Claims Journal Fall 2013

FALL 2013 | VOL. 2, NO. 4

2013 Salvage Vendors Guide Deposition Pitfalls

Fall 2013 | Claims Journal 1

Contents Pricing, Inventory, Claims Management Services Supporting the Insurance Claim Process From TPA to Policy holder Loyalty

Personal & Commercial Lines

• Voice Recorded Transcription • Nationwide Loss Site Inventory • Contents Valuation • Licensed Independent

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OPENING NOTE

Customer Satisfaction

I

n a major catastrophe — such as Superstorm Sandy — it’s not surprising that some individuals affected by property loss end up unhappy with their insurance provider. But overall, most property insurance customers feel pleased with their claims experience.

That’s according to J.D. Power’s 2014 Property Claims Satisfaction Study – Wave 1, which found that while customer satisfaction with the handling of Superstorm Sandy property claims declined substantially, overall satisfaction with the property claims experience remained stable.

The study measured satisfaction with the property claims experience among insurance customers who filed a claim for damages covered under their homeowners’ policy by examining five factors: settlement; first notice of loss; estimation process; service interaction; and repair process.

Overall claimant satisfaction with the handling of Superstorm Sandy property claims declined by 20 points to 826 (on a 1,000-point scale), compared with 846 in the previous period.

Despite the 20-point decline, overall Accurate estimates of how satisfaction with all property claims long it will take to settle a during the current wave of the study claim is very important. remained stable at 832.

The severity of property damage, settlement amount and length of claim payment processing for Superstorm Sandy increased in the latest analysis, the study revealed. The average settlement amount for property claims increased to $10,205 from $5,517 in the previous period. An increase in the number of claims related to damage to the exterior of the house (71 percent vs. 65 percent) contributed to the higher settlement figures.

“Since we wait until the conclusion of each claim to survey the customer, the complexity of the Superstorm Sandy claims in this wave has increased from the last reporting period,” said Jeremy Bowler, senior director of the insurance practice at J.D. Power. Settling a claim for structural damage can take more time due to the scope of the claim, he said. The longer claimants wait for settlement, the less satisfied they are with their claims experience.

The most significant changes were an increase of nearly 10 days in the time it took to inform claimants about the settlement terms (19.6 days after reporting claim), and an increase in the number of days until the initial payment was received by the claimant to 25 days from 14.1 days. As a result, performance in several key performance indicators had also declined substantially.

Returning all promised calls was down by 10 percentage points to 82 percent; avoiding having claimants repeat information was down by 12 percentage points to 61 percent; and providing an accurate claims length estimate was down by 5 percentage points to 69 percent.

“Providing an accurate estimate of how long it will take to settle a claim is very important in managing the claims experience,” said Bowler. “When estimates to settle are extended and claims become drawn out, the possibility that insurers will not return claimants’ calls increases, as does the likelihood claimants will be required to repeat information, both of which contribute to a decline in claims experience satisfaction.”

Andrea Wells Editor-in-Chief

4 Claims Journal | Fall 2013

EDITORIAL Editor-in-Chief Andrea Wells | awells@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Burke Coleman, Steven Plitt Contributing Writers Greg Bannon, Mike Cesinger, Donald Friedman, David Jones, Joan McCarthy Mack, Clayton Matheson, Julie E. Nichols, Christopher Tidball, Chris Zmijewski SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chairman Mark Wells Chief Executive Officer Mitch Dunford Accounting Manager Mark Wooster | mwooster@insurancejournal.com

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DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice.

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Failure Analysis Extent of Damage Repair Options Mechanical Electrical Accident/Transportation

*Construction & Restoration Consulting, Clerk of Works

*3D Documentation Services, BIM, & Laser Scanning

Fire Cause & Origin Metallurgical Civil/Structural Industrial Accidents Explosions Heavy Equipment Failures

*Geotechnical Evaluations & Environmental Monitoring

*Certified Inspector Programs & Reference Books & Tools

*Product & Material Testing, New Wind Simulator & Pressure Chamber Tests

FALL 2013 | Vol 2. No. 4

36

CONTENTS CLAIMS REVIEW 7

7 7 8 8

9 11 14

Drowsiness, Longer Reaction Times Linked to Cruise Control National Bridge Inventory Highlights ‘Bad’ Bridges Sores, Surgery Errors Top 2012 Indiana Medical Mistakes Personal Lines Fraud Losses to Rise in 2013: FICO The Great Recession’s Effect on Workers’ Comp Claims Frequency: NCCI Vehicle Motor Accident Linked to Brain Miscalculation Threat to Privacy Found in Auto Insurance UBI Programs Property Market Eyes New Entrants from China, Berkshire

16

SPECIAL REPORT 16 18 19 20

22 24

22

Treatment Guidelines: Does One Size Fit All? Top 5 Common At-Fault Auto Claims 2013 Salvage Vendors Guide Why Some Policyholders Need Customized Temporary Housing Programs Preserving Evidence with 3D Laser Scanning Why Single Unit Trucks Don’t Stack Up in Safety 20

IDEA EXCHANGE 28

30

32 34

36 38

Bloggers Beware: Defamation Claims Brought by Public Figure Plaintiffs 5 Deposition Pitfalls for Claims Adjusters Involved in Coverage Cases Burke’s Law: Construction Defect Claims and CGL Policies Essentials: Emotional Distress Claims and UM/UIM Coverage Virtual Claims: The Future of Claims Handling Final Offer: Rollover Performance 32

34

Claims Departments 4 Opening Note 10 Dollars & Sense 12 Web Exchange 13 People 17 Snapshot 27 Business Moves

28

6 Claims Journal | Fall 2013

On The Cover: Single Unit Truck Safety

CLAIMS REVIEW | NEWS & TRENDS

Drowsiness, Longer Reaction Times Linked to Cruise Control

T

he use of cruise control is a major contributor to drowsiness, adding significantly to reaction times during heavy traffic or deteriorating road conditions

according to a new study from France.

Funded by the Vinci Autoroutes Foundation, 90 French drivers were divided into three age groups and put through a driving simulator for three days. All of the drivers showed drowsiness and slowed reaction times using cruise control, but the youngest drivers — ages 18 to 30 — were most affected by fatigue.

The participants were hooked up to machines measuring brain activity and

eye movements and drove 75 miles in a simulator three times, encountering construction, a radar, a bus accident and a toll booth.

The study asked participants to report their level of vigilance every 15 minutes.

Average levels decreased significantly after just 30 minutes from the self-reported “rather awake” to “neither awake nor asleep.” Simultaneous measurements of brain activity and eye movement showed similar “zoning out” — with both slowing down as drivers relaxed their guard.

National Bridge Inventory Highlights ‘Structurally’ Damaged Bridges

Sores, Surgery Errors Top 2012 Indiana Medical Mistakes

A

S

recent analysis of the structural integrity of the nation’s bridges found that of the 607,380 bridges in the United States subject to uniform bridge inspection standards, some 65,605 were classified as “structurally deficient” and 20,808 as “fracture critical.”

Of those, 7,795 of both types of deficient bridges were found in all 50 states, the District of Columbia and Puerto Rico, according to analysis of federal national bridge inventory, conducted by the Associated Press.

Four states — Iowa, Nebraska, Missouri and Pennsylvania — had more than 600 bridges deemed both structurally deficient and fracture critical.

A bridge is “structurally deficient” when rehabilitation or replacement is necessary because at least one major component is deemed in poor or worse condition. A bridge is deemed “fracture critical” when it doesn’t have redundant protections and is at risk of collapse if a single, vital component fails.

Some signs that a bridge is aging and in need of repair include corrosion, crumbling concrete, bridge pier cracks and metal fatigue. In the northern states, winter freeze-thaw cycles add additional stress on worn bridge components.

According to AP’s analysis, recent bridge collapses took place on fracture critical bridges. That includes the Interstate 5 bridge that collapsed in Washington earlier this year, the 2007 failure of the I-35W bridge that killed 13 people in Minneapolis, and the 1983 collapse of the I-95 bridge over the Mianus River in Connecticut. The way states deal with problem bridges varies mostly due to budgetary constraints.

erious bed sores reported by Indiana’s hospitals and clinics fell to 30 last year from 41 in 2011, the State Department of Health said.

According to the “2012 Medical Errors Report,” stage three or stage four bed sores — known formally as pressure ulcers — were the most common medical error in six of the seven years the report has been compiled. The average is about 30 incidents per year, the department said.

A total of 100 medical errors were reported — the same number as in 2011 — in a survey of Indiana’s 289 hospitals, ambulatory surgery centers, abortion clinics, and birthing centers.

The other most common medical errors last year were 19 incidents of foreign objects left in patients after surgeries, 15 surgeries performed on the wrong body parts and 14 falls resulting in deaths or serious disabilities, the report said.

The report also noted seven deaths or serious disabilities associated with contaminated drugs. The annual report is based on 28 “serious adverse events” identified by the National Quality Forum. Indiana in 2006 became the second state to adopt the group’s reporting standards.

Fall 2013 | Claims Journal 7

CLAIMS REVIEW | NEWS & TRENDS

Personal Lines Insurance Fraud Losses to Rise in 2013: FICO

O

ne in three insurers does not feel adequately protected against fraud, according to a new survey of U.S. and Canadian insurers by FICO, a predictive analytics and decision management software company.

Premium leakage and new applications were the most vulnerable areas, insurers revealed.

In the survey, which focused on insurance claims fraud, 35 percent of insurers estimated that insurance fraud costs represented 5 percent to 10 percent of their total claims, while 31 percent said the cost ran as high as 20 percent. More than half (57 percent) of insurers expected to see an increase in fraud losses this year on personal insurance lines.

In the United States, 42 percent of insurers expected the Mid-Atlantic States — New York, Pennsylvania and New

Jersey — to be the hardest hit by personal lines fraud.

In Canada, 42 percent of insurers expected Quebec to be the hardest hit by personal lines fraud, and 39 percent expected Ontario to be the hardest hit.

Respondents expected the biggest fraud loss increases to hit personal property, workers’ compensation and auto insurance. Fifty-eight percent of insurers forecast an increase in personal property fraud, 69 percent forecast an increase in workers’ compensation fraud, and 56 percent forecast a rise in personal auto fraud. The majority of insurers (51 percent) attributed the increases in fraud to inconsistent economic recovery in low-growth areas.

While only 11 percent of insurers blamed the expected growth in fraud on the increasing sophistication of criminal

rings, at the same time, 55 percent saw a rise in workers’ compensation fraud rings, and 61 percent saw a rise in auto fraud rings.

The survey also found that 63 percent of insurers believe there was an increased risk of fraud in no-fault states compared to states with tort systems. No-fault insurance has come under fire in recent years due to spiraling medical costs (40 percent more than in states with tort systems) and rampant fraud.

When asked about how to fight the rise in fraud, the majority of respondents (20 percent) cited predictive analytics.

Insurers also included the use of antifraud teams for specific books of business (17 percent), link analysis for detecting fraud (8 percent), and business rules for stopping known fraud types (7 percent) as useful fraud-fighting approaches.

The Insurance Fraud Survey included responses from 260 insurers throughout the United States and Canada who were surveyed in July 2013.

The Great Recession’s Effect on Workers’ Compensation Claims Frequency: NCCI

T

he Great Recession of 2007-2009 was the most serious and long-lasting economic contraction since the Great Depression.

The recession and its modest recovery had a considerable influence on workers’ compensation claim frequency, according to a new study by the National Council on Compensation Insurance (NCCI). The study provides NCCI’s latest frequency change estimate for accident year 2012 and examines the effect of the recession on frequency changes by various claim and employer characteristics.

Claim frequency for workers’ compensation injuries increased 3.8 percent in accident year 2010, marking the first increase since 1997. Prior to the 2010 uptick, claim frequency had been declining at an average rate of more than 4 percent per year since 1990. Following the 2010 uptick, claim frequency declined in 2011, albeit by a modest 0.9 percent (and, as just noted, 8 Claims Journal | Fall 2013

declined in 2012).

In accident year 2012, lost-time claim frequency declined by 5 percent according to preliminary estimates. While frequency decreased by 5 percent, the average cost per lost-time claim increased 1 percent for indemnity and 3 percent for medical.

Over the five complete policy years ending with policy year expiring (PYE) 2011: •Frequency per payroll declined by 16 percent (4.3 percent per year) but has leveled over the latest two years.

•Frequency per payroll declined for all industry groups, most notably in contracting

and manufacturing.

•Frequency per payroll declined for all employer sizes, with the largest declines for employers having more than $100 million in payroll.

•Frequency declines were relatively consistent by NCCI type of injury.

•Payroll volume increased by double digits in the oil and gas and healthcare sectors, while declined nearly 2 percent for all industries combined.

