Bodily Injury Claims: Study 9

Evaluation, Negotiation and Settlement

Claim Examiners:

Have experience and expertise in the business of managing claims, providing instructions and delegating authority to adjusters or to lawyers to settle claims
Provide support to adjuster by discussing the claim and suggesting claims handling strategies

Reserves:

Adjusters must evaluate a claim to formulate an objective appraisal of its financial worth
There are two reasons for this: firstly, insurers must establish a reserve to reflect the estimated cost of a claim. This information is used to gauge their financial status and to ensure they are operating within regulatory requirements. Secondly, a claim cannot be negotiated until the value is reasonably established
Adjuster normally develops a value range
Reserves must constantly be monitored and adjusted up or down

Elements of a Claim:

To establish who is liable and the amount of damages, consideration must be given to such things as the:

Facts of the accident
Law which applies
Nature and extent of injuries
Damages claimed
Damages which can be proven
Defences available to the defendant

Personalities, temperaments, styles and attitudes of the different parties must be considered

How effective are witnesses likely to be?
How credible is the evidence to be presented?
What are the traits of opposing legal counsel?
One must predict how the opposition will react

Claim evaluation: Liability and Damages:

Establishing the value of a case requires both an assessment of liability and damages
Each factor of the claim must be analyzed: the facts, the law, the injury, the damages claimed, the provable damages, the available defences and the personalities involved
Approach the claim objectively and consider the value a reasonable person might put on it
Evaluate the case on the worst possible basis and then on the most favourable basis
Thus, a range of settlement is values is established
Negligence can be assessed against the parties to a suit in varying degrees
The same concept applies to assessing quantum of damages – amount or “quantity” of damages
Adjuster must analyze the defences available and distinguish those elements that may limit the amount payable
Judges are likely to extend any benefit possible to compensate injured parties
Adjuster must consider any factors in the case that are likely to influence the court’s judgment
Adjuster must recognize where ambiguity exists and set a range of values
Law reports summarize judicial decisions and quantum of damages, usually on a monthly basis
Some concentrate on precedent setting cases that involve insurance and others report on the injury and settlement amounts
Quick summaries describe the injury, how it was caused, the amount of nonpecuniary damages awarded, the total damages awarded, the age and gender of the claimant and the citation
When referring to these reports recognize which province the judgment was rendered
Amounts differ substantially

Damages:

Nonpecuniary items are more ambiguous and refer to pain and suffering (including mental pain), loss of amenities, inconvenience, loss of enjoyment of life, permanent disability, and shortened life expectancy
Age and sex of the claimant are important factors
A trilogy of cases that established some important guidelines to consider when evaluating nonpecuniary damages are:

Andrews v. Grand and Toy Limited
Thornton v. Board of School Trustees
Teno v. Arnold

A cap was established for nonpecuniary damages at $100,000
This figure is subject to adjustment according to inflation
Now in excess of $250,000 (1996)
Result of these cases damages were divided into three categories: future care costs, loss of future income, and nonpecuniary damages
Following must be considered when assessing damages:

Type of injury suffered and attendant loss of amenities
Pain and suffering
Length of time over which the suffering and loss of amenities will take place
Plaintiff’s ability to appreciate the injury, including the pain and suffering, loss of amenities and how the plaintiff’s life expectancy has been altered

Linking Damages to the Negligent Act:

Plaintiff must show that the damages claimed flow directly or indirectly as a result of the defendant’s negligent act
A causal connection must be established between the negligent act of the defendant and the damages suffered by the plaintiff

Burden of Proof:

The burden of proof generally rests with the claimant to prove negligence on the part of a responsible party and damages
Onus can shift to the defendant because of a statute or the applicability of a legal doctrine
Where a claim is presented for future loss of income or future care costs, it is common for the plaintiff to introduce expert opinions from economists and actuaries
Experts will include industry leaders and prominent practitioners in a particular profession
Medical experts can appear on behalf of claimants to verify the disabling effects of injuries and on behalf of the defence to minimize their effects

Pre-existing Conditions:

Thin skull doctrine demands that one who causes injury to another is responsible notwithstanding that the consequences of the injury are far more serious than expected because of a pre-existing condition or the susceptibility of the claimant
In a situation where the existing disability is obvious, the claimant is faced with the problem of proving the exact expense and the degree of disability caused by the accident
A claimant’s psychological fragility may create effects that are totally out of proportion to an injury. When the reaction is genuine and proven to be so then the injured party would be entitled to compensation

Mitigating Damages:

