheric Administration (NOAA) and the National Climatic Data Center (NCDC) Storm Events Database

less than an hour. A common misconception when investigating flash flood-producing thunderstorms is that a surface weather observation 10 miles away from the claimant’s site can verify or contradict an insurance claim. This, however, is not an accurate review of data since thunderstorms can be sporadic and can span less than the distance between the site and surface observation station. Hail is a common component of a severe thunderstorm, and the size of hail is dependent on the strength of the updrafts in the storm itself. Hail is most known as a threat to personal property and crops. NOAA research indicates that just over 4,000 reports of damaging hail (greater than 0.75 inch) are submitted annually. Over 30% of these reports occur in Texas, Oklahoma and Kansas, where there is a high frequency of severe weather on an almost daily basis. Depending on the strength of the storm, hail can range in size from as small as a few millimeters producing little or no damage to rare historic cases of softball size (4.5 inches) causing complete devastation (Figure 2). Back in June 2007, across

Damage Reports damage in $ millions

Akron and Canton, Ohio, a record number of homeowners filed claims for roof damage from a large hailstorm. Although a large number of these claims were validated, disreputable area contractors were urging homeowners with normal wear and tear to their roofs to claim damage from the hailstorms. Having an expert meteorologist research and analyze the claim could have saved insurance companies tens of millions of dollars or more in losses. On average, nearly 3,000 damaging wind events are recorded in the U.S. annually. The meteorological measure of a damaging wind gust is a speed equal to or greater than 57.5 mph. There are many important components of wind, and the overall effects on property or persons can vary greatly depending on sustained wind speed, peak gusts, and direction. For example, a westerly wind gust of 79 mph will be more threatening to a property exposed to the west than one sheltered by a mountain ridge, large trees, or a building. Wind-or-water disputes characterized the problems with hurricane claims in the


Gulf States in the aftermath of Katrina. Which came first—the storm surge and its flooding waters or wind damage? In a catastrophic hurricane, it’s not always clear to the adjuster making the assessment. Was the flood damage a result of ground water, or was there damage to the roof caused by high winds allowing heavy rain to flood the interior? There is also the complication of the property damage claim of a homeowner with no flood insurance. An expert meteorologist can help with the assessment of the order of damage. While other weather claims usually cause widespread damage to numerous properties, a single lightning strike frequently causes only localized damage to one property. NOAA estimates an average of 20–25 million cloudto-ground strikes annually, resulting in an average of 550 property damaging lightning events per year. Fraudulent

lightning-strike claims can be identified through the use of a lightning-strike report from the National Lightning Detection Network. The reports are used to ascertain, at a high degree of confidence, that there was, or was not, a cloudto-ground lightning strike in the vicinity of the claimant. Reliable Sources of Weather Data A forensic meteorologist in the preliminary stages of claims research uses surface weather observations from first-order weather stations. Surface weather observations are either automated or are taken and recorded by a trained weather observer at a minimum of one report per hour. Currently, there are more than 700 observation stations across the U.S. These stations report sky cover, wind speed and direction, temperature, visibility, precipitation amounts and, in some cases, the depth of snow and ice on

Figure 2

Hail Size (in inches) Pea

0.25

Dime

0.70

Penny

0.75*

Nickel

0.83

Quarter

1.00

Half Dollar

1.20

Walnut

1.50

Golf Ball

1.70

Tennis Ball

2.50

Baseball

2.80

Grapefruit

4.30

Softball

4.50

* Bold indicates the threshold for damaging hail. Source: National Oceanic and Atmospheric Administration (NOAA)

the ground. A meteorologist should review such data, as all reports are formatted in meteorological code. Daily climatological observations are a great supplement to surface weather observations. These reports are taken daily at a predetermined time and contain a summary of conditions over the prior 24 hours. Conditions include maximum and minimum temperature, precipitation, snow cover, and occasionally average wind and sky cover. These observations are recorded by private weather observers, universities, Federal Aviation Administration facilities, and National Weather Service offices. Another source of reliable data is the network of 159 high-resolution Doppler radar sites across the U.S. called NEXRAD (Next Generation Weather Radar system). Data obtained from these sites is extremely versatile and, with computer processing, can generate numerous meteorological analyses. Some available products include precipitation intensity and total estimates in addition to wind velocity, storm tracks, cloud tops, tornado vortex signature and hail. A forensic meteorologist can determine which products are suitable and will analyze and summarize the findings for the respective claim. Additional sources include archived zone forecasts, watches, warnings and advisories issued by local National Weather Service offices. These products are a nice place for an adjuster to start, since they’ll show if conditions were, indeed, forecast that could have resulted in the claim that’s being investigated. Local storm reports submitted by law enforcement officials, certified storm spotters and

the general public can corroborate official weather data. When to Bring in the Experts There is a great variety in the magnitude of weather-related claims ranging from minimal damage to an individual’s home to catastrophic multimillion dollar events that cover large geographical areas. Claims managers and adjusters must investigate thoroughly at the preliminary level then make a determination if an expert meteorologist is needed and will be cost-effective. A forensic meteorologist will provide the specificity that a general investigation is often lacking when simply reviewing weather records from nearby airports or climatological data that is often taken miles from the site in question. A meteorologist can apply scientific principals to surrounding data and obtain remote sensing data, such as Doppler radar, or lightningstrike reports to assist in preparing a site-specific, pastweather report. Target the meteorologist with specific questions that will help settle or pay the claim. The meteorologist will be able to provide a relatively high degree of certainty that weather was or was not a factor in the loss event. The costs involved in hiring a meteorologist to prepare a site-specific past-weather report can greatly outweigh the costs of paying on a fraudulent claim. cA