In the oil and gas sector, claim frequency was high in the hydraulic fracturing industry.

Take Your Claim Handling Knowledge Higher

Vehicle Motor Accident Linked to Brain Miscalculation

R

ecent research by a Texas Tech University psychologist suggests that an object’s size affects distance perception, which could explain the basis of car drivers miscalculating motorcyclists’ distance and speed. The regularity of this problem isn’t necessarily a case of poor driving or carelessness, but may be related to a basic human judgment error.

According to Pat DeLucia, the brain uses two visual information cues for judging time to impact.

In the first, a moving object is reflected on the eye’s retina. It expands as it approaches the eye, providing the brain accurate information about when the object will hit. This is called an optical invariant.

The brain also uses “rules of thumb” as well, such as various “artist” depth cues as a shortcut, she said. Many times, the brain interprets objects with a larger retinal image as closer. Because motorcycles are smaller than cars, the brain may use this shortcut to judge a smaller motorcycle farther away than it actually is, DeLucia said.

The findings suggest that perception is based on multiple information sources.

This size-arrival effect could lead drivers to misjudge when a vehicle would arrive at an intersection and could be considered a contributing factor in motorcycle/vehicle accidents.

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DEPARTMENTS

DOLLARS & SENSE $2.7 Million

The amount of premium fraud tracked

by Texas Mutual Insurance Co. in 2012.

The company also reported 196 instances of confirmed employee fraud in the same year. The company, which also tracks healthcare provider fraud cases, said it saved an estimated $1.2 million as a result of investigations it conducted with approximately $560,000 in questionable bills denied.

25%

The percentage of homeowners surveyed by Nationwide Insurance that say they have left the front door of their home unlocked when leaving the house at least once in the past year. The survey revealed that while a majority of homeowners (79 percent) have at least one common theft-prevention measure (e.g., alarm system, deadbolt), three in 10 (30 percent) do not use any. While the National Burglar & Fire Alarm Association estimates nearly one-third of all burglars enter through the front door, just 15 percent of homeowners in Nationwide’s survey correctly believe it’s the most common entry point.

41%

The percentage of 18- to 34-year-old homeowners surveyed by Nationwide Insurance that claim they post social media photos and updates when they are on vacation.

$1 Billion

The cost of insured losses in 2012 for lightning strikes, according to the Insurance Information Institute (I.I.I.). An analysis of homeowners’ insurance data by the I.I.I. and State Farm found 10 Claims Journal | Fall 2013

there were 151,000 insurer-paid lightning claims in 2012, down nearly 19 percent from 2011. The I.I.I. puts the average lightning paidclaim amount at $6,400 in 2012, up 25 percent from 2011. These two factors resulted in $969 million in total paid lightning claims, up 1.7 percent from 2011.

142%

The percentage that the average cost per paid lightning claim rose from 20042012. Since 2004, paid lightning claims dropped by an average of 7.5 percent per year, resulting in a 46 percent drop over the eight-year period through 2012. The decline may be attributed to an increased use of lightning protection systems.

26

The number of lightning-related deaths that occurred while fishing between 2006 and 2012, according to a NOAA study.

Of the 152 deaths associated with leisure activities, fishing is followed by camping (15 deaths), boating (14 deaths), soccer (12 deaths) and golf (8 deaths). The remaining 77 people were struck by lightning while participating in other leisure activities like enjoying the beach, swimming, walking and running, riding recreational vehicles, and picnicking or relaxing in their yard. Eighty-two percent of people killed by lightning were male.

1 in 24M

The likelihood of being seriously injured on an amusement park ride, according to the International Association

of Amusement Parks and Attractions. The association’s statistics show there’s just a 1 in 750 million chance of dying on a ride. There’s no federal oversight of permanent amusement parks, and regulations vary from state to state. The association said 44 state governments regulate parks.

The six without state oversight — Alabama, Mississippi, Nevada, South Dakota, Wyoming and Utah — have few amusement parks, if any.

1,539

The number of U.S. civil aviation accidents in 2012, which fell from 1,550 in 2011, according to the National Transportation Safety Board. For the third year in row, there were no fatal accidents involving commercial air transport. In addition, there were no fatal accidents involving commuter operations, the sixth year in a row that this segment of aviation experienced no fatalities. For the general aviation community, the results were mixed.

Although the number of total accidents (1,471) and fatal accidents (271) increased from the previous year, there were fewer (432) fatalities and the accident rate per 100,000 flight hours declined to 6.78.

2,866

The number of people arrested for drunken driving in North Carolina during the latest “Booze It & Lose It” campaign.

The campaign, which ran from Aug. 16 through Sept. 2, included the Labor Day weekend. A total of 2,866 people were arrested for drunk driving. In addition to DWI arrests, local and state law enforcement officers issued 9,568 safety belt and 1,376 child passenger safety violations.

There were 29,184 speeding violations and 3,185 drug charges. In addition, they apprehended 2,938 fugitives from justice and recovered 173 stolen vehicles.

CLAIMS REVIEW | NEWS & TRENDS

Threat to Privacy Found in Auto Insurance UBI Programs

T

here’s a privacy risk when policyholders join an insurer’s “pay as you drive” also known as usage-based insurance, program, according to University of Denver computer scientists.

They found that collecting data on policyholder driving habits can sometimes be used to accurately infer a driver’s destination — proving a long-time concern of privacy advocates.

“With access to simple features such as driving speed and distance traveled, inferring the destinations of driving trips is possible,” they wrote in a paper published in the proceedings of the 2013 ACM Workshop on Privacy in the Electronic Society. “Privacy advocates have presumed the existence of location privacy threats in non-tracking telematics data collection practices. Our work shows that the threats are real.”

The scientists,

Rinku Dewri, Prasad Annadata, Wisam Eltarjarnan and Ramakrishna Thurimella, developed an algorithm and applied it to data from 30 routine trips made in and around the Denver area. In 18 of the trips, the algorithm placed the actual destination within the top three projected destinations.

Numerous auto insurance companies offer discounts to policyholders who enroll in UBI programs. Allstate reported recently that drivers that signed up for its UBI program, Drivewise, will register more than 1 billion miles driven this month. Allstate’s usage-based insurance product is available in 22 states.

These UBI programs rely on the collection of driving habits data such as mileage, excessive speed, hard braking, and the time of day the custom-

er is driving during a specific monitoring period. This information is analyzed to offer a customized discount to the policyholder. UBI programs generally don’t track global positioning system (GPS) locations, and thus imply an expectation of privacy that destinations are not tracked.

The scientists found a mixture of “quasi-identifiers” — driving data that can be used to infer driving routes when used in combination — that could be used to infer destinations even without GPS data.

In addition to measuring driving speed and distance traveled, “quasi-identifiers” tracked traffic stops and turns. They matched this information to road maps to determine the potential destinations of a trip, and then ranked them to deduce the most likely destination.

“We argue that customer privacy expectations in non-tracking telematics need to be reset,” they said, “and new policies need to be implemented to inform customers of possible risks.”

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Bring your talent and energy Help your community • Join other insurance professionals Sign up your volunteer team at weekofgiving.iicf.org.

Week of Giving funds will support the IICF-Sesame Workshop early childhood literacy initiative, Every Day is a Reading and Writing Day. * Text INSURANCE to 50555 to donate $5 or donate at IICF.org. *Standard message and mail rates apply. For full terms visit www.mGive.org/T. The Insurance Industry Charitable Foundation is a registered not-for-profit organization under section 501(c)(3) of the IRS code. Federal Tax ID #20-1240972.

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Fall 2013 | Claims Journal 11

DEPARTMENTS

WEB EXCHANGE

Video Highlights Cargo Theft Trends http://www.insurancejournal.tv/videos/10210/ In 2012, it’s estimated that there were an average of two and a half reported cargo thefts each day in the United States. And although the number of thefts have declined in 2013, the monetary loss has grown.

Podcast Highlights New Assessment Tool for Blackout Risks Introduced http://www.insurancejournal.tv/videos/10230/ Robin Luo, vice president and blackout model project manager for Hartford Steam Boiler, discusses the strategic alliance between HSB and AER to introduce a new model for insurers to assess potential losses resulting from electrical blackouts. The new tool promises to address the key perils that cause power outages and the resulting impact on multiple lines of insurance.

The Benefits and Drawbacks to Claims Outsourcing http://www.insurancejournal.tv/videos/10147/ In an interview with Claims Journal’s Denise Johnson, Kevin Quinley, claims expert, founder and principal of Quinley Risk Associates, discusses the cyclical embrace of outsourcing claims functions. Listen as he explains why certain lines of business fare better with outsourcing, as well as the benefits and risks associated with it.

In a Reader’s View

ing and driving in Morris County in 2009.

The motorists sued the driver’s girlfriend, who sent him messages. The judges upheld a lower court ruling that dismissed the lawsuit.

The appeals court said someone who texts a motorist is not liable for the driver’s negligent actions, but the texter has a duty to refrain if the person knows the recipient is driving and likely to read the message.

The injured couple settled their lawsuit against the driver for $500,000.

The story generated some interesting comments from readers.

Read a few of the comments below: The Bigger Lebowski says: “But the texter has a duty to refrain if the person knows the recipient is driving and likely to read the message.” How ridiculous.

Linda says: “Growing up I did a lot of stupid things. And when I got in trouble, my punishment would double if I tried to blame someone else (the ‘he started it’ or ‘everybody else was doing it’ defenses). One punishment for my actions and a second for trying to lay-blame somewhere else, because as I heard many times, no one is responsible for your actions except YOU! Individuals in today’s society accept responsibility for NOTHING, and the rest of society encourages it.”

Joe Bigshack says: “This is crazy … really it’s our fault and not the driver?? I don’t think so. This country is on a fast track to being completely stupid.”

ClaimsJournal.com Web Poll Which type of workers’ compensation fraud is the most expensive?

21%

(164 votes)

Employer fraud, such as misclassification of employees

41%

(314 votes)

Employee fraud, such as malingering or faking an injury New Jersey Appeals Court Rules That Text Sender Can Be Held Liable A New Jersey appeals court has ruled that a person who knowingly sends a text to a driver can share liability if the driver causes an accident.

The ruling comes in the case of a couple who lost both their legs when their motorcycle was hit by a teenager who was text12 Claims Journal | Fall 2013

33%

(257 votes)

Healthcare fraud, such as duplicate or overbilling

5%

(38 votes)

Unsure Total Votes: 773 votes

DEPARTMENTS

PEOPLE Crawford & Co. appointed Terry Hunt to a new position where he will lead business development for Crawford Global Markets in the Americas. Hunt’s expanded role will include both continuing to drive the growth of Crawford Global Technical Services (GTS) and developing Crawford Specialty Markets, an expansion of large and complex loss adjusting services, which was announced in July. He will report jointly to Mike Reeves, executive vice president for Global Markets and to John Sharoun, CEO for Specialty Markets for the Americas.

Hunt has served as CEO of GTS for the United States since 2012. Hunt came to Crawford in 1990 as a general adjuster and advanced to supervisory and management positions before joining GTS in 2000.

The new leader of GTS for the United States is Richard Lafayette, who is currently its chief technical officer and managing director in the Southeast.

Lafayette, already a member of the U.S. Property & Casualty leadership team, will report to David Repinski, its CEO. Lafayette joined Crawford in 1974 as a trainee and advanced to property general adjuster. He was promoted to branch manager in New York in 1986 and later became the first executive general adjuster for Crawford in 1990. In 2012, he was named to the newly created position of chief technical officer for GTS. Farmers Insurance named Steven Weinstein general counsel. Weinstein replaced Frank Ceglar, who retired after a 36-year career at the company. In his new position, Weinstein will oversee the company’s legal department, including its litigation team, in addition to providing legal guidance to the enterprise and its leadership.

During his years in private practice, Weinstein handled a range of insurance regulatory matters, complex business litigation and bad faith litigation. As a lawyer who specialized in administrative law and insurance regulatory matters, he has represented insurers before a number of Departments of Insurance across the nation.

Employers Holdings Inc. named Stephen V. Festa executive vice president, chief operating officer, overseeing all of Employers workers’ compensation business.

Festa currently serves as senior vice president, chief claims officer, a position he has held since 2004. He will work at the company’s headquarters in Reno, Nev.

Festa has more than 30 years of experience in the insurance industry, principally in the areas of claims, loss control and premium audit. Additionally, he currently serves as the chairman of the Board of Governors of the California Insurance Guarantee Association (CIGA).

Liberty Mutual Insurance’s Commercial Insurance strategic business unit appointed Mike Martin executive vice president and general manager, National Insurance Property.