Claimant must exercise care following a loss to make certain that all reasonable steps are taken to limit damages caused by the injury
When a claimant does incur specific additional expenses to minimize loss the claimant must prove that these expenses were necessary and did serve to reduce the loss
Courts tend to be lenient when determining what is reasonable
A claimant may refuse certain medication, treatment or surgery. It may be reasonable given all the circumstances that apply.
If doctors disagree as to the course of medical treatment or the likely effectiveness of the treatment the claimant has a right to make a choice

Collateral Sources:

Negligent party responsible for the accident is answerable for all resulting damages
Award of damages is meant to deter the wrongful acts of tortfeasors
When a claimant receives compensation from other sources, an insurer may be entitled to reduce the claim by this amount
In some instances, the victim is permitted to collect twice for the same loss
This is referred to as “double dipping”
Courts have held that no deductions will be made if the plaintiff is able to prove that the benefits received were paid for by the plaintiff or that the plaintiff had given something in exchange for the benefits
Automobile legislation in Ontario has reduced the claimant’s ability to collect twice
Plaintiffs may receive compensation from: accident and sickness benefits through their employer, unemployment insurance benefits, Canada pension plan benefits, workers’ compensation benefits, government health plans, and other private medical schemes
For many government plans statutes are in place to provide subrogation rights
In most provinces, the government health plan assesses automobile insurers a certain percentage of their premium volume under a voluntary subrogation system
Both insurers and the government avoid administrative expense of processing each case individually

The Sympathy Factor:

Permanent and serious injuries may arouse sympathy
Jury may respond in an emotional way
A case generating sympathy may lead to a larger settlement

Evaluating Pecuniary Damages:

To judge whether a medical expense should be accepted, the adjuster must be familiar with the medical reports on file and have an understanding of the standard treatment for the injury to determine if the expense is injury-related and reasonable
The cost must be reasonable for the service or product
Adjuster must detect anything unusual such as inappropriate or excessive use of drugs or physiotherapy
To assess whether a wage claim is reasonable it must be compared to the duration of the injury against such factors as the type of job, the specific duties involved in the daily routine and whether work was available, especially if it is seasonal
Verify any wage claims with the plaintiff’s employer
To examine the wage claim of those who are self-employed or who work on a commission basis the history of a claimant’s earnings over a period of time must be considered. Obtained from income tax returns

Evaluating Nonpecuniary Damages:

Difficult to evaluate because an attempt is made to attach a monetary value to intangibles
Reviewing previous case law can be valuable when trying to assess the nonpecuniary value of a claim
Method to evaluate claims for pain and suffering suggests that medical bills should be multiplied by three
The mechanical nature of the exercise does not render meaningful or accurate results
Many variations of formulas are possible and the adjuster must be alert to recognize them and discourage their use
Instruments that distinguish heat in the body have been used to identify pain
This technique has been used to study blood flow, detect cancer, and substantiate complaints of pain in localized areas of the body
Each individual copes with pain differently and this will affect the value of a claim
Evaluating bodily injury claims in this area is very difficult to learn and proficiency is best achieved through constant exposure to many claims
The more cases the adjuster handles the more skill he or she will develop
Reviewing law reports, results of other bodily injury claims, claims magazines, newsletters published by insurance litigation firms may be used as a guide to determine the value of a claim

Family Rights:

Many provinces have legislation that provides spouses and other family members with the right to sue for such things as loss of guidance, loss of care and loss of companionship

Fatalities:

Adjuster looks to see if the deceased had any health problems that might have affected his or her lifespan
A complete work history should include:

When and where employed
Earnings
Position
Absenteeism
Work performance reviews
Any personnel information that affected long-term future employment
Strikes or labor disputes
Scheduled plant closure
Early retirement

Investigation is needed into the family situation of the deceased
How involved was the deceased around the home? The following items should be considered:

Inside household chores
Outside garden work
Repairs and maintenance
Activities with children

With income tax returns (of all the income earners in the home) for the past five years the adjuster will have a good base of income information
Deductions would be made for the deceased’s personal expenses
A further contingency factor would be deducted that would reduce the claim
This might include the possibility of the surviving spouse remarrying

Dealing Direct:

Establishing a rapport with the claimant and following the course of the injury, the adjuster will usually develop a sense of the legitimacy of the claim
Frequent personal contact improves the adjuster’s ability to communicate effectively with the claimant and perhaps bring about a resolution of the claim without involving a lawyer
Insurer will save time and expense by not having to go to trial
If a claimant wants legal advice he should consult a lawyer
In some cases the claimant has such unrealistic expectations that the adjuster welcomes a lawyer
It may be easier to deal with a lawyer

