GET ON THE SAME PAGE FOR SETTLING LOSSES
Insurance pros sell protection! Both insurance buyers and sellers want to depend on its availability to respond to losses. However, payments often become centers of serious disputes. Insurer profitability and viability are connected to making payments that qualify under policy provisions and that includes having proper notification regarding settlements.
A policyholder under both a personal and an umbrella policy was involved in an accident caused by another driver. The other driver’s insurer paid out its policy limits, but the amount was far too low to handle her injuries. She first accepted Underinsured Motorists coverage from her primary auto insurer and then made a claim for additional UIM coverage from her umbrella provider. The umbrella provider disputed payment because it was not notified of any settlements until after they were made and the other driver received a premature release from its policy holder.
Below are details on how a court viewed the insurer’s argument that it’s insurance contract was breached.
Anita Adkins was in an automobile accident with Emily Strack on November 21, 2006. Adkins had primary insurance with Safeco Insurance Company (Safeco) and an umbrella policy with Cincinnati Insurance Company (Cincinnati), which provided excess underinsured motorists protection for a $1,000,000 limit. It had a provision stating that any rights an insured has to recover a payment Cincinnati makes under the policy transfer to Cincinnati, and the insured must not do anything after the loss to impair those rights. Adkins reported the accident to her insurance agent within a week of the accident.
Strack’s liability carrier offered its $100,000 policy limit to Adkins in April 2007 and Adkins accepted on May 22, 2007. However, she did not report the settlement to Cincinnati, who learned of it on June 6, 2007, after Adkins released Strack. In November 2007, Adkins accepted Safeco’s $150,000 policy limit and then sought underinsured motorists coverage from Cincinnati. Cincinnati asked for a declaratory judgment. It argued that Adkins breached the policy by settling with Strack without informing Cincinnati or seeking its consent. The parties made cross motions for summary judgment and the trial court found for Adkins. Cincinnati appealed.
The Court of Appeals of Indiana determined that the provisions of insurance policy contracts are subject to the same rules of construction as all other contracts and that Adkins’ release of Strack after their settlement was a breach of her insurance contract with Cincinnati. It stated that an insured who destroys the insurance company’s contractual rights of subrogation breaches the insurance contract. An insured destroys a company’s contractual right of subrogation by releasing the tortfeasor before settling with the company. It is that very settlement that enables the company to protect its subrogation rights by giving notice of it to the tortfeasor.
Since Adkins’ settlement with Strack after the loss impaired Cincinnati’s subrogation rights, Adkins breached her contract with Cincinnati and discharged it from its obligation to provide coverage. The appellate court reversed the trial court’s judgment and remanded the case back for entry of summary judgment in favor of Cincinnati.
Court of Appeals of Indiana. Cincinnati Insurance Company, Appellant-Plaintiff, v. Anita G. Adkins and Wayne Adkins, Appellees-Defendants. No. 29A02-0912-CV-1270. Sept. 30, 2010. 935 N.E.2d 190
Don’t Keep Anyone Guessing
The issue at the core of losses like the above is poor communication. One can’t escape the importance of keeping everyone in the loop. Whether a person causes an accident or is the victim of one, his/her handling is accompanied by many obligations, such as sharing information with others. There is no room for making assumptions. A given loss may appear to be straightforward, but timely notification of a loss and loss circumstances to authorities (as required), insurance agents and insurance companies is the surest way to start the process of dealing with a loss and its aftermath.
There are specific insurance policy provisions that appear dry, technical and unimportant. However, there are reasons they exist and they must not be ignored.
Here is an excerpt of wording regarding an insured’s various duties, such as “Notification” found under the Personal Lines, Automobile Section of Gordis on Insurance found in Advantage Plus.
Conditions
INSURED’S DUTIES
Notice of Accident
The company must be notified promptly of how, when and where the accident occurred. Furthermore, the insured is required to promptly forward copies of any notices or legal papers he or she receives in connection with an accident.
Cooperation with Company
The obligation on the part of the insured to cooperate with the company is identical with that stated in other liability policies. This requirement falls on the named insured and any other person who is included as an insured because he or she operates the described automobile with the named insured’s permission. Certain obligations are also placed on the injured person; these are discussed directly below.
Medical Reports-Proof
The injured person, or someone on his or her behalf, is required as soon as is practicable to give written proof of claim to the insurance company. He or she is also required to execute authorization to enable the company to obtain medical reports and copies of records, and to submit to physical examination by physicians selected by the company when and as often as the company may reasonably require.
Uninsured Motorist Coverage
If a hit-and-run driver is involved, the insured must notify the police promptly and send all legal papers to the company promptly.
Damage to the Insured’s Auto
After a loss, the insured must take reasonable steps to protect the property from further loss. The company will reimburse the insured for expenses he or she incurs in this matter. The insured must permit the company to inspect the damage before it’s repaired.