Martin will lead a unit that provides a range of property insurance, inland marine and equipment breakdown products and services to mid-sized and large accounts through agents and brokers.

Martin has more than 25 years of commercial property insurance experience. At the start of his career, he built a strong property engineering and underwriting base at Industrial Risk Insurance. Before joining Liberty Mutual, he was senior vice president, North America chief property underwriter for XL insurance.

Jeffrey S. Grange was appointed head of management liability and professional lines for QBE North America.

Grange has more than 25 years of experience in the management liability and professional lines underwriting areas.

Grange joins QBE from the Torus Group, where he served as chairman of the Torus’ Group Underwriting Committee, managing the insurance risk of the company. He also was the global practice leader for management liability and professional lines.

Prior to joining Torus in 2010, Grange spent his career with Chubb Group, joining the organization in 1990 as an underwriting trainee. From 1990 to 1998, he moved through a variety of underwriting roles. From 1998 to 2010, Grange oversaw a range of Chubb’s professional liability products and businesses, many on a worldwide basis. He was elected a vice president of Chubb in 1999, and a senior vice president in 2002.

Terry Hunt

Richard Lafayette

Steven Weinstein

Stephen Festa

Ariz.-based Scottsdale Insurance Co., an excess/ surplus and specialty lines carrier, named George Spedding vice president of Claims, replacing Susan Wain after her retirement.

Spedding will provide leadership and strategic direction to the Scottsdale claim organization, including Scottsdale Insurance Co., Freedom Specialty Insurance Co., and Western Heritage Insurance Co. Fall 2013 | Claims Journal 13

CLAIMS REVIEW | NEWS & TRENDS

Property Market Eyes New Entrants from China, Berkshire

By Susanne Sclafane

A

lthough new competitors are entering the U.S. property insurance market and alternative capacity is moving into the reinsurance space, neither trend has yet to move the needle on primary insurance pricing, executives said at the Advisen Property Insights Conference.

Speaking on the potential for alternative reinsurance capital to alter short-term market dynamics, “reinsurance overall is not a major factor in the cost of doing business for us,” said Paul McNamee, president of North America Property & Specialty Lines Insurance for ACE North America. “Certainly loss activity is by far and away the big driver of expenses.”

McNamee said he sees “a lot more” long-term pricing implications from the interest rate environment, and more particularly from inflation. “The reserves in the industry are so vast that if you put a 1 percent or 2 percent increase in inflation on those loss reserves, it will dwarf a $100 billion market loss,” he said.

Moving from the long-term dynamics of macroeconomic monetary policy to the short-term potential drivers of market change, McNamee pointed to the entrance of new markets into the insurance space. For example, Berkshire Hathaway Specialty Insurance started operations a couple of months ago with excess and surplus lines business, including property, as a core focus.

“And we’re seeing the increasing emergence of Chinese companies writing U.S. business,” McNamee continued. “That is the short-term effect in the market. It’s going to be the voraciousness of that activity, coupled with the tenacity of existing carriers to keep their business,” that will shape property insurance market conditions for the balance of 2013, he said.

Vic Krauze, chairman of Willis North America, said he also is intrigued by the new entrants.

“You’re seeing some of the capacity that comes in being less opportunistic. I always thought of Berkshire as an opportunistic player — [moving] in and out, depending on what’s going on. But what [Berkshire

14 Claims Journal | Fall 2013

Hathaway is] doing is not a short-term play,” Krauze said. “We will see what’s developing with some of these Chinese markets moving in. I find that very interesting,” he added.

Otherwise, Krauze said, he’s “almost giving up on trying to predict what [property insurance] rates will do.” He noted that a combination of wishful thinking and messages about significant capacity moving in had brokers making more optimistic price forecasts in January than in the spring, and that price stability would be the best outcome for everyone.

Enter China In an onsite interview with Carrier Management at the Advisen conference, Duncan Ellis, managing director and U.S. property practice leader for Marsh, confirmed that Chinese insurers are indeed writing U.S. property risks. While they’re winning some business on price, he also said they’re not making any market-changing dramatic cuts.

“We’re seeing a fair amount of capacity coming into the marketplace from these Chinese markets,” Ellis said. “We’re accessing it in China mostly for our very large, global clients,” such as well-known names in retail and manufacturing.

Ellis explained that for many years, his customers used these Chinese insurance markets inside China for the local admitted business. “If you needed to get a policy in China, you would go to the PICC (People’s Insurance Co. of China), the Ping An or the CPIC (China Pacific Insurance (Group) Co. Ltd.)” Those companies are now seeking to write not just China exposures but global exposures on property insurance accounts, including U.S. exposures, he said.

Why is the capacity offered by Chinese insurers attractive to buyers?

“I don’t think it’s more attractive. I just think it is providing competitive tension on their program,” Ellis said. “Pricing is good,” he added, when asked if competitive tension is driving it lower.

The Chinese insurers “haven’t, at least

in the United States, sustained some of the losses which have got other carriers thinking about some rate issues or adequacy that they need. But it’s not cheap capacity by any means,” Ellis said, describing it instead as “at-market capacity.”

Ellis suggested that for many large American corporations doing business in China, the purchase of insurance from Chinese insurers is a way of “showing good corporate responsibility or alignment with that country.”

He clarified that customers Peter Eastwood, would not place an entire prop- President, Berkshire erty program in China but “just Hathaway Specialty a sliver of it.” These are large, Insurance global programs, he said, noting that there are often 20 or 30 carriers involved. The Chinese carriers would “be but one of those carriers” and might provide a 5 percent or 10 percent quota share all the way up an entire $1 billion program, for example.

As a broker, his reasons for recommending this to customers have to do with alignment and insurance market competition.

“You have a lot of U.S. companies that are looking toward Asia for growth,” he said, giving the example of a manufacturer opening a plant in China and selling its wares into the local marketplace. “I’m now operating almost as a local Chinese company. I think it shows good responsibility to say I am also enriching the community [and] the economy by sourcing some of my raw materials in the country,” referring to insurance as one of the raw materials of a business.

Referring to the additional competition on a program, Ellis said, “If I have a program that needs 20 or 30 carriers and I can bring in a 21st or 31st carrier to compete on that program, perhaps everyone else’s pencils become a little bit sharper.”

Still, Ellis said property insurance pricing isn’t coming down.

“Any time you have something that is relatively new, there is some nervousness

around it. But I don’t think it’s necessarily valid,” he added. “These [Chinese] companies are very well-capitalized. They’re fully rated by the same rating agencies.

“These companies are not faint of heart,” he continued. “They’ve been around a long time in the insurance community. All they are really looking to do now is expand beyond their borders and start writing some of these accounts with which they’re fairly familiar because they’re so large and global,” he said, agreeing that a desire to diversify is a driver for Chinese insurers.

“They wouldn’t be making this push into this marketplace if they were anticipating running for the hills the first time a loss happens,” he said.

Berkshire’s Opportunistic Plays Peter Eastwood, Berkshire Hathaway president who in late April set out to launch the company’s new specialty insurance company along with three other defectors from AIG, said Berkshire Hathaway Specialty Insurance is also in the property insurance business — and the casualty business for the long haul.

Distinguishing the new operation, now 40 employees strong, from Berkshire’s existing flagship National Indemnity, Eastwood said not to count out Berkshire’s role as a just-in-time capital supplier.

Referring to Krauze’s comment about Berkshire Hathaway’s market reputation of being opportunistic, Eastwood said, “Everybody in this business should continue to think about Berkshire Hathaway being that market participant that you’re used to — Ajit Jain and his Berkshire reinsurance operation being in the market and providing that capital when it’s most needed.” He noted that National Indemnity and its five affiliated companies have more than $100 billion in policyholder surplus.

“In addition to that, a team of people led by me and my colleagues will operationalize that $100 million of capital and have it in the market in a more permanent, long-term, focused way,” he said.

Eastwood responded to an audience participant who reviewed a string of property-catastrophe losses and poor underwriting results in the past decade and asked how Jain could have been convinced that entering the insurance market was a good idea: “It’s been a challenging 10-12

years,” Eastwood agreed. Still, “I do think that over the long term, as you look at the market cycle — if you stay in the business for the long term, you’ve got the ability to generate adequate returns to justify having the capital [in] the business.

“We have a belief that we can be in the business for the long term,” generating “acceptable returns over the multiple cycles, over a long period of time, ultimately to the satisfaction of customers.”

Capital Permanence Commenting on the transience of alternative capital in the property-catastrophe reinsurance market, Eastwood said mechanisms that deliver that alternative capital for catastrophe protection are here to stay.

Catastrophe bonds, sidecars and industry loss warranty programs will be the means of capital formation “on a going-forward basis,” he said, contrasting past times when private equity firms created reinsurance companies when market opportunities arose.

Investors like the fact that the capital “can get in, can get out,” without the hassle of creating an entire reinsurance business and the related infrastructure, he said. “That capital formation is going to have a market-cycle dampening effect.”

Going forward, Eastwood said, “we’re not going to see the pronounced spikes that we once saw, or the pronounced troughs ... that proposition is part of what’s the driver behind me and my colleagues operationalizing a [strong] balance sheet and being in the business in a more permanent way.”

McNamee, who noted that pension funds in search of yield are fueling growth in capital market alternatives to reinsurance, said the money that’s pouring in is transient.

“We don’t see it running away because there’s a loss in the marketplace. We see it running away because interest rates rise,” he said.

McNamee asserted that lower reinsurance costs resulting from the capital markets competition are not filtering down into insurance pricing.

“While reinsurance is a factor, it is not a real driver of change in the marketplace,” he said.

Marsh’s Ellis is unconvinced. “That’s

bunk,” he said, reacting to McNamee’s assertion that reinsurance pricing is not a component of the overall price that carriers charge their insurance customers.

“If you’re manufacturing clothing and the cost of the material is going up, [then] the cost of the clothing is going up too. “If the [reinsurance] cost is going down, you should be reflecting that. If you’re not, you’re making higher profits ... It is definitely going to impact pricing going down.

The question is when, not if,” he said.

Ellis reported commercial insurance property rates are “flat to down a couple of percentage points, unless you’re in a very problematic area, such as low-lying areas of the Northeast impacted by Superstorm Sandy.”

Referring to underwriting and pricing changes in the wake of Sandy, specifically moves to cut flood sublimits and push deductible levels higher, Ellis called for insurers to practice more consistency.

Ellis said that knee-jerk postevent reactions by insurers give the industry a black eye.

“Right now, earthquake insurance is relatively available. That’s until the California quake comes. Then they’ll all be up here telling you how difficult earthquake insurance is,” Ellis concluded.

Fall 2013 | Claims Journal 15

SPECIAL REPORT | AUTO INJURIES

Treatment Guidelines: Does One Size Fit All?

By Greg Bannon

H

igh school science students are taught Sir Isaac Newton’s Laws of Motion. Whether these laws are remembered is another question, yet we know that these mechanical laws described in the late 17th Century apply to all large object motion on Earth.

Even still, Newton’s work often flies out the window — the car window — when it comes to determining the relationship between physical damages to a vehicle in a collision and injuries to the vehicles’ occupants. Why? People who have been in a routine minor rear-end collision, for example, are not always objective judges of what has happened in an accident. They can’t accurately quantify the mechanics of the accident. They’re not trained to do so.

For that matter, few physicians have been trained to either.

Say a patient arrives in his or her doctor’s office complaining of neck pain. The physician will say, “Let me examine you.

Yes, you should have some pain; you’ve strained a muscle somehow.” Such injuries and strains are not as clear-cut as a knife wound or a bullet wound, where the cause of such an injury is a given and there’s no debate over the diagnosis.

While physicians know how to evaluate, diagnose and treat, they may not have the experience and expertise in injury

causation analysis, or understand how the laws of physics relate to injuries from auto accidents. In these low-velocity impact environments where people claim that they are hurt when in some cases they are not, physicians are trained to believe them, setting forth unfounded hypotheses that can ultimately influence diagnosis.

Diagnosis Problem The problem lies in the breakdown between the role of the physician to treat a patient and the injury, and the position of assigning the cause of the injury for an insurance claim. This issue is exacerbated once treatment is pursued as physicians are bound to follow guidelines published by the American Medical Association (AMA). Such guidelines require physicians to assign diagnostic codes to injuries, which are often broad and one-size-fits-all, versus specific to individual injuries.

Unless a physician is trained in the field of human subject testing for tolerance to low acceleration vehicular impacts, he or she may not properly understand mechanics of the collision that could cause a condition such as whiplash.

Assume for a moment a bumper is lightly tapped versus a “big hit” in which the rear of a vehicle is caved in. The acceleration field to which the occupant is exposed is entirely different. The AMA guidelines do not help the physician in this regard; the guidelines ignore the

physics and magnitude of the collision.