Negotiation and Settlement:

Time and Place:

If recovery is not complete and the claimant has not returned to work, the case is not ready for settlement
When the recovery has reached a plateau the case is ready to be settled
Consider the time of day that will best suit the parties involved
Estimate the amount of time that will be needed
Allow the participants time to consider issues to be decided
Make sure the claimant does not have other engagements scheduled
Negotiations conducted in person generally produce more satisfactory results
Surroundings must be chosen to avoid interruption
Have both the husband and wife present if the injured party is married
Have the spouse present to witness a release
Adjuster may encounter a family member or family spokesperson whose advice is heavily relied upon and under those circumstances it may be advisable to invest some time in establishing a reasonable rapport with such a person

The Art of Negotiating:

Be well-prepared and knowledgeable about every aspect of a claim
Negotiations should not begin until case has been investigated
Case law, other claim files, and experience of others formulate a value of the claim
Adjuster must be sympathetic, compassionate, understanding and firm
If the adjuster does not explain how this value is being determined the claimant may seek out a lawyer
People skills must be used effectively at the negotiation stage
Allow the plaintiff to save face when necessary
Be flexible and open to discussion during negotiations
If you understand what is motivating the claimant’s behavior you can resolve his or her needs with alternative solutions that do not conflict with your interests
Acknowledge the claimant’s grief and pain but present the facts to demonstrate weaknesses associated with the claimant’s case
Evaluate personality and temperament of the claimant
Listen closely for any inconsistencies in the evidence and confront them
Proceed on a “without prejudice” basis to negotiate the quantum of the claim without admitting liability
The adjuster wants to try to preserve the financial resources of the insurer and the claimant wants to maximize the settlement amount

Negotiating Process:

Be fair and objective in all negotiations
Even if a claimant accepts a settlement, if it is later challenged it must withstand the scrutiny of the court, otherwise it can be overturned
Adjuster prefers that the claimant reveal the amount of money being sought
Once the adjuster has mentioned an amount the claimant will most likely feel that the claim is worth at least that much
There is only one way to go and that is up
Know what the claim is worth before meeting with the claimant
Have a settlement range in mind
Offer to the claimant should be within this range
Two key areas of an injury claim are the liability of the insured and quantum of damages
Finalize the matter of quantum before tackling the liability split
Amounts discussed will be reduced by the percentage of negligence
Explain how the law works and how the courts would assess the plaintiff’s actions
Be alert to any new information presented during negotiations that affect the value of the claim and deal with it rationally
Be flexible at all times
The fact situation of an uncertain claim may concern an insurer that a court finding will set a dangerous precedent creating law that will be harmful to insurers
If settlement figures being discussed exceed the adjuster’s authority this must be made clear to all parties
Continue to negotiate on the understanding that the settlement must be authorized by the insurer
When a claimant refuses to cooperate the adjuster may suggest that legal advice be sought
Sometimes making this suggestion demonstrates conviction that the settlement offer is fair
May lead to a settlement without a lawyer
Follow up later with the lawyer if the offer has not been accepted to find out how the offer was received
The examiner will consider tariffs, the plaintiff lawyer’s time and the complexity of legal issues resolved to come to an amount for Party and Party costs
Confidence comes with experience gained in investigating, handling and negotiating claims
Adjuster’s knowledge of the claim, the injury, the legal principles at issue provide the basis to discuss the case intelligently and negotiate effectively

Nuisance Settlements:

Some insurers dispose of a claim without merit by making a small payment to avoid the nuisance of keeping it open
The term nuisance value was coined to describe this type of transaction
The filing of groundless claims must be discouraged to protect policyholders and serve the public interest

Structured Settlements:

When an injury claim involves a loss of future income or some other monthly benefit payable in the future the insurer may purchase a structured settlement annuity
Both the defendant and the plaintiff must agree to this arrangement
A structured settlement is a contractual agreement in which the defendant, the defendant’s casualty insurer and a life insurer provide periodic payments to a plaintiff through an annuity
Typically purchased from a life insurer to pay regular monthly benefits
Only future care portion of settlement forms the structure
Lump sum amount is paid to reimburse for any expenses incurred prior to the settlement date as well as the noneconomic part of the claim such as pain and suffering
Future care portion uses a net present value calculation
Structured settlements are often used in cases involving a severe physical injury with permanent disability, a death, a minor, serious mental impairment, loss of future income or a settlement subject to a gross up calculation
Annuities purchased as part of a structured settlement plan are:

