Remember the classic '80s film “War Games,” where the computer system (named War Operation Plan Response, or WOPR for short) asks Mathew Broderick in a See’n Say computer voice, “Shall we play a game?” The movie was a tense thriller that was topical for my Cold War childhood, but it showed, among others things, that not all games are fun. Insurance claims should not be a game — where one side is playing games as a tactic to delay or reduce claim payment. Unfortunately, I see this sort of ambush all too often when preparing property and business interruption claims for my clients.
My client is usually struggling to recover from a major loss to its business. My client has done its best to protect itself via loss control, insurance procurement and a proper claim filing. So when the client documents losses and presents the claim, the client should not have to battle bullying, stall tactics and misguided theories.
As an example, a chemical company client's business depended heavily on the supply of raw materials from specific international locations. The exclusive relationships with these international suppliers and their governments took decades to forge and represented a distinct competitive advantage. The company's business was cyclical, and, during a low point, a hurricane devastated its manufacturing plant. If it was not able to get back up and running quickly, the long-term contracts with suppliers would be canceled, undoing years of supply chain efforts.
The CEO recognized the real possibility that his company would not recover if its insurance didn't reimburse the company for its losses in a timely manner. The CEO knew he might have to lay off more than 1,000 employees.
The insurer chose to overwhelm the client with requests for information, including sending a large group of insurance investigators that my client had to accommodate at his chemical plant while it was still under water.
Contractually, the insurance company has the right to gather information. However, tact and decency should be observed.
The insurer leveraged the policyholder’s crisis to establish reasons not to pay the claim based on misguided theories about the business. Because of the chaos, when the insurance consultants arrived to survey the damage, the client was not prepared. The company did not have a proper escort for the consultants, who made incorrect assumptions about the damaged equipment that formed the basis for a theory on the valuation of replacement equipment and lost production.
See also: Power of ‘Claims Advocacy’
The client was not informed about these conclusions until some months later. The company was ambushed and had to disprove the incorrect information. All the while, claim payment was being withheld.
This tactic is common. While the insurance team may just be doing its job as instructed, a company’s existence is at risk. Adjusters are often cavalier about this process and will hide behind the “duty” or policy wording while, in reality, just playing games with the money owed to the policyholder.
I am happy to report that we were able to secure advanced payments to stabilize the client’s operations, maintain supplier relations and create an equitable settlement.
The success required an effective strategy and careful execution. Here is the approach we know works best:
- Take Control — You do not want to put off the insurance company too long, but it is okay to let the company know you are going to control when its people get access and whom they can interview. Claims are often derailed in the first week because of uncontrolled access and miscommunication.
- Agreements in Real Time — One of my favorite risk managers uses this mantra during claims: “We make decisions in real time.” What he means is that when confronted with a decision — say the rebuilding or replacement of equipment — you must use all the information you have at that time to make a decision. As long as the adjuster is aware of the decision and your reasoning, he should not second guess what you have done once more information is known. For example, immediately after a loss, you think you need two cranes to move equipment and debris. After the fact, you realize you could have gotten by with just one. You made a decision based on what you knew; if the adjuster does not object at the time of the decision, he has no grounds to object after the fact.
- Clarify Requests — The insurance company is going to ask for information — a lot of information. In general, these requests are broad and may even be used to fish for something that can be used against the claim. Don’t let this happen. Ask that requests be specific. If they are not specific, send the request back. Ideally, claims are presented with supporting documentation, and that should be the focus of requests. I often filter this information down to what is really specific to what is being claimed. Extraneous information can create confusion and can lead to more requests. Your loss accountant, if she is experienced, will help interpret requests and focus on what is relevant to the claim.
- Recruit Experts — Adjusters and their team work on claims every day. It’s their full-time job. For you, it is an infrequent part of your job. If you want a smoother process and a positive outcome, you need experts working on your behalf. In addition to your internal team, your broker's claim experts (as well as independent forensic accountants, engineers and outside counsel) are critically important. Ensure that those on your team are working on your behalf and match up well against the insurance company representatives. In my claim example above, we were not engaged from the onset; it is vital to have your independent team vetted and agreements in place ahead of a loss. Remember, as in my example, many claims are hindered by mistakes made in the initial weeks after a loss. Immediately after a loss is no time for shopping.
- Don’t Play Games — In other words, focus on the claim, not the games. Prepare an accurate claim from your perspective; be up-front with relevant information; and be reasonable in final negotiations. Just because insurers may play games doesn’t mean you need to do the same. You are much better off being prepared, professional and confidently in control of the process.