And the devil is in the details. The physics of accidents and the understanding of how injuries are caused — known as injury science — make a difference in whether an injury a motorist claims is possible under the accident’s circumstances.

Questionable Claims Many people who have been in accidents allege they have experienced injuries or exaggerate their injuries. These allegations result in the filing of questionable, even fraudulent claims.

The Insurance Research Council reported in 2008 that insurance fraud added up to $6.8 billion in auto injury claim payments in 2007. As a result, policyholders paid more than $100 extra in annual auto insurance premiums; a hidden tax.

If you examine scientific data from low-speed crash tests, the impact of collisions does not typically result in injuries.

Injury Sciences conducted a meta-analysis of more than 20 years of crash test research data and found that more than 75 percent of tests conducted did not result in injury.

When you consider just how far-reaching the impact of misdiagnosed injuries and fraudulent injury claims extend, it’s not surprising that the insurance industry is increasing its use of predictive analysis to help improve fraud referrals and allow “right tracking” of claims assignments.

Predictive analytics help to identify questionable claims by combining scientific data from physical damage to vehicles with data from low-speed crash tests.

Automated analytics are available to predict or determine acceleration and deceleration of vehicles in accidents to calculate the injury potential, as well as to help identify questionable claims. These advancements give adjusters access to actionable information to use when handling claims and to support decision-making — a welcome relief for many, including consumers paying the hidden tax.

Bannon is vice president of product management for CCC Information Services.

16 Claims Journal | Fall 2013

DEPARTMENTS

SNAPSHOT Before and After: Fire Damaged Kitchen

T

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After Before

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located in Louisville Kentucky, features 50,000 square feet of testing and evidence storage space.

One of the largest facilities of its kind in the nation, Donan’s lab receives more than 900 items for failure analysis each month. All testing is performed by engineers or PhDs and our reports not only identify the mode of failure, but also include an evaluation of subrogation potential.

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Fall 2013 | Claims Journal 17

SPECIAL REPORT | AUTO COLLISIONS

Top 5 Common At-Fault Auto Claims

W

e know nobody’s perfect and accidents happen. But do you know what the most common at-fault accidents are? The more you know, the more you can help your customers to prevent accidents.

Out-of-Lane Collision Out-of-lane collision claims happen most often as a result of one vehicle changing lanes at the same time another vehicle overtakes and

By Mike Cesinger passes. When switching lanes, drivers should check blind spots and make sure it’s safe to change.

The most common cause for out-of-lane collisions is “inattention.” Inattention occurs when drivers are paying more attention to what’s going on inside their car than what is happening on the road.

When the sun goes down or there’s bad weather, lane markers can be obscured.

This decreases line visibility for drivers and others around them. In many cases, inexperienced drivers are the cause of these accidents. Specifically, 16-year-olds have higher crash rates than drivers of any other age. Encourage customers, particularly inexperienced drivers, to stay alert at dusk and during inclement weather.

Single-Vehicle Collision Many single-vehicle collisions occur when there are slick road conditions.

While some conditions may not be as visible or obvious (black ice, for example), adverse weather often increases the likelihood that the driver may lose control.

When operating a vehicle, drivers must adjust to the conditions under which they’re driving. The most common citation for drivers involved in a single-vehicle collision is “traveling too fast for conditions.”

Drivers should stay within the speed limit and reduce speed in adverse weather.

Another leading cause of single-vehicle collisions is distracted driving. Distracted driving, including texting while driving, is particularly dangerous because many drivers underestimate the risks of such activity. According to a recent Plymouth 18 Claims Journal | Fall 2013

Rock, Mass., survey, nearly three-quarters of respondents perceived texting while driving to be equally or less dangerous than reading driving directions and eating while driving.

Finally, properly maintaining a car can make all the difference in safe driving during wet, slushy or snowy conditions. Keeping wheels properly aligned and shock absorbers in good condition also will help drivers maintain control when encountering standing water (avoiding hydroplaning) or potholes.

Rear-End Collision If a driver you know follows too closely to the vehicle in front of him — tell him to stop! Tailgating is the most frequent cause of rear-end collision claims but is avoidable by maintaining a safe distance.

Under perfect weather conditions, it’s recommended to stay at least one car length back for every 10 miles of driving speed. So, if someone is driving 50 miles per hour, keep at least five car lengths behind. Under adverse weather conditions, slow down and keep more distance.

Rear-end collisions can be averted by gradually slowing down, not making an abrupt stop, before a red light or stop sign.

Drivers should identify an escape route in case the driver behind isn’t paying attention. If your customer finds himself being tailgated, tell him to pull over at a safe location and let the other driver pass.

Speeding up, trying to return distance between you and the vehicle following often creates danger by taking focus from what is in front to what is behind you.

Collision with a Parked Car People run into parked cars often in parking lots or parking garages. Space may be tight, and drivers can overestimate their ability to “squeeze in.” Drivers should proceed slowly and cautiously to avoid

Texting while driving could be just as dangerous as reading driving directions and eating while driving. this type of accident. Sometimes choosing a slightly more distant parking space is preferable to causing an accident.

In winter, drivers should clear windows of ice and snow before they start driving.

Fogged up windshields can limit visibility.

Keeping the inside of windows clean is even more important in bad weather, as the exterior of windows become dirtier than usual. Being able to clearly see what’s around the car avoids potential hazards.

When visibility is compromised, drivers often guess about the space they have to park. Those guesses often are wrong.

Collision While Backing Up Whether it’s backing out of a driveway or a parking space, collisions that occur while in reverse are easily avoidable. These accidents often occur when two drivers back up simultaneously without looking.

Advise customers to use all of their mirrors and to back out slowly. Distractions when backing out can prove dangerous, and for small children, deadly. Ask passengers for silence when backing up and out of their parking space.

Cesinger is vice president and chief claims officer at Plymouth Rock Assurance Corp.

2013

Salvage Vendors Guide Claims Journal is pleased to publish the 2013 Salvage Vendors Guide, designed to help claims professionals find service providers able to assist in the sale of salvage. For more information on this directory, contact Howard Simkin at hsimkin@claimsjournal.com.

Amset Technical Consulting 1864 S Elmhurst Rd Mt. Prospect, IL 60056 888-982-6738 www.amsetusa.com Electrical, mechanical, origin & cause, and fire investigations for the insurance industry.

Certified fire & explosion investigators, degreed engineers, and certified restoration technicians.

EB Horn Replacement Service 429 Washington St Boston, MA 01907 800-835-0297 www.ebhorn.com National jewelry replacement. Expert evaluations on diamonds, watches, jewelry and collectibles. Reduce $ exposure. Quotes within 24 hrs. Direct replacements arranged. Substantial discounts. Salvage purchased.

ReSource 700 Central Expressway S, Ste 300 Allen, TX 75013 800-275-7672 www.replacementsource.com ReSource is a comprehensive evaluation and replacement service specializing in property contents. Being in business since 1989, we know what it takes to get the job done quickly and correctly.

Callan Salvage & Appraisal Company, Inc. PO Box 190 Eads, TN 38028 800-238-2632 www.callansalvage.com Specializes in inventory verification and salvage disposition for insurance companies and self-insureds. Nationwide with three specialized divisions: Equipment, Mercantile, and Commodities.

Enservio, Inc. 117 Kendrick St, Ste 250 Needham, MA 02494 781-292-6050 www.enservio.com Enservio, the nationwide leader in contents claim management, provides software and services to property insurance carriers and their policyholders nationwide including inventory capture, valuation, analytics and replacement.

SalvageSale, Inc. 1001 McKinney St Houston, TX 77002 800-856-7445 www.salvagesale.com SalvageSale has recovered over $2 billion on salvage claims across all commercial lines of business.

Code Blue 14 E Main St Springfield, OH 45502 715-830-6001 www.hsgcodeblue.com CodeBlue provides water mitigation, contents and salvage solutions that reduce claim response time, lower severity costs, minimize adjuster time and deliver unprecedented service to the policyholder.

G&G Insurance Adjusters 200 S Andrews Ave, Ste 603 Ft. Lauderdale, FL 33301 888-724-5855 www.ggadjusters.com G&G Insurance Adjsuters, Inc. provides claims adjusting services for the entire state of Florida – residential and commercial property claims with experienced bilingual adjusters/investigators and appraisers.

CodeBlue Contents 404 South Barstow St Eau Claire, WI 54701 715-864-6314 www.hsgcodeblue.com CodeBlue Contents is a comprehensive property contents pricing solution. CodeBlue’s experts give the adjuster and the policyholder the confidence to settle a claim by doing the research required to ensure accurate pricing and a great claims experience.

Gemcor, Inc. PO Box 191439 Miami Beach, FL 33139 800-262-6776 www.gemcor.net Since 1981, Gemcor has set the standard in jewelry replacements for the insurance industry. Price quotes are always free.

Sentry Salvage 503 Washington Ave Newtown, PA 18940 800-472-5867 www.sentrysalvage.com Sentry Salvage specializes in providing inventory and appraisal services as well as obtaining the maximum recovery on salvage stocks for the insurance claims industry and national retailers. Sentry handles wholesale and retail goods as well as raw materials, machinery and supplies losses.

Greer & Kirby Company, Inc. 14714 Industry Circle La Mirada, CA 90638 866-426-3526 www.greerandkirby.com Greer & Kirby Company is a full service salvor handling all merchandise and commodities including raw materials, electronic equipment, boats, and heavy equipment.

United Salvage Associates, Inc. 3332 Towerwood Dr Dallas, TX 75234 800-229-0578 www.unitedsalvage.com United Salvage Associates provides prompt and professional services in inventory verification, loss documentation, salvage assessment and disposition of damaged assets.

East Coast Sales & Salvage Inc. 9 Cat Bird Alley Holmdel, NJ 07733 908-902-3246 www.ecsalvage.com East Coast Sales & Salvage Inc. is a full service salvage company who specializes in the recovery of a large variety of damaged and distressed merchandise. We also provide catastrophe services including debris removal, inventory services, and salvage consulting.

Scope Solutions 4883 E La Palma Ave Anaheim, CA 92807 888-726-7324 www.scopesolutions.com Quality research & replacement services, a leader in the industry, providing excellent service, while competitively pricing like kind and quality replacements, for over a decade.

RCF Salvage 700A Remington Rd Schaumburg, IL 60173 847-310-8400 www.rcfsalvage.com RCF Salvage through its 10 offices – mitigates, documents, provides valuations, and superior returns on all your losses – retail, commodities, manufacturing, transit, and equipment.

Fall 2013 | Claims Journal 19

SPECIAL REPORT | TEMPORARY HOUSING

Why Some Policyholders Need Creative, Customized Temporary Housing Programs

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olicyholders come in all shapes and sizes, including young couples just starting out in their first homes, luxury homeowners and seniors with special housing considerations. They all share a common desire for solid coverage for their most valued investment — their home. When disaster strikes, they want their temporary living option to provide the

By Joan McCarthy Mack comforts of home.

The insurance company able to quickly assess and provide a customized housing solution that meets their unique needs will become a policyholder’s trusted advisor — building loyalty and increased referral business.

Depending on the type and severity of the loss, there are several elements to consider when determining the right temporary housing provider to offer your policyholders. They may need a hotel room for a couple of nights, a furnished apartment for a month, or even a single-family home in a specific school district for a year or more. Most temporary housing providers should be able to offer the basics. For a solution tailored to unique policyholder needs, however, there are other factors to consider.

The following 10 questions will help you determine the right housing solution provider for your policyholders. When a crisis causes a loss, can you trust your provider will offer: 1. A wide range of housing options — i.e., hotel rooms, mobile homes, furnished apartments, multiple-bedroom homes, luxury homes?

2. Flexible leasing terms for short and long-term stays?

3. Guidance in adhering to additional living expense (ALE) policy limits?

4. Inventory in the cities and areas most in demand?

5. Around-the-clock customer care?

6. Dedicated insurance experts?

7. Flexible billing and invoicing options?

20 Claims Journal | Fall 2013

8. Customized programs to fit individual policyholder needs?

9. Creative solutions to challenges?

10. Alternative inventory for policyholders with special needs?

“It is important for housing providers to first and foremost learn who the insureds are and what their specific needs might be. This allows the provider to find the best possible fit,” said Travis Phifer, manager of catastrophe claims for Grange Insurance. “When a housing company is contacted for assistance, the insured has gone through one of the most difficult times of their lives — the loss of their most prized possession (their home).

So it is critical for the provider to show

empathy and true understanding of the insured’s loss and find that perfect fit for the insured to move their life forward.”