Kevin E. Hopler is a meteorologist/director of sales and marketing at WeatherWorks, LLC, in Hackettstown, N.J. Frank Lombardo is president and certified consulting meteorologist (CCM) for WeatherWorks. For more information, please call (800) 427-3456 or visit www. weatherworksinc.com.

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Medical Complian M Served daily: regulation ragout—you can’t tell what’s what, and it’s sure to give you indigestion. Software providers may have a prescription. By John Gilmartin

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Quick Look C

Growing complexity of medical compliance raises claims costs, other problems.

C

Software solutions provide critical help.

C

Getting the right software partner makes all the difference.

nce Menu One part medical coding guidelines, two parts state and federal rules and regulations, a pinch of interpretation and dash of implementation, and you have a hearty concoction even the most experienced insurance payer and claims adjuster will have difficulty digesting.

Reviewing and processing medical claims or bills in health, workers’ compensation and automobile lines of business has become more complex than ever before. The increased frequency of medical compliance issues, the addition of state fee schedules, electronic billing

and remittance, and state reporting mandates are a recipe for compliance disaster. While swelling claims expenditures are related to the high costs of the services being provided—healthcare costs have increased at a rate of 8%–10% year over year—a large percentage

of the increases are tied to leakage directly related to the growing complexity of medical compliance. What with the American Medical Association (AMA), National Correct Coding Initiative (NCCI), Centers for Medicare & Medicaid Services, plus other medical

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coding rules and regulations driven by best practices, medical billing and coding standards groups like the National Uniform Billing Committee, Workgroup for Electronic Data Interchange, X12, and the International Association of Industrial Accident Boards and Commissions, it is unreasonable to expect any organization or individual to know how to handle the eight quadrillion existing medical billing scenarios. Yes, that’s an eight followed by 12 zeros. Add the thousands of state and federal rules to this already staggering figure, and as a member of the medical billing community, it might seem that you’re destined for failure when, in fact, there is a light at the end of the tunnel. Following the rules of the road using medical bill review and compliance software can keep insurance payers, third-party administrators, self-insureds, and other constituents compliant—allowing these organizations and claims adjusters to focus on other complex claim-decision issues. The recipe for success is rooted in four main areas: (1) selecting the best partners, (2) testing, (3) internal ownership and, most importantly, (4) following a balanced and fair reimbursement and communication strategy. Selecting the Best Partners Get the right mix by choosing the best software vendor/partner. This requires a rigorous selection process that includes evaluating each potential vendor’s knowledge and experience, flexibility and configurability, availability to provide an integrated rules engine, ability to integrate with

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Organizations that do not assign internal owners struggle with adoption, policy and process adherence, and implementation.

other solution providers, and use of fair and accurate standards. [See sidebar.] While some compliance topics are cut and dried, other issues are not so simple. These interpretive or undefined situations require the partner’s solution to be flexible and configurable. You can overcome these common hurdles by choosing a partner that will allow you to configure its application to meet your specific business needs. A rules engine is a software solution that executes business conventions externally from the core application in order to allow the organization to be more dynamic, flexible and adaptable. In other words, the rules engine is the component of the overall solution that allows customers to personalize the solution to their unique business process and approach. These rules engines are typically a combination of “if-thenelse” scenarios intended to identify a specific variable, take action if true, or take an alternative action if not true. It is paramount for medical bill review and

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compliance solution providers to utilize a powerful rules engine that contains all (or at a minimum the most common) data elements and common operators, and that can take action or route bills or claims to specialized work queues. The rules engine must allow for multiple hierarchical rules to be integrated in with the solution and be flexible enough for rules to be changed quickly by business or technical owners. The most dynamic rules engines can handle both inference (if/then) and reactive event condition rules that effectively route inbound information and processes. While choosing a provider that can provide you with all of these fundamental elements is a must, integration is another necessity that you can’t overlook. The optimum medical bill review and compliance solution providers integrate with other specialized partners. They recognize that they alone cannot address and solve all of the business needs of the customer. Providers that collaborate with other partners frequently offer the best overall, highest-quality solution or service at the best price. Be sure your medical bill review and compliance partner has

The optimum medical bill review and compliance solution providers integrate with other specialized partners.