Non-assignable: Another person or company cannot be designated to receive the benefits
Non-transferable: the ownership of the annuity cannot be transferred
Non-commutable: the annuity cannot be cancelled and cashed in

Spouse or other family member can be named as beneficiary in the annuity (survivorship)
When there are no family members the casualty company can be named as beneficiary (reversionary)
Annuities provide benefits to both the insurer and the plaintiff
Benefits to insurer:

Reduce the insurer’s administrative costs
Reduces the amount needed to settle a claim
Payments made through the annuity are an offsetting deduction for the casualty insurer

Benefits to the claimant:

Settlement and all the interest earned within the annuity is tax free to the claimant
Fees or costs associated with managing a large settlement amount are eliminated
Safety of the investment with a large life insurance company
If the life insurer fails the casualty insurer is still liable to make any outstanding payments
Protection against divorce, Revenue Canada, or even relatives and friends

Once an annuity is contracted, changes cannot be made
An annuity can be used to resolve part of the claim and an agreement struck to deduct this amount from the final settlement
Structured settlement may be appropriate to replace future loss of income or cost of care
Identify potential claim and calculate its present value
Qualified structured settlement broker is able to offer ideas, prepare proposals, get involved in negotiations if need be, and even gather some of the documents needed to help settle the case
These brokers work on commission, so you may draw heavily upon their assistance and guidance at no cost to the insurer
Decide on a structured settlement expert based on:

Relevant experience and qualifications of broker
Knowledge of tax law and case law
Ability as an expert witness
Reputation
Ability to make presentations to the plaintiff

Alternative Dispute Resolution:

Some claims may be resolved with speed and thrift using an alternative dispute resolution (ADR) mechanism
To enter into an ADR process, both parties must agree to it
Mediation or conciliation is one method that does not bind the participants to a result
Arbitration is a process whereby the dispute is submitted to one or more impartial persons for a final and binding decision
A med/arb session employs a neutral person to both arbitrate and mediate using persuasion, discussion and when necessary a final binding decision
A mini-trial is also used as a device to hear the testimony of each side and then to have an impartial “judge” guide the participants to a voluntary resolution
Mediation:

Work with the parties to facilitate effective negotiation and come to a solution
Helps the parties work through dispute
Improve the communication between parties
Parties tend to be more satisfied with the end result

Mediation is not appropriate for a fraudulent claim

Litigation:

Continue monitoring a case that has been referred to a lawyer to develop understanding of civil proceedings
Claim can be settled at any time
Popular time to settle is directly following examinations for discovery
Each side is fully aware of the strengths and weaknesses of the case
Examiner must assess what can be acceded so that the trial is shorter and costs are reduced
If liability is clear and provable then it may be appropriate to admit liability
At the conclusion of a trial the parties are bound to accept the verdict of the jury or the decision of the judge
Immediately after the trial decision must be made to accept or appeal the judgment
Insurers will generally only appeal a case if a dangerous precedent has been set or the size of the award is intolerably high
Rules governing the right to appeal:

If a judge recognizes that a grave injustice has been done and if the trial judge drew inappropriate inferences from the facts or erred in applying the law, an appeal may be granted

keep up-to-date on court decisions in terms of quantum of damages and different points of law
this is one way of honing the skills to evaluate claims and make credible offers to conclude the settlement of injury claims
attitudes, personalities and the temperaments of the individuals can change a routine claim into a case which presents a real challenge

Definitions:

Damages: refer to the monetary compensation recovered by a party who has suffered loss or injury to person or property, through the negligence of another

Compensatory Damages: is the compensation that will return the party to the same or similar position enjoyed prior to the accident or loss.

Punitive or exemplary damages: are awarded to punish the defendant for offensive, willful and reckless conduct and are generally not covered under a liability policy.

Special Damages: are damages incurred before the trial date, such as wage loss and other out-of-pocket expenses. They include such things as home nursing care, money spent to minimize loss, repair or replacement bills for property, physiotherapy, hospital fees and any other cost incurred by the claimant

General Damages: are damages that are intangible, subject to some uncertainty, or, yet to be incurred.

Pecuniary Damages: are damages that are based on a monetary value and measurable mathematically

Nonpecuniary Damages: refer to intangible items that are subject to interpretation

Present Value: Amount of money required at the date of settlement to satisfy a stream of payments. Reduce the court award by the projected interest income.

Gross Up: is used to offset the income tax penalty on lump sum payments by raising the award amount to compensate

C32 Bodily Injury Claims

C32 Chapter 9 Bodily Injury Claims Study

Evaluation, Negotiation and Settlement

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