Senior Population Brings New Housing Challenges As policyholders age and are living longer than ever before, the requirements to maintain their life at home are changing considerably. In the United States, the number of seniors is expected to grow significantly in the next 15 to 20 years.

In fact, people age 65 or older represented about 12.9 percent of the population in 2000 but will increase to 19 percent of the population by 2030, according to the U.S. Department of Health and

“AIG is always looking to improve how high-end home sales (homes selling for we care for our policyholders,” said Frank more than $5 million) reached a record O’Brien, AIG’s assistant vice president, high in California in 2012. Sales of homes director of property claims for the United selling for $1 million or more rose almost States and Canada. “For example, our 27 percent from 2011 ‘It is important for housing to 2012. Other metro demographic of policyholders who own providers to first and fore- areas of the country high-end homes require specialty temmost learn who the insureds reporting a jump in porary accommodations if they become displaced, so we’ve been utilizing these are and what their specific sales of homes sellspecial housing inventories and programs. ing for $1 million or needs might be.’ more include Detroit, It’s important that we find the best ways to service this group’s high expectations Denver, Dallas and Phoenix.

Human Services and complex needs.”

Companies insuring homes worth $1 Administration on million or more should assess a temporary Aging.

Staying Flexible Companies should housing provider in several areas, includ Armed with this information, it doesn’t ing the ability to: consider a temporary take long to get a sense whether or not a housing provider that • Provide temporary housing in the right temporary housing provider is right for location, with proximity to the desired can provide alternayour company and will meet the diverse tives to accommodate neighborhood; needs of your policyholders.

• Address security concerns; the needs of seniors.

It really comes down to finding a flexi• Offer high-end amenities, such as an Special services, such ble partner that has the experience, invenindoor gym, swimming pool or even staff as onsite healthcare tory and creativity to respond instantly, living quarters. and living assistance place policyholders successfully — even Your temporary housing provider — especially for those with custom requirements — and should also be able to offer a VIP program those experiencing then support them completely. backed by the proper resources to fulfill injuries — won’t be policyholders’ custom requests. For examavailable in a typical ple, can they provide executive car service temporary apartment McCarthy Mack is vice president for Insurance when touring potential properties and an or home.

Housing Solutions at Oakwood Worldwide, a extensive network of real estate brokers For example, a global provider of corporate housing and serviced who cater to high-end clientele? client with a large apartments. senior policyholder base who needs these types of services will want a temporary housing provider who has relationships with assisted-living and retirement communities. In addition to housing, they can provide access to specialized services, such as meal programs, shuttles to local When it comes to vehicle accident reconstruction, shopping and onsite healthcare — giving policyholders a customized housing soluU.S. Forensic’s team of engineers knows exactly tion.

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With luxury home sales up in several areas around the country, the demand for special insurance services, including luxury temporary housing, will likely increase.

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Fall 2013 | Claims Journal 21

SPECIAL REPORT | ACCIDENT RECONSTRUCTION

3D image of a damaged truck.

3D image of a vehicle accident scene.

Preserving Evidence with 3D Laser Scanning

T

he site of a vehicular accident is by all accounts chaotic, with emergency personnel making their way to the scene.

Between this response and the subsequent clean-up process, a good deal of potential legal evidence moves, changes or otherwise disappears before investigators can make some headway

By Chris Zmijewski into what caused the accident.

A new surveying tool is helping forensic engineers and legal teams preserve the scene and its evidence so that detailed and accurate data can be used in causation analysis rather than relying on photographic evidence and field measurements alone.

How it Works Three-dimensional, high-definition laser surveying (3DLS) uses laser scanning technology to remotely measure spatial data. This technology digitally captures the dimensions and spatial relationship of objects using a line of laser light. The surveys involve collecting horizontal and vertical location points by reflecting light off of objects in a matrix and using that information to calculate the positions of those points on the objects’ surfaces. The scanner outputs a point cloud image, which accurately replicates the scanned objects. The point cloud data provides a highly detailed, accurate three-dimensional representation of ground surfaces, structures, vehicles and 22 Claims Journal | Fall 2013

anything else in the scene.

This kind of data can be of great value for forensic and legal purposes.

Animations and modeling can help reconstruct a scene, but laser surveying uses exact, geo-positioned field data. With laser surveying, all of the spatial relationships and conditions of the scene appear exactly as they did in real life. Dimensions, elevations, depth, length, size and spacing of evidence no longer require photographic interpretation.

Laser scanning offers a number of other benefits.

Speed. Laser scanning involves very little equipment — the scanner and a laptop. A crew of one or two people can get to the scene and set up very quickly. This rapid response prevents the opportunity for changes to the site that a longer delay might allow. In addition, the scanning itself can take as little as a few hours to a day to complete, depending on the scale of the site. Using traditional survey methods, crews often spend days on field measurements, plotting out a grid and measuring data points by hand or using customary survey instruments. Survey crews are often forced to focus only on critical areas and items rather than capturing the entire scene.

Safety. Personnel using traditional surveying methods and instruments must have complete access to all areas involved in the accident scene. This often means complete traffic and lane closures as the survey team needs the ability to either

hand measure or make physical observations. This process is very time consuming and involves a great deal of concentrated effort on the part of the field crew to capture important information as well as succumbing to the pressures of an eventual time frame and the need to open the public right-of-way. In fact, the California Department of Transportation “Caltrans” published and developed standards for the use of 3DLS into day-to-day survey operations, having determined the benefits of laser scanning in highway survey applications included a decreased risk of casualties.

A major benefit of 3DLS is the ability to capture existing conditions by non-contact means. Since the laser works on the principal of recording the emission of a calculated laser beam to record the surface of an object, operators can often work safely from the medians, shoulders of roadways and more particularly out of harm’s way of moving vehicular traffic.

Preservation of Evidence. The speed with which laser scanning equipment can detail an accident site is crucial to preserving potential evidence for the ensuing legal case. When accidents occur, investigators using 3DLS can quickly scan a scene and begin piecing elements together before clean-up begins and details are altered.

The technology has proven to be of great value to attorneys and insurance representatives. At an accident scene in Tennessee, state police roped off a scene of a fatal crash, which prevented independent foren-

3D scanning team.

sic teams from entering the area. The scene was scanned from beyond the tape, collecting data and producing images before the first person entered the site. These scans can accurately document pre- and post-accident conditions and produce a reliable foundation to support the admissibility of any evidence based on them.

Accurate Spatial Relationships. The data produced by 3DLS is so accurate that investigators can clearly determine where all components of a site were located before and after an accident. With traditional site investigations, forensic engineers photograph all angles of a site and piece them together to recreate the position of the elements along with field measurements. But because each photograph is separated and slightly distorted from the next, interpretation is still necessary. That guesswork is eliminated with 3DLS. Photographic Appearance. The incorporation of digital photos into 3D point cloud data sets has emerged and improved over the past five years.

Additional applications of 3D imagery can include the combination of spherical photographs and measureable 3DLS data into a unified data management platform that allow users to virtually tour the site.

Coincidence scenes being surveyed can be supplemented with photographs. With the new software systems that are being developed, photographic and point cloud data can be linked with hot spots that give the viewer tour packages with powerful visual interface to link endless types of databases. These systems have proven to be a powerful means to represent findings and conclusions in court.

3D tour map showing where debris landed as a result of the explosion in February 2013 at the Navidad Weldon Gas Processing Plant in Houston.

Processing Data. Perhaps most important is the resulting variety of products the 3D laser scans generate. Not only do they produce rotating 3D scans of a site, but they also can be converted quickly into 2D drawings that are compatible with engineers’ in-house CAD systems. In other words, one scanning session using 3D laser scanning can provide 3D images that can be manipulated to show all points of view, 2D AutoCAD drawings that the engineers can work from, and 3D models that can be used for litigation and court proceedings.

Moreover, the technology can perform scans of undamaged pieces of equipment identical to those that have broken or failed. These scans are then superimposed onto the scans of damaged equipment, providing a better understanding of how accidents occurred. For accident sites like vehicular crashes, this can help forensic engineers immensely.

The most useful thing about laser scanning is during court presentations.

After an accident, CAD drawings in combination with 3D scans can be a powerful visual representation of what happened.

They show where vehicles were located at certain points and where they hit other objects, working backwards to determine how everything happened.

Mechanism of Failure. Having access to these kinds of vantage points allows investigators to work backwards to determine the order of incidence, or what happened to vehicles as they crashed, all the way back to initiation. In an automobile incident, for instance, 3D scans and CAD drawings can be combined to determine where the vehicles and components were

located at certain points along the timeline and where and how they hit other objects. Even more important is the ability to use the recreations to confirm or disprove conditions others may claim.

When called for, 3DLS also allows forensic teams to digitally reintroduce previously removed objects, which can help recreate circumstances more accurately than photos or modeling alone. It is common, for instance, that accident scenes occur in remote or challenging areas. When pieces or evidence are removed from an accident scene, a scanning team can document the evidence in a warehouse or storage yard and place them back into the as-built scene. While this is similar to photographic recreation, scanning provides a much more accurate representation of each element, making the resulting model or simulation more reliable and persuasive.

Legal Lasers Laser scanning is indeed proving to be an extremely useful tool for legal cases, including everything from vehicular accidents, construction and crane collapses to explosions and fires. Scans can show burn and debris patterns, the conditions of walls and facades, and other potential evidence for these often complex types of cases. In complex property damage and construction accident cases, quick response time and reliable preservation of evidence are often crucial issues. 3D laser scanning is another useful tool in the construction lawyer’s toolbox.

Zmijewski is vice president of Haag 3D Solutions, the digital imaging and mapping unit of Haag Engineering.

Fall 2013 | Claims Journal 23

SPECIAL REPORT

24 Claims Journal | Fall 2013

By Denise Johnson

T

he commercial trucking industry has come a long way in improving safety for drivers. Even so, a large portion of trucks on the road today — some 8.2 million single unit trucks — remain exempt from critical safety rules required of larger tractor trailers.

Single unit trucks represent more than three-quarters of all large trucks on U.S. roads and such safety exemptions has some transportation experts concerned.

The crash index for single unit trucks is on the rise while the number of crashes for large trucks has declined, according to a study from the American Transportation Research Institute.

Better driver training, commercial driver’s license requirements, a universally-adhered to weight classification system and enhanced truck safety equipment to improve safety and reduce crashes are ways the industry can improve results, according to a recent report by the National Transportation Safety Board (NTSB).

Improvements are critical to saving lives, the experts say. During 2005 to 2009, 1,800 people died on average each year as a result of accidents with single unit trucks.

And a majority of hospitalizations in the trucking sector have stemmed from vehicle crashes involving single unit trucks.

“In terms of proportion, because of the size of the fleet, close to 60 percent of all hospitalizations involve single unit trucks,” said Dr. Mark R. Resekind, during a NTSB board meeting held in June to discuss the findings of a safety study on single unit truck crashes.

Single unit trucks are ubiquitous — ranging from large pickups and garbage trucks to home fuel oil trucks, delivery vans, utility trucks, dump trucks, cement trucks and even furniture trucks. Single unit trucks carry cargo that does not detach from the cab with all axles on the same frame. And unlike large tractor trailers, single unit trucks do much of their travel on city and state roadways, not on interstates, according to Debbie A.P. Hersman, NTSB chairman.

The U.S. Department of Transportation defines large trucks as those with a gross vehicle weight ratings over 10,000 pounds.

safety and compliance expert. The deadThis broad definition opens the door to line to comply with the new law was just about anyone driving a commercial April 1, 1992. That law led to a new definitruck, said Rob Abbott, vice president of tion of a commercial motor vehicle. safety policy for the American Trucking “Prior to that, a commercial motor vehiAssociations. cle was defined as a vehicle having a gross “I don’t want to speculate but it’s important to understand that the trucking vehicle weight rating exceeding 10,000 pounds. That’s not a very big vehicle. In industry is comprised of anybody who fact, my pickup truck … weighs over operates a truck,” Abbott said.

8,000 pounds and it’s a one ton unit. It’s This could include landscapers or got a gross vehicle weight rating of almost plumbers or even the local food service company. “For them, trucking and perhaps 10,000 pounds,” Herbert said.

The new definition stated that opertruck safety is not their specialty. It’s not ators of commercial motor vehicles as their core competency, so that’s an issue,” defined in that section were required to Abbott said. They are also far more likely have commercial driver’s licenses issued to operate in more urban or congested areas where exposure is greater, and that’s according to the standard.

