Tag Archives: bad faith

Bad-Faith Claims: 4 Ways to Avoid Them

An allegation of bad faith in claims handling can have far-reaching effects, including drawn-out legal battles resulting in potentially sizable settlements and damage to the organization’s reputation. But bad-faith claims are not always the result of an organization’s deliberate attempt to avoid paying a claim. Rather, they’re often the result of an oversight or miscommunication.

It’s this latter category that claims professionals should focus on. If an insurer is intentionally underpaying its customers or denying claims without valid reason, best practices are not going to improve the situation. But taking a step back and looking at the claims process at an organizational level is an effective way to identify gaps in knowledge or processes that can and do lead to bad-faith claims.

Before looking at some specific best practices for avoiding bad-faith claims, it’s worth reviewing the seven primary elements of good-faith claims handling, straight from The Institutes’ Associate in Claims (AIC) designation course materials

  • Thorough, timely and unbiased investigation
  • Complete and accurate documentation
  • Fair evaluation
  • Good-faith negotiation
  • Regular and prompt communication
  • Competent legal advice
  • Effective claims management

Using these seven keys as a baseline, organizations can further improve the claims process and reduce the risk of bad-faith claims by focusing on the following four best practices:

See also: Should Bad Faith Matter in Work Comp?

1. Exercise due diligence when investigating claims.

Claims representatives and their insurers’ special investigative units have a lot of experience detecting and investigating fraudulent claims and are trained to watch for specific triggers and red flags. However, a suspicious claim is not always a fraudulent one, and claims representatives must still conduct a fair and balanced investigation. Although this may be difficult, waiting until a definite determination is made is the most prudent way to go.

Even if a claim appears to be fraudulent, it still requires the same level of due diligence throughout the investigation–interviewing witnesses, inspecting property damage, reviewing medical records, etc. Proper documentation goes hand in hand with proper investigation techniques. Claims professionals should encourage the claimant to submit all relevant documentation or evidence, even if the claim seems fraudulent. This documentation may help clear up any uncertainties. And the investigation must be timely as well as thorough. Often, the timeline for an investigation is mandated by regulations or the specific terms and conditions of the policy. Sticking to this schedule is crucial to meeting requirements and maintaining your reputation with the insured. More and more, claimants expect timely updates with faster resolutions. It’s hard to blame them–people want payment for their medical bills or repairs to their homes. Insurers need to stick to the timeline they promised.

2. Rely on a solid claims system.

A good claims system that documents a claim’s progress is one of the best ways to protect your organization should bad-faith claims allegations arise. Claims representatives usually have a lot on their plates; a formal yet easy-to-use framework makes it easier to comply with regulations and the specifics of individual policies.

A robust claims system also helps maintain consistency. A lot of different people may access a claim or contribute to it, such as supervisors, auditors, underwriters and attorneys. Online systems that prevent anyone from changing information once it’s been entered help guarantee that everyone who touches the claim is up to date and on the same page.

3. Make use of experts and mentors to stay informed.

Having a strong support network is essential to anchoring the claims process. Any time a claims representative is unsure of how to proceed when processing a claim, she should know exactly where to go to get an answer and get the claim moving again. That includes an up-to-date claims manual with set procedures and a chain of command with decision makers who can resolve uncertainties during the claims process. Sharing this information should be a top priority during onboarding for claims professionals.

Continuing education is also key. Webinars, designations and state-specific resources detailing evolving regulations and case law are essential. Individual claims representatives should work to expand their knowledge in areas they frequently handle. If you primarily adjust residential claims, become an expert in that field, then use that knowledge to mentor other employees or act as the go-to source of knowledge on that topic.

The National Association of Insurance Commissioners, your state’s insurance department and insurance commissioner, your insurer’s legal and training departments and your direct supervisor are all good sources of information on regulatory standards. States have different laws and court rulings regarding bad-faith claims, and insurers have their own company-specific standards, as well. For larger organizations or individuals in the field who cover a large territory, it may be necessary to keep up with several states’ standards. One possible source: Unity Policyholders, which provided a survey and an overview of bad-faith laws and remedies for all 50 states in 2014.

See also: Power of ‘Claims Advocacy’ 

4. Have the right attitude.

Claims representatives can often facilitate the claims process simply by listening. Never lose sight of the fact that you may talk to people on some of the worst days of their lives. Sometimes, a person will call, upset and frustrated, and start talking about legal representation. It may be best to listen; it doesn’t mean that you’ll pay the claim or agree to everything they want, but you can offer some compassion and avoid becoming aggressive in turn.

Rarely will all parties agree during the claims process. The key is finding a balance between established procedures that rely on best practices while also leaving enough room in the process to treat each claim uniquely and provide a personal touch for customers.

Interested in learning more about good-faith claims handling? Take a look at The Institutes’ Good-Faith Claims Handling course. For broader claims knowledge, learn about The Institutes’ AIC and Associate in Claims Management (AIC-M) designation programs.

Should Bad Faith Matter in Work Comp?

Here’s a sensitive question for the workers’ compensation community: Should workers’ compensation insurance companies and third-party administrators be subject to civil “bad faith” lawsuits?

Or should a state’s workers’ compensation system remain an exclusive remedy, even if a claims payer intentionally commits egregious acts such as denying benefits that it knows are due?

WorkCompCentral Legal Editor Sherri Okamoto reports that about half of the states have done away with any civil bad faith remedy either through legislative or judicial actions, and that the other half retain that remedy.

The contrasts are stark.

Okamoto cites an Iowa jury award an earlier this month of $25 million in punitive damages, along with $284,000 in damages, payable by the former employer’s workers’ compensation carrier for its bad-faith handling of his claim. The offense was failure to pay permanent total disability benefits after a 2009 accident left the worker with catastrophic injuries.

Other states where there is no civil remedy rely on administrative penalties and administrative judicial enforcement, but those policies, in states such as California, have been criticized for not sufficiently deterring bad behavior such as wrongfully denying medical care to the critically injured.

Okamoto notes that the states that do allow for civil remedies vary widely in the standards and definitions for reprehensible conduct.

Alaska and Arizona, for example, define “bad faith” as a refusal to pay a claim without any arguably reasonable basis. In contrast, Arkansas requires a showing of “affirmative misconduct” or “dishonest purpose” to avoid liability.

Colorado, Maine and Michigan make a carrier’s failure to act in good faith a breach-of-contract claim. Hawaii and Mississippi make carrier misconduct redressable in tort.

Texas used to permit bad faith actions until the Supreme Court’s decision in Texas Mutual Insurance Co. v. Ruttiger, which held there was no common-law bad-faith action in the Lone Star State for workers’ compensation claims handling.

Likewise, two months after Ruttiger came out, the New Jersey Supreme Court held that the state’s injured workers do not have a common-law right of action for pain and suffering caused by an insurer’s administration of a workers’ compensation claim in Stancil v. Ace USA.

The North Carolina Court of Appeals ruled recently that an injured worker cannot bring a tort action to recover damages from an insurance carrier for its alleged bad-faith claims handling.

The split surely raises the passions in people: Civil remedies fly in the face of the concept of administrative expediency that underlies workers’ compensation; yet, administrative enforcement needs sufficient “teeth” to encourage compliance and deter bad behavior.

What do you think?