Determining liability in insurance claims

As a young adjuster, my supervisor would tell me, “Don’t just look at the damages. To effectively present a claim, there must be both liability and damages.” This still resonates as there are many claims where there has been an errant, or even missed, liability decision.

From car crashes and slip and falls, to toxic torts and medical malpractice, liability is a critical component of every claim. The key to driving the right outcomes is to provide adjusters with ample knowledge, tools and time to conduct a thorough investigation and negotiate an accurate outcome.

This can be a challenge, as adjusters never seem to have enough time. Everyone seems to be doing more with less, and at times, things slip through the cracks. The key is to focus on the most critical issues, with the priority being the determination of liability based upon the facts.

As a society, people are quick to make assumptions. While initially these conclusions may seem to make sense, they are not always based on the facts. Perhaps nowhere is this more evident than when it comes to comparative negligence and its application when resolving insurance claims.

Consider the typical rear-end accident and the presumption that the person in the rear is always at fault. However, what if the person who was hit from behind had intentionally slammed on his brakes, had a defective brake lamp, or was in the process of backing up? Compounding matters, consider claims scenarios involving intersections, parking lots, slip and falls, or liquor liability.

Americans have been conditioned by a never-ending barrage of attorney ads promising to find fault with someone other than the victim, despite who is at fault. It is no wonder this has become such a contentious negotiation issue. The reality is that fault is a complex component of any claim. Rarely are issues black and white, or is liability crystal-clear. Rather, it comprises a myriad of minor details that play a pivotal role in the proper outcome.

Shared liability

The most critical role of the adjuster at the outset of the claim is to assess liability accurately. In the grand scheme of things, adjusters should understand that many claims involve shared liability or comparative negligence. Despite the importance, estimates indicate that insurance carriers assess comparative negligence in just three to five percent of claims. According to Jury Verdict Reporter, an organization that tracks such results, more than half of all claims involve shared liability scenarios, such as intersections, parking lots, or slip and falls. This gap provides a tremendous opportunity for insurers to improve the bottom line with more accurate outcomes.

The bigger question may be why this gap exists in the first place. There are any number of reasons, from time limitations to emphasizing the wrong metrics. As is often the case, success stems from a fundamental execution of basic claims skills.

Consider the common scenario of an insured motorist making a left turn across oncoming traffic and being struck. To determine liability, there are certain facts that adjusters must consider:

• Duties owed: Some, such as yielding the right of way, would apply to just the motorist making the turn. Others, such as proper lookout, would apply to both. Beyond that, there are claimant duties, such as maintaining a safe speed.
• Duties breached: Which duties were breached? By whom? To what degree?
• What is the importance of each duty? Is yielding the right of way more important than proper lookout? Invariably the answer would be yes, and the degree of breach for the insured making the turn would have a great bearing on liability.
• Point of impact: If the claimant is in the furthest left of three lanes and the insured has successfully crossed the first two lanes, shouldn’t the claimant have seen them? Did they take evasive action? Was the point of impact to the insured’s front or rear? All of this plays a pivotal role in the outcome.

When determining the outcome, there are only three possibilities:

• The insured was at fault
• Another party was at fault
• There was shared fault among two or more parties

Far too often claims adjusters select either option A or B. Juries more often than not choose C, and apportion liability accordingly.

In this example, the insured certainly owes a greater duty as he or she was making the turn. However, the claimant owes certain duties as well that may have been breached. Rarely is a left turn accident solely the fault of one party. This holds true in many other claim scenarios as well.

Beyond the liability aspect of the claim are implications for damages. If an adjuster holds that their insured is 100% at fault, they are likely to pay 100% of the damages of the other party. This can be a significant source of leakage. By getting an accurate liability assessment, carriers are more likely to have an accurate bodily injury settlement as the result of proper apportionment of liability.

Calibrating your organization

Apportioning liability correctly can seem overwhelming. While there are tools to help with this process, the reality is that nothing beats good old-fashioned expertise. Teach your adjusters how to properly assess liability with a detailed write-up on duties owed and breached so that anyone reviewing the claim file will understand how they arrived at their decisions.

Again, this is easier said than done. One of the greatest challenges facing the insurance industry is consistency, and it becomes even more so when there is an element of subjectivity. After all, who is to say if the accident liability was 50/50 or 60/40?

Herein lies the challenge, as a 10% differential in liability assessments is not necessarily the concern but having clear comparative losses settled as absolute is. When reviewing internal data, it is critical to not only identify the frequency with which comparative is assessed but to conduct calibration exercises to ensure that staff understands and uniformly applies the proper application of jurisdictional laws and general duties owed.

This can have a profound impact on recovery potential as well. If subrogation is being missed, money is left on the table. Extrapolate a few hundred dollars in leakage across a significant portion of claims, and the numbers can grow exponentially. Among the most successful carriers, this problem has become evident, and many have begun utilizing analytics tuned to identify opportunities for which algorithms can drive adjuster behavior.

This type of process that blends people, processes and technology allows for calibration. In the world of insurance claims, it accomplishes the ever-elusive goal of organizational consistency.

With calibration that leads to consistency, the result is the exceptional organization. As American football coach Vince Lombardi once said, “Perfection isn’t attainable, but if we chase perfection, we can catch excellence,” which should be everyone’s ultimate goal.

Christopher Tidball (chris.tidball@exlservice.com) is vice president of sales and claims transformation strategies with EXL, a global leader in analytics, operations management and claims platforms. He has spent more than 25 years with leading insurance in various adjusting, management and leadership roles and is the author of multiple claims-related books and articles.