“The new definition was a vehicle hava big concern, he said. ing a gross vehicle weight rating exceed Large trucks pose a high risk of ing 26,000 pounds or designed, used or fatalities and they are more likely to be maintained to transport 15 or more passeninvolved in intersection accidents, accordgers, including the driver,” said Herbert. ing to the NTSB. And while single unit But what it’s done is it’s opened up this truck accidents are not likely to cause the most severe injuries as compared to tractor definition of commercial motor vehicle of 26,001 pounds or more. You’ll see it trailer accidents, data revealed they were expressed both ways. One would be over involved in at least 37 percent of fatalities, 26,000 pounds and the other one would be 49 percent of in-patient hospitalizations 26,001 pounds or more, which basically is and 61 percent of emergency room visits. saying the same thing,” Herbert said.

The reason may be due, in part, to the According to Herbert, a problem lies fact that despite their size and similar in how truck manufacturers assign gross conspicuity impediments, single unit vehicle weight ratings where a truck cleartrucks are excluded from certain safety ly has the ability to rules applicable to carry much more tractor trailers, the Single unit trucks can experts claim. range from large pickups weight than the arbitrary gross vehicle and garbage trucks to weight classification Weight Class home fuel oil trucks, assigned to it.

Questioned “We have these A potential safety delivery vans, utility big, big trucks out improvement that trucks, dump trucks and there running up begins even before a even furniture trucks. and down the roads truck hits the road that have the ability deals with the actuto carry a lot of weight that have a gross al weight of a given single unit truck. vehicle weight rating assigned to them by “If you are operating a vehicle with a the manufacturer of 26,000 pounds, which gross vehicle rating of in excess of 26,000 is one pound under the threshold, interpounds, you must have a commercial estingly,” Herbert said. driver’s license (CDL),” said James Ritter, However, according to Herbert, the deputy director of the NTSB Office of weight of a single unit truck can be Research and Engineering. manipulated.

The Commercial Motor Vehicle Safety “If we looked at both of the axle Act of 1986 mandated all states to issue weights, steering axle and drive axle or commercial driver’s licenses to operators of commercial motor vehicles according to front and back axle and add them up, we’re well over the 26,000 pounds,” he a national standard, said V. Paul Herbert, a Calif.-based commercial motor vehicle continued on next page Fall 2013 | Claims Journal 25

SPECIAL REPORT continued from page 25 said. But the manufacturer doesn’t require a specialized driver’s license to drive these trucks. “And it’s not really based on the size of the truck, the weight of the truck, the weight carrying capacity of the truck.

It’s for a good part based on whether the industry’s interest in having these vehicles not required to be operated by a holder of a commercial driver’s license,” Herbert said.

CDL Requirements Although a truck may be operated commercially and weigh thousands of pounds, the driver may have the same driver’s license needed for driving his or her personal car.

For vehicles weighing less than 26,000 pounds, there is no mandatory drug and alcohol testing and no CDL requirement, according to Abbott.

In general, a CDL is a national licensing standard for vehicles over 26,000 pounds.

“Many states they will have a different license for them (single unit truck drivers) or some sort of classification,” Abbott said.

“It might be a general operator’s license with a commercial qualification to say they can operate these vehicles, but it doesn’t meet the federal CDL standards.”

According to the NTSB report, drivers of single unit trucks involved in fatal accidents are three times more likely to have invalid licenses than the drivers of tractor trailers involved in fatal accidents.

The rental truck industry is one example, Herbert said. Companies like U-Haul, Ryder and Penske that lease trucks to everyday automobile drivers don’t want to require those drivers to obtain a CDL. “It would be very difficult if those vehicles had to be operated by an operator of a commercial driver’s license. It would greatly hinder the business’s ability to rent out their trucks,” Herbert said.

Abbott conceded that consumers operating single unit trucks may lack experience.

“That being said, compared to the whole universe of trucks in that category, it’s probably a very small portion of that industry segment,” Abbott added.

Even so, there’s a higher risk of an accident when a heavy truck is combined with an unskilled driver, said Herbert.

“These trucks…have the ability to 26 Claims Journal | Fall 2013

carry much more weight than their gross vehicle weight rating is assigned. They’re operated by people, sometimes, who are not very experienced in trucking operations, especially, let’s say, descending long downhill grades. I’m working on a case right now involving a truck that was hauling carpeting from the east coast, and it made it all the way out here to California, before descending a long, steep grade with a very heavy load of carpeting,” Herbert said.

“This truck was overloaded, unbeknownst to the people. They didn’t have a clue how much weight that truck could carry or should be carrying. They went down a long steep grade, didn’t go down in the proper gear, became a runaway situation and was involved in a serious accident down towards the bottom of the hill,” Herbert said.

The combination of an unskilled driver and a heavy truck can have dire consequences.

“These drivers are driving trucks that are every bit as wide as a big rig, a tractor trailer rig. They have huge blind spots associated with them, but these drivers receive no specialized training on how to use gears, how to compensate or keep inventory of their blind spots and how to deal with them,” he said.

Herbert also noted that straight trucks have blind spots and maneuvering difficulties.

These factors correlate with truck accident research by the Federal Motor Carrier Safety Administration.

“When we look at the reasons for crashes, in roughly 10 percent of the instances, a vehicle defect is the cause or can be pointed to as the reason for the crash,” Abbott said. But in 90 percent of the cases the crash is related to driver behavior.

“What we really need to look at is what are the minimum standards for hiring and licensing these drivers and what are we doing to monitor their behavior on the roadway,” Abbott said.

Equipment & Technology Despite sharing some of the same safety concerns as large tractor trailers such as maneuvering and blind spot issues, no safe-

ty equipment requirements, like onboard recording devices or underride guards — which protect cars from getting stuck beneath a large truck — currently exist for single unit trucks.

The NTSB report found that half of all collisions between passenger vehicles and the side of single unit trucks resulting in injury involved underride.

In addition, the rate of serious injuries and hospitalizations are higher in collisions occurring at night. The NTSB report found that injury rates could be reduced by conspicuity improvements.

“It costs well under $100 per vehicle to equip it with a retro reflective tape. That is certainly cost-effective,” Dr. Ellen Braver said during the NTSB board meeting.

“What is interesting, too, is the issue of pedestrians. Comdex Crossover Mirrors are so inexpensive — the city of New York requires them as a retrofit,” she said.

“Conspicuity, there is strong evidence for how effective that is.”

The report also found that single unit trucks are involved in a third of all large truck rollovers and single vehicle run off accidents — two types of accidents that can be mitigated by electronic stability control systems.

As a result of the study of single unit truck crashes, the NTSB recommended the following: • Requiring onboard systems and equipment that compensate for blind spots; • Requiring underride detection systems like those on tractor trailers; • Requiring electronic stability control systems, lane departure systems, adaptive control and collision warning systems; • Creating a national repository of location-based information for accidents; and • Requiring commercial drivers’ licenses for operators of single unit trucks.

DEPARTMENTS

BUSINESS MOVES

KKR, Mitchell KKR & Co., a private-equity firm, agreed to buy Mitchell International Inc. from Aurora Capital Group, a Los Angelesbased private-equity firm, in a transaction valued at more than $1 billion, including debt.

Mitchell, based in San Diego, provides claims processing technology to insurance companies and collision repair facilities.

Aurora bought Mitchell for an estimated $500 million in 2007, with General Electric Pension Trust co-investing in the purchase. The company previously was owned by private-equity firm The companies expect the buyout to close by the end of the year.

American Family, Homesite Group Madison, Wis.-based American Family Insurance agreed to acquire direct homeowners insurer, Homesite Group Inc. The acquisition of Homesite, a direct writer of homeowners, renters and condominium insurance based in Boston, will be finalized by the end of the year, pending regulatory approval. American Family is acquiring Homesite for an anticipated $616 million.

The move strengthens American Family’s position in the marketplace by complementing its strong exclusive agent network with direct channel options to serve a different customer segment.

Agents will remain the company’s prima-

ry distribution channel, said Jack Salzwedel, American Family chairman and CEO. The purchase is the second time in less than a year that American Family has acquired a direct property/casualty insurance company.

American Family purchased non-standard auto insurer Permanent General Cos. at the end of 2012.

Homesite is privately owned by multiple entities and individuals. Owners include Alleghany Corp., Metalmark Capital through its management of the Morgan Stanley Capital Partners funds and The Plymouth Rock Co. Inc. Homesite was founded in 1997 and offers products in 46 states and the District of Columbia. The company is the 24th largest homeowners’ insurer in the U.S., with 2012 written premium of $548 million.

Eagleview, Mobise EagleView Technologies, an aerial imagery technology company, has acquired all of the assets of Mobise Inc., a software company focused on bringing desktop workflow to mobile applications.

Mobise, a Redmond, Wash.-based company is known in the assessment community for Mobise Appraiser, a mobile application that extends the power of desktop appraisal to mobile devices for easy field review and workflow. The app provides the ability for users to consult and modify data while in the field, eliminating the need to re-key data and in turn, increasing accuracy for all types of field inspection.

The added capacity to capture and edit floor plans, photos and notes directly from the field while integrating them into a relational database such as Pictometry CONNECT, has made Mobise Appraiser of great interest to assessment offices throughout the nation.

VeriClaim, Property Claims Services T&H Global Holdings LLC (T&H), a specialized provider of insurance claims services to insurance carriers, insurance brokers, corporations and public entities, announced that its VeriClaim subsidiary has acquired Property Claims Services Inc. (PCS), a provider of loss adjusting and claims handling services to the property/ casualty insurance market.

Based in Dallas, Texas, PCS specializes in both property and liability claims services including adjustments, investigations, appraisals and surveys.

T&H is majority owned by Flexpoint Ford, LLC, a leading private equity firm specializing in the financial services and healthcare sectors.

Progressive In 2013, Progressive Insurance plans to open nine new service centers across the country, for a total of 63 service centers nationwide.

Progressive will open several new locations nationwide in 2013: Silver Spring, Md.; Malvern, Pa.; South Plainfield, N.J.; Pasadena, Calif.; La Vista, Neb.; Westwood, Mass.; Dayton, Ohio; Sacramento, Calif.; and Baton Rouge, La. MAXIMUS MAXIMUS, a provider of government services worldwide, launched of operations under two separate two-year contracts with the California Division of Workers’ Compensation to provide independent medical review and independent bill review services.

The combined value of both contracts is estimated to be up to $40 million over the two-year period.

Under the Independent Medical Review contract, MAXIMUS professionals will provide independent medical reviews of denied authorization requests or payments for medical services. The reviews are provided by a team of independent professional staff. Under the Independent Bill Review contract the company will provide review services for payment disputes between providers and claims administrators.

Fall 2013 | Claims Journal 27

IDEA EXCHANGE | COVERAGE CORNER

Bloggers Beware: Defamation Claims Brought by Public Figure Plaintiffs

I

t takes thick skin to be in the public eye. As Supreme Court Justice Antonin Scalia once observed, “harsh criticism, short of unlawful action, is a price our people have traditionally been willing to pay for self-governance. Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.”

(See John Doe No. 1

By Clayton N. Matheson v. Reed, 130 S. Ct. 2811, 2837, 2010).

But when criticism goes beyond the realm of lawfulness and includes statements that are libelous or slanderous, how do public figures & David A. Jones

28 Claims Journal | Fall 2013

respond? Most ignore it or say they never heard it in the first place. Sometimes, the public figure sues for defamation. What happens then?

If the alleged defamer is an individual, his or her homeowner’s insurance probably will be in play. Homeowner’s insurance? In a defamation case? Yep. Strange as it may seem, most homeowner’s policies cover claims for defamation and related torts, libel and slander.

These torts fall within the standard policy’s “personal injury” coverage. Most people will never be sued for defamation.

But with the rise of social media activity and special-interest blogging, this coverage is of increasing importance.

As of December 2011, bloggers had suffered $47 million in adverse defamation judgments. (See Dan Springer, A $2.5 Million Libel Judgment Brings the Question: Are Bloggers Journalists?, FoxNews.com (Dec. 22, 2011), available at http://www.foxnews. com/us/2011/12/22/bloggers-not-journalists/. In

2009, the total number was only $17 million.)

While most defendants are media companies and professional journalists who generally are covered by a media or commercial general liability policy, amateur bloggers and other more casual Internet users are frequent targets.

Defamation Coverage Policyholders and insurers, as well as insurance agents and brokers who deal with homeowner’s policies, should be aware of this coverage. They also should know its limits, as not all defamation claims are covered.

A typical “business activities” exclusion, for example, would preclude coverage if the insured made the defamatory statements for economic gain. Also common is the “knowledge of falsity” exclusion, which would apply if the insured knew what he or she said or typed was false.

Even if an exclusion ultimately may relieve an insurer of liability for an adverse

judgment or settlement, the insurer still might be obligated to pay for the insured’s defense.