an open strategy and has integrated with other bestin-class specialty partners in the area of payment, imaging and data capture, managed care, pharmacy, preferred provider organizations, and negotiation services. Test the Software Some consider testing a necessary evil required only for the solution provider’s software application. Customers, too, should engage in some amount of testing up front and during regular intervals to ensure the expected results are achieved and business and technical processes aren’t harmed or interrupted. The amount of testing is tied to the complexity of the integration with your partner, and each carrier must evaluate workflow and processes to ensure the solutions not only work, but provide peak performance. Customers should develop test plans that describe the analytic process, undertake test cases that describe the inputs and expected outputs, and provide test results that describe what passed or failed in each test case. Your solution provider should support you during your testing efforts by giving you full access to its test plans and results, along with access to a testing environment of the version of the software you’ll be implementing. Internal Ownership of Compliance Don’t buy a solution and expect it to be successfully implemented and managed externally. Consider your software provider a partner, meaning there’s another member of the relation-


What to Look for in a Software Vendor/Partner It is absolutely critical for medical bill review and compliance solution providers to possess knowledge of the industry’s needs and the experience required to deliver these solutions to the market. The organizations you choose as partners must also understand the federal and state rules and the role of the AMA and NCCI. They must be able to include and keep fees current and integrate data and rules together at varying hierarchy levels. Their proficiency must be expansive enough to include knowledge of which Web sites to monitor and the key contacts to call at the federal and state level. They need a dedicated medical team aligned to help with rule interpretations. They should also be active participants in standards organizations and groups ,and ultimately take positions on topics that impact the industry. Partnering with a provider that has attained an elevated level of knowledge and experience that includes all of these components will help ensure that you remain where you need to be—in compliance with the rules and regulations.

ship—your business. Even if building or utilizing a full strategic vendor management program is not possible for your organization, it is very important to assign individual “owners” to oversee and manage the medical bill review and compliance process. In addition to legal and procurement individuals, organizations should assign business and technical personnel either on a full-time or a temporary assignment basis to ensure the solution is implemented, managed and maintained according to your desired goals and objectives. If medical expertise exists within your organization, be sure to include those individuals as well. Organizations that do not assign internal owners struggle with adoption, policy and process adher-

ence, and implementation. Start by developing a formal written plan that clearly defines your expectations of the software partner and be sure to include a scorecard with key metrics. Be inclusive and solicit input from all internal stakeholders. After the plan has been established, share this with your partner and establish monthly stakeholder teleconferences and quarterly or semiannual face-to-face stakeholder sessions. These will facilitate your respective teams in addressing issues, solving problems, and providing general communication. Lastly, be sure your internal owners support your effort to be open and honest with your partner. If something isn’t working, they deserve an opportunity to address the problem.

Balanced and Fair Reimbursement and Communication Strategy Navigating your way through the labyrinth of code sets, federal and state rules, and a multitude of regulations, isn’t the only challenge for your medical compliance software. As part of your compliance solution partnership, be certain that your vendor and internal staff understand your underlying commitment to reimburse injured claimants a fair, accurate and reasonable amount. It is incumbent upon you and your compliance teams to communicate this approach internally and externally to all involved. To keep your teams focused on serving your customers and making the right claim decisions, be aware of the increasing

frequency and complexity of the medical compliance changes happening within your state, region or nationwide—but don’t fret. There are organizations that can assist you in this process and help you digest this overwhelming menu that is constantly changing. To guarantee success, select the right software vendor/ partner, engage in testing, assign internal owners, and communicate your balanced and fair reimbursecA ment strategy. John Gilmartin (john.gilmartin@mitchell.com) is vice president of Product Delivery for Mitchell International, Inc., which offers medical bill review and compliance solutions for its property and casualty clients.

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cool linx www.jott.com

Online Speech to Text Conversion Jott offers a free service that converts your voice into e-mails, text messages, reminders, lists and appointments. It can even post items to your blog or Twitter account. After you sign up, just call Jott on your phone and leave a voice message which will be converted to text. The conversion of speech to text is surprisingly accurate.

www.ohgizmo.com

Tech Toys If you love tech toys, then you have to check out the OhGizmo! blog, a Web site devoted to offbeat gadgets, innovation and design. From a table with a skateboard-inspired lazy Susan to a dorm room-sized washing machine, OhGizmo! offers a variety for tech aficionados everywhere. It easily could double as a Sharper Image catalog.

www.merckmanuals.com

The Merck Manuals Online In an effort to provide information to those in need, Merck provides free online access to many of their publications, including The Merck Manual. You can browse by topic, look

~ pulse ~

up items in the index, or even view and print diagrams. Registration is not required, and there is no limitation on use.

https://catalog.ama-assn.org/Catalog/cpt/cpt_ search.jsp

CPT Code Search As a free service from the American Medical Association, you can conduct up to 10 CPT searches every day to obtain procedural descriptions and detailed Medicare payment allowances for individual states. Just enter a CPT code or keyword to interpret those cryptic medical bills.

www.scotusblog.com

Supreme Court News & Updates Did you ever wonder what goes on behind the doors of the U.S. Supreme Court? SCOTUSblog and its companion site, ScotusWiki, provide exhaustive coverage of the U.S. Supreme Court with updated news coverage and indepth analysis of recent court rulings. You can even review their upcoming schedule of cases.

wHICH LINE OF INSURANCE IS THE MOST DIFFICULT TO INTERPRET COVERAGE?