Subrogation
A personal automobile policy contains a provision that is similar to the subrogation clauses found in practically every form of property and liability insurance. The policy specifically states that the insured is to do nothing after the occurrence of a loss that will prejudice the company’s right of subrogation against third parties.
If, however, the insured has waived his or her rights against a third party prior to a loss, this provision does not apply, and the insured is not held to have committed a breach of his or her policy. Contrast this situation with one that may apply under subrogation clauses under other policies: They do not allow such waiver of rights and provide that if the insured has done anything to impair the company’s right of subrogation, the policy is breached.
Educate Your Clients
Insurance customers must be made aware that, while they don’t have to understand insurance intricacies, they definitely are responsible for meeting a variety of basic obligations. One of the most impactful ways to serve our clients is to explain their duties. It’s not as exciting as making new or additional sales or as lucrative as snagging a renewal, but it’s important! A policyholder who is uninformed may, after an occurrence, become one who ignores or overlooks a simple duty. That mistake could result in delays, confusion, litigation and even in the loss of coverage.
Be proactive! Take steps to see that your clients are aware of their responsibilities. Methods to do so can be combined with actively sharing other information, such as discussing simple risk management. That can be used as an excellent segue.
Below is an example of a letter that may be distributed to customers, it is just one of dozens of different ones from Business Building Letters found in Advantage Plus.
Dear [Name]:
Unfortunately, daily life subjects us all to the possibility of suffering a serious accident or facing a large lawsuit. You’re sensible and responsible, so you carry insurance to help deal with these dangers. We want to share that there’s an additional way to handle the danger of loss. It is called risk management.
Your behavior can have a large influence on whether you suffer a loss. You may have heard the information before, but it’s true that being careful and alert can greatly reduce the chances of suffering an auto or home loss, or the likelihood of being sued.
Here’s some simple advice from the [agency name]:
Automobiles
Reduce your chance of automobile loss by:
- Maintaining your vehicle, especially your brakes, in good operating condition
- Practicing defensive driving skills by avoiding risky drivers and maintaining proper distance from other vehicles
- Avoiding distractions such as eating, drinking, texting, or having cell phone conversations while driving
- Not driving angry
- Obeying traffic laws
- Modifying your driving habits when faced with poorer driving conditions such as darkness, fog, rain, snow, or ice
Home
Reduce your chance of a homeowner loss by:
- Making any needed structural repairs quickly
- Picking up objects such as tools and toys that can cause tripping
- Making sure child activities at your home are properly supervised
- If you have a pet, be sure that you keep it from injuring others
- If you own a pool (in or above ground) or hazardous recreational equipment (trampolines, climbing walls), be sure there is no unauthorized or unsupervised use
- Making sure that playground equipment (swings, climbing ropes, ladders, slides, etc.) are kept in good condition
If you have questions, we’re only an email or a phone call away.
Sincerely,
Understanding Insurance Makes Us All Winners
Honestly, we improve things for everyone when we can do anything that assists how insurance operates. When customers are confused, problems follow. Stake can go from simple customer dissatisfaction to a period of lengthy, expensive litigation. We can demonstrate our value as insurance professionals by attending to the details that can avoid or at least mitigate situations. Making policyholders aware of obligations can be accomplished in a variety of ways. Besides the above instances that mentioned sources of typical policy language or initiating queries, other tools are available.
Your effort to educate clients may also be aided by sharing specific discussions, written in a consumer-friendly manner.
See below a discussion of the Notification obligation that is one of hundreds of topics from E-Marketing For Agencies found in Advantage Plus.
An insurance policy is a promise to protect you against certain types of loss, but it can’t follow-through unless it knows about a loss. Prompt notification is so important that it is a formal policy requirement. A policyholder that fails to meet this obligation could result in a claim being denied.
A policy typically requires you to do the following:
Contact the agent or insurer as quickly as practical – the practical requirement replaced the previous use of “possible,” since some companies unreasonably denied coverage because notification was not instantaneous. The difference between words is important. It allows some flexibility for dealing with circumstances that could affect how quickly you contact your agent or insurer about a loss.
Identify yourself – Perhaps one day your insurer will be able to recognize your voice over the phone and immediately pull up your file. Until then, be prepared to at least tell your insurer your full name (or, if different, the name the insurance policy is under) and the policy number.
Give adequate details – What, When Where, Why and How. It is important that the insurer has enough information to take proper action. This information allows an insurer to open a claim file, assign the loss to a claims person and begin investigation of your loss.
Provide copies of loss-related materials to the insurer – You should not guess about whether a legal notice or request to be paid for damages is important, even when an actual lawsuit has yet to be filed. Send a copy of the information to your insurer and let them decide.
Complete and quick communication about losses gives you the best chance to get needed coverage and gives your insurer an opportunity to handle a possible claim efficiently. It also allows the insurer to control issues that could let lawsuits gets out of control, such as the ability to offer payment for medical expenses or to contact and question witnesses.
Don’t hesitate! Contact your agent or insurer and get your loss handled.