As a general rule, an insurer’s “duty to defend” is broader than its “duty to indemnify.” When an insured is sued, the duty to indemnify does not arise until the insured loses at trial or settles with the plaintiff. Even then, the insurer can refuse to indemnify the insured if the conduct giving rise to the insured’s liability falls within an exclusion.

By contrast, the duty to defend is triggered whenever the allegations in the plaintiff’s complaint against the insured could result in a covered loss. This is so even if the plaintiff alleges other facts implicating an exclusion that would negate coverage. The duty to defend continues until the insurer can definitively establish the exclusion’s applicability.

Before denying coverage for an insured’s defense, the insurer must be able to prove that the only fair reading of the plaintiff’s complaint “leads to one inevitable conclusion” — i.e., that the allegations against the insured unmistakably fall within an exclusion and thus could never result in a covered loss. (See Burlington Ins. v. Sup. Nationwide Logistics, Ltd., 783 F. Supp. 2d 958, 961 (S.D. Tex. 2010)) As a matter of public policy, an insurer usually may not use extrinsic evidence in assessing its duty to defend. The insurer may only compare the allegations in the complaint to the terms of the policy.

If the plaintiff alleges that the insured made a defamatory statement in connection with a nonprofit activity, for instance, the insurer may not invoke the business activities exclusion to deny a defense even if it has reason to believe that the insured was being paid. The insurer could prove this in a contemporaneous declaratory judgment action. But in the meantime, it remains contractually liable for the insured’s defense costs.

Intentional Acts Exclusions These issues come to a head when considering the standard “intentional acts” exclusion. Although defamation commonly is thought of as an intentional tort, most states recognize claims for negligent or reckless defamation.

This means the plaintiff need not prove

that the defendant deliberately lied or meant to cause harm.

As Seventh Circuit Judge Richard Posner explained: “[D]efamation is often not intended or expected to injure anyone.

The defamer may have made a good-faith though inadequate attempt to conceal the victim’s name, may have thought the victim’s reputation already impaired beyond possibility of further damage, or the most common case, may have thought the defamatory statement true, in which event there would be no injury in a legal sense.”

(See Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 746, 7th Cir. 2001).

Because the plaintiff usually can prevail without proving intent, there almost always will be a duty to defend.

Otherwise, the scope of the intentional acts exclusion would be so broad as to render the coverage for defamation illusory.

It is for this reason that in most insurance-related defamation cases, the insurer can’t rely on an intentional acts or similar exclusion to deny the insured a defense.

Public Figures The analysis, however, does not end here. If the plaintiff is a public figure, such as a politician, celebrity, or prominent businessman, the insurer may be able to invoke the intentional acts exclusion to deny not only its duty to indemnify, but also its duty to defend. This is so because for a public figure plaintiff, a showing of mere negligence or recklessness will not suffice.

Under the First Amendment, a public figure may not recover damages for a defamation-type tort “unless clear and convincing evidence proves that a false and defamatory statement was published with ‘actual malice’ — that is, with knowledge that it was false or with reckless disregard of whether it was false or not.” (See N.Y. Times Co. v. Sullivan, 376 U.S. 254, 285-86, 1964).

A public figure plaintiff therefore must prove either actual intent, or at a minimum, “reckless disregard,” which in this context means acting with “a high degree of awareness of the probable falsity of the statement or [with] serious doubts as to the publication’s truth.” (See St. Amant v.

Thompson, 390 U.S. 727, 731, 1968).

The actual malice inquiry “is thus a sub-

jective one, focusing upon the state of mind of the publisher of the allegedly libelous statements at the time of publication.” (See Kipper v. NYP Holdings Co., Inc., 912 N.E.2d 26, 29, N.Y. 2009). The plaintiff must establish that the defendant knew his or her statement was false, or that the defendant subjectively intended for the statement to cause harm. Either way, the allegations in the plaintiff’s complaint, if proven, necessarily would trigger the intentional acts exclusion. The plaintiff’s complaint could not even potentially result in a covered claim, and the defendant’s insurer could invoke the exclusion to deny its duty to defend.

Whether a court will let an insurer disclaim the duty to defend in a defamation suit filed by a public figure plaintiff remains to be seen. We could not find a case addressing the intentional acts exclusion in this context. But as blogging and other forms of amateur online journalism become more prevalent, anyone who buys or sells homeowner’s insurance should know about the intentional acts exclusion and its impact on the defamation coverage.

Most people probably don’t read every word of their homeowner’s policies. So they may not know that defamation claims are covered. Many insurers may not yet realize they have grounds for denying that coverage either. But they undoubtedly will learn.

Insurance agents and brokers need to be vigilant when explaining policy terms to prospective insureds. After all, policyholders whose claims are denied often look to their agents or brokers for indemnity. To protect themselves, agents and brokers should not only highlight for their clients the “personal injury” provisions specifying defamation as a covered claim, but they also should clarify how those provisions interplay with the intentional acts and other potentially applicable exclusions.

Matheson is an associate in the San Antonio office of Akin Gump Strauss Hauer & Feld LLP. Jones is a partner in the firm’s San Antonio office.

Fall 2013 | Claims Journal 29

IDEA EXCHANGE | BEST PRACTICES

5 Deposition Pitfalls for Claims Adjusters Involved in Coverage Cases

A

n adjuster’s deposition, if relevant and well-prepared, can provide the backbone of a strong defense, assuming defense counsel and the adjuster can avoid some deposition traps. A few of the common pitfalls to avoid are described below.

Pitfall #1: Is The Adjuster’s Deposition Relevant or Necessary?

By Julie E. Nichols The first question should be whether the adjuster’s deposition has any valid purpose. A policyholder’s attorney may request the deposition of the claims adjuster in a coverage case even though many insurance coverage cases do not merit an adjuster’s deposition. In many states, the duty to defend pertains to a question of law, specifically whether the complaint gives rise to a duty to defend.

Many states adhere to the “four corners”

30 Claims Journal | Fall 2013

“bad faith” as a means to depose the rule that allows the judge to compare the adjuster because improper claims haninsurance policy to the “four corners” of the complaint to determine whether there dling is a central component of such cases. If the adjuster did not properly is any duty to defend. There is little reason for an adjuster to testify in that regard handle the claim or committed some egregious act, then the adjuster’s actions because any such testimony likely would may provide fodder for the bad faith case. be irrelevant or inadmissible. An adjuster But if there is no coverage, should ask defense counThe first question then the adjuster’s actions sel if the deposition is necessary or appropriate should be whether may not matter. Even if the adjuster mishandled in such circumstances. the adjuster’s the claim and committed The same could be said for the duty to indemnify. deposition has any “bad faith,” such actions valid purpose. arguably would not Usually the parties have “cause” damages if there investigated the relevant was no coverage in the first instance. An facts in the underlying case, which may argument may exist, depending on the have reached trial or settlement. There jurisdiction, that there is no need for an may be trial testimony or, if the case setadjuster’s deposition until coverage has tled, depositions and written discovery been determined. that provide the relevant facts. If the facts are undisputed, then there may be little Pitfall #2: that an adjuster’s deposition may add to Lack of Preparation the case.

Assuming the deposition proceeds, Attorneys tend to allege an insurer’s

which is common, a good theme and opposing counsel may inquire about the invoke insurance regulations. Common actions or decisions of other persons with- timeline can preempt potential problems. questions pertain to documents that If there was an error somewhere along in the company who may have touched the company is required to keep, but an the chain, be prepared to explain it and the claims file. An adjuster may know his adjuster may not know that regulation or directly address it. or her own actions with respect to the have taken the time to comply with it. file, but perhaps is not familiar with those One example may be a question pertainPitfall #3: of the initial intake personnel or a prior ing to other bad faith complaints against Claims Manual adjuster. the insurer in the last five years. Perhaps Another common deposition trap is for An opposing attorney may try to “trap” a regulation requires the company to opposing counsel to ask questions about an adjuster by asking questions that elicit maintain those records and the adjuster the claims manual. Often prior discovery one approach even though a co-worker responds to questions by stating that the requests have sought the claims manual may have taken another. Imagine that an company does not have such records. The or guidelines and, if all adjuster admits to always adjuster has admitted to violation of a reggoes well, defense counsel obtaining certain inforulation, which may not even be true.

A good deposition has addressed the issue. mation from the insured Be familiar with any insurance regulafollows good But sometimes the issue and even mentions that it tions in the relevant state. Ask defense preparation. surfaces for the first time may be company policy to counsel. at deposition. do so. Then the attorney For example, if the case involves cancel Insurers may be required by state reguprovides an email from a different adjustlation of an insurance policy, review any lations to maintain insurance policies and er contradicting that testimony. Such state insurance regulations as to the propprocedures. Often adjusters fail to procontradictions, even if irrelevant, seriously er method of cancellation and any necesduce any policies or state that it is “within sary documents that the company must challenge the adjuster’s competence and their discretion and training” about how truthfulness. retain. Or if the case concerns bad faith, to handle a claim. Beware of such actions.

The solution is to know the file intithen review any regulations or statutes as Company guidelines now may be availmately. A good deposition follows good to unfair insurance practices. able on the internet or on the company’s preparation. external website. Sometimes the compa Prepare an outline or timeline of the Pitfall #5: ny’s marketers post or provide copies of events that transpired and be comfortable The Video Deposition policies or make statements that may conwith it. Review all prior testimony in the Opposing attorneys often prefer to vidtradict an adjuster’s usual practice. Read case and be prepared to tackle any inconeotape the adjuster’s deposition because the website and check sistencies. The adjuster should be fully it adds tension to the Another common with counsel about prepared to handle questions pertaining deposition. An adjuster any policies. to the entire file, including deposition trap is for is well-advised to ask Prepared attorneys actions taken by others counsel prior to opposing counsel to defense now search the interin the company. All the deposition if there will ask questions about be video. net and many court emails, documents the claims manual. Preparation is key. websites to check and policies should be various company proreviewed. Remove and The adjuster will have to cedures or practices. A case in New redact any discussions be prepared in the same manner as trial.

York may involve the same Dress should be professional. The other insurer and New York attorgeneral trial rules apply, such as maintainneys may have attached coming eye contact, remaining calm, correctly pany policies and procedures enunciating words and providing slow, that become relevant to an adjuster complete answers. handling an Ohio case. Defense counsel Jurors may dislike insurers from the should check the various databases for start so any slight adjuster error reinforces with such inconsistencies, but an adjuster is this view. An adjuster who appears forthcounsel. well-advised to discuss the matter with right, calm, confident and engaged can

Defense general or in-house counsel to see if any save a case. counsel and the internal policies or procedures have been adjuster should produced in other cases nationwide. work together to Nichols is an attorney with Collins Einhorn Fardevelop a comrell, P.C. in Southfield, Mich. She has more than Pitfall #4: mon theme at the 12 years of experience in insurance coverage and Insurance Regulations deposition. Even indemnity contract matters, including preparing Another common pitfall arises from if the file was not opinions, declaratory judgment actions and other benign questions that surreptitiously handled perfectly, litigation.

Fall 2013 | Claims Journal 31

IDEA EXCHANGE | BURKE’S LAW

The Changing Landscape of Defective Construction Claims and Commercial General Liability Policies overage for defective construction claims under commercial general liability (CGL) policies remains an important and frequently contested issue, and the last year has seen significant developments on the issue.

Courts have taken varying approaches to the question and applied different parts of the CGL policy as they define the legal

By Burke Coleman framework for analyzing the issue. As the landscape changes, insurers, contractors and damaged parties must be aware of the legal analyses and differing approaches.

Last year, the Ohio Supreme Court determined that defective construction itself does not trigger coverage.

C

a hard-line approach and found that faulty workmanship lacks the requisite fortuity to constitute an “occurrence” under the policy. The court reasoned that a CGL policy is not intended to protect contractors against every risk of operating a business and does not insure against the insured’s faulty work itself. Rather, a CGL policy insures only the consequential damages to other property that may stem from that work. The decision forecloses any arguments that defective work itself may be covered, but acknowledges that collateral damage to non-defective property may constitute an occurrence and trigger coverage.

Recent decisions from other states, however, have determined that defective construction does constitute an “occurrence,” although coverage may still be precluded by other parts of the policy.

Westfield v. Custom Agri Systems In Westfield Ins. Co. v. Custom Agri Systems, Inc., 2012 Ohio 4712, the court took

Taylor Morrison Services v.

HDI-Gerling America In Taylor Morrison Services, Inc. v. HDI-

32 Claims Journal | Fall 2013

Gerling America Ins. Co., 2013 Ga. LEXIS 618, the Georgia Supreme Court observed that “the limits of coverage do not all have to be found in the word ‘occurrence,’ inasmuch as the other words of the insuring agreement — as well as the policy exclusions — have their own roles to play in marking the limits of coverage. The sounder analytical approach is to avoid conflating the several requirements of the insuring agreement and the exclusions, and instead, to let each serve its proper purpose.”