Coverage determination is a challenge for claims adjusters. But are there some lines that are more difficult to interpret than others? In this quarter’s Pulse Poll, respondents indicate that Commercial Property and General Liability claims pose the biggest challenge. Personal Auto, Commercial Auto and Personal Property claims are at the bottom of the list as those lines that present the least difficulty. Be sure to read in this issue about ways to improve your skills in policy interpretation in order to withstand any challenge.

Commercial Property 27%

Commercial Auto 9%

Businessowners 16%

Personal Auto 2%

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General Liability 21% Workers’ Comp 16% Personal Property 5%

Take this month’s Pulse Poll online at www.claimsadvisor.com


the commish

Spotlight on Insurance Commissioners Roger Sevigny, NAIC President and New Hampshire Insurance Commissioner As I begin my term as the 2009 president of the National Association of Insurance Commissioners (NAIC), I am awed by the number of obstacles we—as state insurance regulators—have overcome in the past 12 months. From the AIG situation to the overall historical faltering of the nation’s economy, we have been challenged to map a course that is most appropriate, both for those whom we regulate and those whom we protect. Indeed, the nation’s insurance markets represent relative stability in an otherwise chaotic and troubled financial market—due in no small part to the strong solvency protections implemented and enforced by the states. But we all agree that action is needed at the federal level to manage systemic risk to the nation’s financial markets, and we intend to be a full partner in congressional efforts to improve the overall regulation of the financial services sector. In addition to that, state insurance regulators will continue the work we’ve begun on other important issues, such as crop adjuster licensing, climate change issues and national catastrophe fund legislation. Flood Insurance Another topic which state insurance regulators have been actively involved with at the congressional level is flood insurance. Although state insurance departments regulate most insurance, the National Flood Insurance Program (NFIP) is a federal program with no state oversight. The NAIC collaborates with the NFIP and the Federal Emergency Management Agency (FEMA) to ensure that consumers are sufficiently protected and informed. This working relationship has developed minimum flood insurance training and education requirements for agents who sell flood insurance policies for FEMA. As background, the National Flood Insurance Act of 1968 authorized the creation of the NFIP because this type of insurance was unavailable from the private insurance markets. With premium revenues of roughly $2 billion and borrowing authority of roughly $1.5 billion, the NFIP was overwhelmed by the magnitude of the 2004 and 2005 hurricane seasons—clearly revealing that the NFIP is not prepared to meet the challenges of a large-scale disaster. In response, Congress acted to raise the program’s borrowing authority to $20.8 billion. NAIC staff worked with Congress to incorporate non-binding mediation language as part of the current flood insurance reform legislation, H.R. 3121. This concept should be part of any reform legislation addressing the NFIP. The NAIC stands ready to assist Congress in crafting NFIP reform legislation and implementing improvements that will make flood insurance viable and effective. State

insurance regulators also believe that, as Congress considers flood reform, thought should be given to the broader issue of natural catastrophes in general so that solutions to these related problems are developed cooperatively. All-perils insurance coverage would help address flooding and other natural catastrophes in one policy. While H.R. 3121 adds wind coverage to the flood program, the NAIC believes that catastrophic insurance for wind and water can and should be offered in one policy through the private market, not the government. Natural Catastrophes Natural catastrophes are a national issue, and no region of the country is immune. In 2006, for example, the United States experienced more than 50 major disasters in 33 different states. Only one of these events occurred in the “disaster prone” Gulf States of Florida, Louisiana, Mississippi, and Alabama. That is why state insurance regulators—working together through the NAIC—continue to develop a national catastrophe risk plan that considers an all-perils insurance policy; promotes reasonable building codes and mitigation tools; and emphasizes a private market response backed by state and federal reinsurance pools. The NAIC and state insurance regulators are committed to developing a better way to insure largescale natural disasters. Any federal response should capitalize on the expertise and strengths of the statebased insurance supervisory system. The private insurance market should be the primary risk bearer for homeowners and small businesses, but a comprehensive, state-based, national plan is needed to help mitigate and manage large-scale natural catastrophes. The NAIC also endorses the concept of an independent commission of experts to examine various approaches to managing natural catastrophes better on a nationwide basis. State Vision As the go-to experts on insurance matters and the strongest advocates for insurance consumers, NAIC members are often called to partner with our federal and state legislative and regulatory counterparts on important consumer and national insurance issues. And our overarching message has continued to be that state insurance regulators have a strong vision for designing options and implementing solutions for stronger, more uniform insurance regulation. As such, any proposed federal regulation aimed at reforming our nation’s regulatory regime should defer to the states as the functional regulator of the insurance industry. For more information, visit www.naic.org

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interview

What makes you tick? Claims Adjusters have one of the most interesting and demanding jobs in the insurance industry. Here you get to tell us about the job and how you make it part of your life. :: Zaculyn F., Staff Claims Adjuster/Appraiser What prompted you to become an insurance adjuster? I was a liberal arts major and needed a job out of college. What type of adjuster are you? (e.g., inside or outside, auto, property, workers’ compensation, etc.) Inside adjuster for GL, auto and 1B workers’ compensation. How long have you been in the business? Since 1986...hope I am not telling my age. What is the greatest challenge for you in dealing with the insured? Getting them to understand my perspective from a claims standpoint and making them realize that I see their business as my business. How do you deal with the stress of the job? I love stress. I try to treat people as I want to be treated and just do the best I can every day. I set my own standards for success. What strategies have you employed to manage your email? I categorize them after a cursory review. [Some] are sent to the work list, those that need immediate response I do asap, and those that are in the middle I handle within 24 hours. I am fortunate as I have a good

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of the Claims Adjuster

Newton’s Laws of And the Physics Motion of Fraud Is Less More? Protecting Medicare Interests

memory when it comes to most of my claims. What type training do you feel would help you perform more efficiently? I am currently enrolled in a CPCU course. I completed my SCLA, AIS and other industry courses. When I encounter unfamiliar claim situations, I look for training either through our claims attorneys, CE training, the intranet or by taking courses. My SCLA books are really helpful and I keep them at my desk. If you could change one thing about your job, what would it be? More opportunities when it comes to my company, and nothing about my current position.

:: Greg P./Inside Adjuster What prompted you to become an insurance adjuster? Career change, plus my brother is our vice-president. What type of adjuster are you? (e.g., inside or outside, auto, property, workers’ compensation, etc.) Inside adjuster, specializing in handling municipal liability claims. How long have you been in the business? 4+ years. What is the greatest challenge for you in dealing with the Insured? Trying to get them to understand that while I sympathize with the problems they deal with day-today, we still need them to respond to our inquiries in a timely manner to effectively handle the claims. Secondarily, I would have to say getting them to tell us the whole story. How do you deal with the stress of the job? I worked in corrections for 13+ years and was a CERT commander and negotiator during my time there. The stress in this job is relatively low, for me.

Are you interesting? Then tell us all about you.

Visit www.claimsadvisor.com/contactcA/Interview and share your info with your fellow adjusters. Be sure to fill out the complete form to be considered.


write

by Gary Blake

Improving Denial Letters As a writing consultant who presents claims writing seminars at insurance companies across the United States, I am often shocked at the denial letters I read. Many suffer from a number of issues— the chief flaws being wordiness, failure to come to the point and inappropriate tone. Among the other problems are failure to write out dates, use of hedgy language, and incorrect format. Well written denial letters not only give you and your company a sharper, more professional image, but they help keep customers. So training yourself to write better denial letters is not a matter of displaying editorial erudition, it’s money in the bank. Here we’ll look at an actual denial letter (below, names and identifying features have been changed). Format Several things catch my eye. First, the capital letters in the inside address. This letter was mailed in a window envelope and therefore tries to satisfy postal requirements (all capital letters) as well as seem like a personal message. If you must live with this “serving of two masters,” it isn’t a major problem, but recognize that caps set an impersonal tone. As for the “RE” line, I would only move it to the right side of the letter if it became rather long (say, 4 lines or more). My reason for moving it over would be so that the reader does not perceive it as a “blockade” between her and the opening lines of the letter. When a RE line becomes 8, 9, or 10 lines, it is easy to get so caught up in the details that we are practically exhausted before we come to the actual letter. Spelling out dates is a good idea: it helps the reader perceive the date faster. The salutation, “Dear Ms. Gorman,” requires a colon, not a comma, which would be appropriate if you were addressing her by her first name. The closing, “Respectfully,” is also bothersome: do you think that by dragging out this solemn, stodgy closing you are convincing the reader you were not being frivolous in your denial? I find that “respectfully” adds too somber a tone; I prefer “Sincerely.”

Therefore, I would have liked this letter’s first paragraph to have given forth with the “bad news” sentence beginning: “Since these bills were for treatment received after that date...” Denial letters can be brisk, straightforward, and concise; they need not be overly humble. They must state facts, avoid euphemisms and show concern. They must come to the point and be persuasive. Maybe it’s time to look at the letters your department is sending out—to claimants as well as to physicians, attorneys, and insurance commissioners—and see if it’s time for a major overhaul of form letters before the next batch hit the mail.

February 28, 1998 Ms. ALLYSa GoRMAN 89 Wilford Terrace Crandall, CA 90000 RE: Claim Number 44869XX879 Date of Loss 1-16-97 Policy Number XY2687XW586KG Dear Ms. Gorman, We have received some medical bills in our claim for the accident that occurred on January 16, 1997, and the bills were submitted by Dr. Douglas Curran. The service date on the medical bills is January 21, 1998, and I have enclosed the bills with this letter. We are going to refer to the policy that was issued to you by Acme USA Insurance Company under policy number XY2687XW586KG. If you would turn your policy to Page 3, and refer to Part II - Medical Expense Coverage, first column top of page: You have this coverage if Medical Expense coverage is shown in the declarations. We will pay reasonable medical expenses for appropriate and necessary medical and funeral services performed within one year of the accident because of an accident related to bodily injury to an injured person.

Get to the Point There is a wonderful scene in The Godfather in which the Godfather’s lawyer is dining with a Hollywood producer. The producer says something that makes the lawyer get up and request to be taken to the airport. When the producer asks what’s wrong, the lawyer says that he must talk with the Godfather because the Don “likes to get bad news quickly.” Most customers, managers and other human beings also, if asked, would like to get bad news quickly. So why is it that so many claims adjusters are trained to slip the denial in just before the end of the letter? Maybe you feel you are “softening up” the claimant? I believe that you need to reveal the main news early in the letter—even if it’s bad news.

We will consider medical bills for care until 1-16-98, and since the medical bills that were sent to us by your doctor are after that date we cannot give them consideration. We suggest if you have a health policy you refer the bills to their office. Part 999 of the Rules of the State Department of Insurance requires that our company advise you that if you wish to take this matter up with the Department of Insurance, it maintains a Consumer Division in Capital City at 45 Hearst Street, Suite 807, Capital City, California 98765 and in Hartsdale at 104 Clarence Avenue, Hartsdale, California 95678. If you have any questions, do not hesitate to contact this office. Respectfully, Acme USA Insurance Company

Gary Blake is director of The Communication Workshop. He is also an author and presents seminars on effective business writing for claims professionals. Blake may be contacted by visiting www.writingworkshop.com or e-mail at garyblake@aol.com.

CLAIMS ADVISOR | SPRING 2009

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Event

2009

5/12-15/2009

5/3-6/2009

Insurance Services Office (ISO) 2009 PCS Catastrophe Conference, Registrar, info@ iso.com, 800-888-4476, InterContinental Miami Hotel, Miami, FL, www.iso.com

International Insurance Institute, Inc.

Claims Education Conference, Carl Van, cvan2@aol.com, 504-393-4570, The Coeur D’Alene Golf and Spa Resort, Coeur D’Alene, ID, www. claimseducationconference.com

Association of Certified Fraud Examiners

15th Annual Canadian Fraud Conference, Registrar, events@acfe.com, 800-2453321, Hilton Toronto, Toronto, ON, www.acfe.com 5/4-8/2009

Crawford Educational Services

Advanced Property, Registrar, ceregistrar@us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www. crawfordandcompany.com 5/4-5/2009

Ohio State Auditor

9th Annual Emerging Trends in Fraud Investigation & Prevention Conference, Registrar, 800-2331234, Hyatt Regency, Columbus, OH, www.auditor.state.oh.us 5/5-8/2009

Risk Management Solutions

2009 RMS Client Conference, Registrar, 510-505-2500, The Broadmoor, Colorado Springs, CO, www.rms.com 5/6-8/2009

Chicago Claim Association

Midwest Claim Conference, Susan McCullough, susan. mccullough@verizon.net, 309826-8814, Grand Geneva Resort & Spa, Lake Geneva, WI, www. chicagoclaimsassoc.org 5/11-15/2009

Michigan State University - School of Labor & Industrial Relations

5/17-22/2009

International Association of Arson Investigators (IAAI) 2009 IAAI Annual Training Conference, Registrar, 410451-3473, Sheraton Arlington Hotel, Arlington, TX, web. memberclicks.com. 5/21/2009

Central Jersey Claims Association

Central Jersey Claims Association Monthly Meeting, Andrew Siegeltuch, andrew.siegeltuch@ sweeneyfirm.com, 856-8695600, Mercer Oaks Golf Course, West Windsor, NJ, www. centraljerseyclaims.com 5/27-31/2009

NAIW

NAIW International 68th Convention, Registrar, Hilton New Orleans Riverside Hotel, New Orleans, LA, www.naiw.org 5/28-30/2009

Florida Defense Lawyers Association

13th Annual Florida Liability Claims Conference, Registrar, ljude@ fdla.org, 813-885-9888, Disney’s Contemporary Resort, Lake Buena Vista, FL, www.fdla.org

13th Annual America’s Claims Event, Registrar, summitevents@ summitbusinessmedia.com, 800-831-8333, Caesar’s Palace, Las Vegas, NV, www. summitliveevents.com

Intermediate Property, Registrar, ceregistrar@us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www. crawfordandcompany.com

|

Crawford Educational Services

Basic Property Loss Adjustment, Registrar, ceregistrar@ us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www.crawfordandcompany.com 6/13-16/2009

National Association of Insurance Commissioners

NAIC Summer Meeting, NAIC Meetings Department , meetingsmail@naic.org, 816783-8100, Hilton Minneapolis & Convention Center, Minneapolis, MN, www.naic.org 6/15-19/2009

Michigan State University - School of Labor & Industrial Relations Certified Workers’ Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-2188550, Center for Executive Development, Lansing, MI, www. lir.msu.edu 6/24-25/2009

PLRB/LIRB

PLRB/LIRB Eastern Regional Adjusters Conference Rhode Island Convention Center, Providence, RI, www.plrblirbregionals.com

5/31-6/3/2009

Public Risk Management Association

PRIMA 2009 Annual Conference, Catherine Pawlowicz, cpawlowicz@primacentral.org, 703-253-1263, Hilton Anatole Dallas Hotel, Dallas, TX, www. primacentral.org

Certified Workers’ Compensation Professional (CWCP), wcc@ lir.msu.edu, 877-218-8550, The Goodwin Hotel, Hartford, CT, www.lir.msu.edu SPRING 2009

7/13-24/2009

Summit Business Media

6/8-12/2009

5/3-6/2009

68

6/1-3/2009

www.claimsadvisor.com

7/12-17/2009

Association of Certified Fraud Examiners

20th Annual ACFE Fraud Conference & Exhibition, Registrar, events@acfe.com, 800245-3321, Bellagio, Las Vegas, NV, www.acfe.com

Crawford Educational Services

7/19-22/2009

Seattle Pond

Grand Nest Convention 2009, Registrar, terry@bluegoose. org, 206-282-5227, Grand Sierra Resort, Reno, NV, www. bluegoose.org 7/24-26/2009

Kentucky Claims Association Kentucky Claims Association 2009 Conference, Karen Cantrell, kcantrell@ers.net, 270-782-7678 (x 1136), Holiday Inn - Lexington North, Lexington, KY, www. kyclaimsassociation.com 8/3-7/2009

Crawford Educational Services

Basic Property Loss Adjustment, Registrar, ceregistrar@ us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www.crawfordandcompany.com 8/4-6/2009

National Association of Mutual Insurance Companies (NAMIC)

NAMIC Property Loss Adjustment Fundamentals School, Registrar, registrar@namic.org, 800336-2642, Minneapolis Airport Marriott, Minneapolis, MN, www. namic.org 8/24-27/2009

Association of Certified Fraud Examiners

CFE Exam Review Course, Registrar, events@acfe.com, 800245-3321, Omni Chicago Hotel, Chicago, IL, www.acfe.com


source

Advertising Directory

ADVERTISER

PHONE

WEB SITE

E-MAIL

1-800-BOARDUP, Inc.

800.585.9293

www.1-800boardup.com

mdh@1-800boardup.com

PAGE 16

Able Mobile Housing, Inc.

800.273.5774

www.ablehousing.com

tom@ablehousing.com

35

AICPCU

800.644.2101

www.aicpcu.org

customersupport@cpcuiia.org

ALE Solutions, Inc.

866.885.9785

www.alesolutions.com

rowena.zimmers@alesolutions.com

Arter Insurance Adjusters, Ltd

330.332.9082

Claims Advisor Advertise

866.276.7970

www.claimsadvisor.com/advertise

Claims Advisor Contribute

866.276.7970

www.claimsadvisor.com/interact

Claims Advisor Subscriptions

866.276.7970

www.claimsadvisor.com/subscribe

Claims Advisor Online

866.276.7970

www.claimsadvisor.com

Claims Pages

800.290.1347

www.claimspages.com

info@claimspages.com

23 back cover

arteradjusting@aol.com

38

advertise@claimsadvisor.com

50 42 51, 55 34 inside back cover

Donan Engineering Co., Inc.

800.482.5611

www.donan.com

donan@donan.com

11

EagleView Technologies, Inc.

866.659.8439

www.eagleview.com

info@eagleview.com

13

EFI Global, Inc.

281.358.4441

www.efiglobal.com

heather_suttle@efiglobal.com

Katie School of Insurance and Financial Services

309.438.3368

www.katieschool.org

debbie.babcock@ilstu.edu

28

Insurers World

781.821.0087

www.insurersworld.com

scott.lacourse@insurersworld.com

20

Matson Driscoll & Damico

630.725.9220

www.mdd.net

Munters

1.800.MUNTERS

www.munters.us

mcsinfo@munters.com

27

Patton & Ryan, LLC

312.261.5166

www.pattonryan.com

jpatton@pattonryan.com

32

Property Loss Research Bureau

630.724.2200

www.plrb.org

RGL - Forensic Accountants & Consultants

888.RGL.4CPA

www.rgl.com

Rimkus Consulting Group, Inc.

800.580.3228

www.rimkus.com

crb@rimkus.com

TechLoss Services

847.541.2250

www.techloss.com

rlisnek@techloss.com

Temporary Accommodations

800.548.5196 x201

www.temporaryaccommodations.net

jmiegel@temporaryaccommodations.net

Weather Decision Technologies

888.255.7099

www.weatherforensics.com

lynnelawry@weatherforensics.com

4

21

7 39 17 33 inside front cover 29

For a media kit, editorial calendar and advertising opportunities, call 866.276.7970 or visit www.claimsadvisor.com/advertise.

• 8/24-28/2009

9/16-19/2009

9/20-23/2009

9/21-10/2/2009

Certified Workers’ Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-218-8550, Park Place Hotel, Traverse City, MI

2009 Annual SAMS Conference & Educational Training Symposia, Mary Stahler, samshq@ marinesurvey.org, 800-3449077, Doubetree Hotel - Houston Downtown, Houston, TX, www. marinesurvey.org

39th Annual SIR Conference & Exhibit Fair, Diana Lee, diana. lee@pciaa.net, 847-297-7800, Rosen Palza Hotel, Orlando, FL, www.sirnet.org

Intermediate Property, Registrar, ceregistrar@us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www. crawfordandcompany.com

Michigan State University - School of Labor & Industrial Relations

9/9-10/2009

PLRB/LIRB

PLRB/LIRB Central Regional Adjusters Conference, Registrar, Westin Lombard, Lombard, IL, www.plrb-lirbregionals.com

Society of Accredited Marine Surveyors (SAMS)

9/20-23/2009

International Association of Special Investigation Units (IASIU)

24th Annual Seminar & Expo on Insurance Fraud, Registrar, info@iasiu.org, 410-931-3332, JW Marriott Resort & Spa, Palm Desert, CA, https://www.iasiu.org

Society of Insurance Research (SIR)

Crawford Educational Services

9/21-25/2009

9/21-25/2009

Certified Workers’ Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-2188550, Center for Executive Development, Lansing, MI, www. lir.msu.edu

2009 IAIABC Annual Convention, Jennifer Wolf, jwolf@iaiabc.org, 608-663-6355, Radisson Plaza, Minneapolis, MN, www.iaiabc.org

Michigan State University - School of Labor & Industrial Relations

International Association of Industrial Accident Boards & Commissions (IAIABC)

CLAIMS ADVISOR | SPRING 2009

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story

Claims Adjusters Have a Million Stories. What’s Yours? New Meaning to Putting the Top Down An insured had his septic tank cleaned. However, the vendor misplaced the cover. A tenant returning home that night walked across the lawn fell in and spent the night screaming her lungs out. This was a rural area and the landlord was hard of hearing. When I met with the tenant she had kept her clothing, shoes, and purse wrapped in several plastic bags. I had a hard time keeping straight faced. —Marc D., Titusville, FL the praying lady

I was working on an injury investigation and watching a subject for any unusual activity when I noticed some action in my peripheral vision. The person that I noticed was not the subject, but a neighbor a few homes away from the subject’s residence and directly across from where my surveillance vehicle was parked. I immediately sank further into my position so as not to be discovered, but it was a second too late. The neighbor noticed that the black curtain had moved and immediately took evasive action that took me a few seconds to understand. She had been carrying three large bags of garbage when she suddenly dropped all three bags and fell to her knees screaming, ”Oh, Jesus why did I try to carry those bags with my sore arm, I know better Jesus, Oh, Jesus, Oh, Jesus, Oh, Jesus,” as she paid glances to my position. The lady crawled back to her front door on all fours, opened the door and slowly crawled inside the home. She peaked out of various windows several time while I stayed in position. I was able to slip out of the community when the garbage truck parked in front of her home emptying her unfilled garbage cans. The next day I returned with a different surveillance vehicle and gathered the evidence needed to bust the subject of our investigation. Over the next year I spent an unusual amount of time in the community with the Praying Lady and learned that there was a

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group attitude about how to defraud insurance companies that was shared by its residents. I did not have a client who was interested in the Praying Lady, so neither I nor my staff have seen or heard from her again. I’m sure some private investigator somewhere, sometime will get some entertainment—if nothing else—from the lady who says her prayers on the way to her garbage can. —James P., Cary, NC Tight Lipped About the Slip An employee had returned to her desk and had a red bump on her forehead. Her boss saw her, and commented “what happened?” She stated that she preferred not to explain. Her boss stated that it appears she had a work related injury, and had her fill out an injury report. Under “description,” the employee wrote: while retrieving pants, I slipped in the bathroom stall bumping my forehead on the toilet paper dispenser. I will say that the employee lost no time and sought no medical help. She later told me that she was truly embarrassed...and so was her boss. —Kristine G. , Houston, TX Little Green Men I have an insured who calls herself a reverend, and swears she has aliens in her home that caused a fire one time, water to leak another. She sees things and hears voices and tells the story in a matter of fact way. She does not want to hear different. We all crack up, and it really makes the job a little lighter. —Elizabeth R., Conshohocken, PA

Do you have a true claims story that is interesting or funny? Tell us all about it!

Visit www.claimsadvisor.com/contactcA/Story and fill us in. Your tale may be the next story featured in Claims Advisor.


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Visit us at www.claimspages.com or call 1.800.290.1347


She really didn’t see the problem with smoking a cigarette while using her oxygen device. Boom! (For all your temporary housing needs no matter how strange they seem.) As you might imagine, when it comes to challenging housing requests, we’ve heard them all. Everyday we work with adjusters to find creative solutions to their toughest housing problems. So, the next time you’re facing an unimaginable situation, think of ALE Solutions, your resident experts in temporary housing.

(866) 885-9785

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www.alesolutions.com

www.claimsadvisor.com


Claims Advisor Spring 2009