The court held that faulty workmanship could be an “occurrence,” even absent third-party property damage, but that other steps in the analysis could still limit coverage. The court noted that the insuring agreement requires the occurrence to result in “property damage,” which typically does not include the faulty work itself but rather applies only to damage to non-defective property.

“CGL coverage generally is intended to

insure against liabilities to third parties for injury to property or person, but not mere liabilities for the repair or correction of the faulty workmanship of the insured.”

While the decision may be helpful to policyholders, the definition of “property damage” and policy exclusions likely still restrict coverage for the faulty work.

refused to distinguish between damage to the contractor’s work and damage to other property (like the Ohio court had done). The court did not detail its analysis addressing the “property damage” requirement but, in overturning its previous decision, found that property damage included damage to the work product.

The decision appears to be even broader than those issued by Connecticut and Georgia, and could allow for coverage for the defective work itself.

Capstone Building v. Am. Motorists In Capstone Building Corp. v. Am. Motorists Ins. Co., 2013 Conn. LEXIS 187, the Connecticut Supreme Court also concluded that unintended defective construction Cherrington v. Erie Similarly, in Cherrington v. Erie Ins. could constitute an “occurrence.”

Prop. & Cas. Co., 2013 W.Va. LEXIS 724, The court found that negligent work the Supreme Court of Appeals of West performed by the insured is unintentional Virginia reversed long-standing precedent and therefore accidental. But, continuin the state and determined that defective ing the analysis, the court held that the construction can be an “occurrence” and faulty work itself did not fit within the that faulty work itself may constitute definition of “property damage” required “property to trigger coverage, stating that “the Recent decisions have marked damage.”

Signifipolicy covers claims some significant changes in cantly, the for property damage caused by defective the legal approach to defective court also interpreted work, but not claims construction claims. the policy’s for repair of the exclusions in favor of the policyholder. defective work itself.”

The policy at issue included a “your work” Accordingly, while defective work may exclusion that excluded coverage for work constitute an occurrence, only damage to performed by the insured, but subcontracnon-defective property may be entitled to coverage, subject to the policy’s exclusions. tors were excepted from the exclusion.

Another exclusion precluded coverage Addressing those exclusions, the court for “your work” and for work performed found that the “your work” exclusion precluded coverage for faulty work performed by “others on your behalf.”

Finding that the two exclusions conby the insured but that work performed flicted — with one providing coverage for by subcontractors did not fall within that the work of subcontractors and the other exclusion and could still be covered. excluding it — the court refused to allow Like the decision in Georgia, the ruling the policy to give coverage in one excluexpands the potential scope of coverage sion and then take away that coverage in for faulty workmanship, but other lanthe very next exclusion. Accordingly, the guage within the insuring agreement and court found that the subcontractor exceppolicy exclusions may limit coverage oblition to the “your work” exclusion allowed gations. for coverage for the subcontractor’s defective work.

K&L Homes v. Am. Family Mutual The ruling is decidedly favorable for The North Dakota Supreme Court has policyholders and subjects taken an even broader approach to the insurers to significant covissue. In K & L Homes, Inc. v. Am. Family erage and defense obligaMut. Ins. Co., 2013 ND 57, the court overtions. turned previous case law and found that “occurrence” includes construction defects Significant if the faulty work was unexpected and Changes unintended by the insured.

These recent In its analysis of “occurrence,” the court

decisions have marked some significant changes in the legal approach to defective construction claims.

Many courts are now conceding that defective construction is an “occurrence,” but other language in the insuring agreement and exceptions to coverage may still limit coverage obligations. While Ohio has restricted insurers’ obligations, other states have loosened the analysis to varying degrees.

It is important for all parties to understand the varying approaches and the analyses undertaken when determining potential rights and obligations for defective construction claims under CGL policies.

Coleman is legal counsel and compliance manager for Demotech Inc. Demotech provides actuarial consulting and Financial Stability Ratings® (FSRs) for property and casualty insurance companies and title underwriters. This article is for informational purposes only, is not intended as legal advice, and is not a substitute for independent legal analysis and advice on a particular issue.

Email: bcoleman@demotech.com.

Fall 2013 | Claims Journal 33

IDEA EXCHANGE | ESSENTIALS

Negligent Infliction of Emotional Distress Claims and Uninsured Motorists/Under Insured Motorists Coverage

M

ost jurisdictions recognize a cause of action for negligent infliction of emotional distress (NIED). Under this type of cause of action there can be a monetary award of emotional distress damages without a direct physical injury to the victim. Is an NIED claim covered

by Uninsured Motorists/ Under Insured Motorists

By Steven Plitt (UM/UIM) policies?

NIED claims are relatively rare given the unique factual predicate that typically gives rise to the cause of action. Most claim adjusters do not have experience in answering the question of whether NIED claims are covered by UM/UIM policies.

Mental or Emotional Distress The majority of courts that have addressed this question have concluded that “bodily injury” under the police does not include mental or emotional distress 34 Claims Journal | Fall 2013

insured pursued an NIED claim in the absent a physical injury to the insured.

UIM context stemming from the death (See, e.g., National Fire Ins. Co. of Hartford v. of her sister in a car accident. The Johnson NWM-Oklahoma LLC, Inc., 546 F.Supp.2nd court concluded that the “policy clearly 1238, 1246 (W.D. Okla. 2008); Home Ins. Co. states, to be covered … [the insured] must v. Hartford Fire Ins. Co., 379 F.Supp.2d 1282, have sustained ‘bodily injury’ caused by an 1289 (M.D. Ala. 2005); Garrison v. Bickford, accident … [a]lthough she certainly sus377 S.W.3d 659, 666-67 (Tenn. 2012); Daley v. Allstate Ins. Co., 135 Wash.2d 777, 958 P.2d Most adjusters do not have experience in 990 (1998)) An example of this answering the question of whether NIED claims are covered by UM/UIM policies. viewpoint can be seen in Citizens Ins. Co. of America v. Leiendecker, 962 S.W.2d 446, tained emotional injury, [the insured] was not involved in and did not receive bodily 454 (Mo. Ct. App. 1998) where the court injuries from the accident that caused the observed that “[i]n dictionary definitions, death of her sister.” Consequently, the ‘bodily’ is equated with ‘physical’ … as Johnson court found that the insured’s UIM contrasted with ‘mental.’” Thus, “‘bodily “claims were effectively excluded from injury’ … refers to physical conditions of coverage by the policy language.” the body and excludes mental suffering or A minority of courts have found covemotional distress.” erage for NIED claims. See, e.g., Evans v.

Another example can be seen in Johnson Farmers Ins. Exchange, 34 P.3d 284, 286-87 v. American Family Ins., 160 Ohio App.3d (Wyo. 2001) and Ryder v. USAA General 392, 827 N.E.2d 403, 404 (2005), where the

are emotional-based claims that appear to overlap. If they are treated separately, a specific allocation of value must be made between loss of consortium type injury versus NIED injury. The adjustment process must be specific and focused on discovering the boundary line.

Plitt is a nationally recognized expert in insurance law. He has authored numerous insurance treatises and articles. He has a national expert witness practice. Email: SP@kunzlegal.com

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Courts Split on Issue A review of the cases that have addressed the issue does not bring clarity to the analysis. The courts are split on the issues, and therefore claim adjusters should pursue a legal analysis of the NIED question under the state law governing the interpretation of the insurance policy.

Where a particular state has held that NIED claims are covered under the terms of standard UM/UIM policies and have also held that the NIED claims fall under the same bodily injury applicable to the physically injured insured, allocation questions may arise that should be resolved early in the claim process. This is required even in situations where a single attorney represents claimants who are husband and wife. In that situation, the spouse who was not physically injured has two claims covered by the UM/UIM single per person limit: loss of consortium (derivatively) and NIED (independently).

This issue should be addressed with the attorney representing the insureds early in the claim investigation so that the attorney is aware of the issue of allocation and can address it specifically with his clients.

In jurisdictions that have permitted coverage for NIED claims and have found that a separate per person policy limit is available for the NIED claim, the adjustment of

the loss becomes relatively straightforward.

The insured’s physical injury UM/UIM claim is adjusted as it always would be with the corresponding adjustment of the derivative loss of consortium loss as part of that claim. The NIED claim is then analyzed independently as a separate claim with a separate per person limit.

However, an independent analysis may become difficult given the fact that both the loss of consortium and NIED claims

T

Indemnity Co., 938 A.2d 4, 5, 9 (Me. 2007).

These courts have found an ambiguity in the policy language involving the term “bodily injury.”

In those cases where courts have found that NIED claims are covered under the UM/UIM policy, the courts must resolve the issue of whether the claims are subject to the single per person limit of the coverage. Courts are split on whether NIED claims, which are derivative claims, are subject to the single per person limit of UM/UIM coverage. Compare, Galgano v.

Metropolitan Property & Cas. Ins. Co., 267 Conn. 512, 838 A.2d 993 (2004) and Farm Bureau Ins. Co. of Nebraska v. Martinsen, 265 Neb. 770, 659 N.W.2d 823(2003) (which found that NIED claims are subject to the single per person limit), with, Crabtree v. State Farm Ins. Co., 632 So.2d 736 (La. 1994) and Treichel v.

State Farm Mut. Ins. Co., 280 Mont. 443, 930 P.2d 661 (1997) (finding that NIED claims were not subject to the single per person limit).

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IDEA EXCHANGE | TECHNOLOGY

Virtual Claims: The Future of Claims Handling

T

he year is 2020 and you have just had an accident. While proceeding through an intersection, another vehicle turned in front of you. Prior to the impact even occurring, advanced airbag deployment technology had enveloped you and your occupants in a protective cushion of safety.

The black box tucked deep inside your engine compartment had captured all activity up to, and including the accident. Your vehicle speed was 25 miles per hour, your braking reaction

By Christopher Tidball time was three-tenths of a second, the car stereo was operating at 35 decibels, and the G-forces exerted based upon the deformation of the metal and airbag deployment was not indicative of likely injuries among the general population.

At the scene of the crash, you click the smart phone icon for your insurer and populate the screen with the insurance policy details that can be shared with law enforcement and the other party. Within seconds, you are sharing face time with the first notice of loss department, which

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36 Claims Journal | Fall 2013

34 3 37 13a 2 5 11 9 21 40

walks through a series of prompts to have you, as the insured, snap photos of the accident scene, your vehicle and the claimant vehicle — of which is transmitted electronically for processing.

First notice of loss leverages ClaimIQ to assess liability at 70 percent against the vehicle making the left turn and 30 percent against you. The estimate is completed virtually and transmitted to you and a body shop of your choosing. The funds are electronically wired to your bank account and will be immediately available to repair your damaged vehicle.

This is the future of claims handling, where technology will be leveraged to provide an instantaneous, virtual and seamless claims process.

‘The Jetson’s’ While it may seem reminiscent of The Jetson’s, the reality is that the vision created in the 1962 cartoon series isn’t that far off.

At no time in history has technology advanced faster than today, and it is doing so at an exponential clip. Consider that the first generation iPhone was released a mere six years ago, and is now in its sixth generation. Then consider the advancements of virtual peer-to-peer communication. Remember how far off this seemed when Marty McFly was fired by his boss in a virtual environment in “Back to the Future Part II,” a movie filmed in 1989 but set in 2015? Today, it seems like par for the course.

But it will not only be on the first-party side that claims takes on a virtual look.

Rather, technology will have vast implications on the entire investigative process.

Long gone are the days of feet pounding the pavement looking for clues, as investigations become far

more virtual with myriad data at our fingertips.

In this environment, the key to success will lie in the triage process, whereby predictive analytics can accurately predict outcomes in claims within a specific degree of probability. Consider the bodily injury (BI) claim presented by the claimant in the earlier accident who sought the representation of an attorney.

Early scoring of a variety of data, such as that extracted from the insured black box, will yield any number of clues as to the likelihood of an injury being sustained.

Next, consider the benefit of attorney and provider scoring based upon historical data patterns and public records, such as prior or pending malpractice suits or other disciplinary action.

Data can further be leveraged to better validate or refute the claim being presented.

Today, we are often limited by the index bureau to gaining knowledge of prior claims. While adjusters may suspect causation issues, there is often not the evidence to prove their existence. By harvesting more data, the outcome of cases will be based upon objective fact versus subjectivity.

What if the adjuster had information on

for effective investigation, evaluation and not only prior claims but all prior medinegotiation. cal visits and this information yielded a Consider that today a mere 3 percent of history of low back pain, similar to what claims are closed was currently being The future of claims with a comparalleged? What if there ative negligence were prior surgeries handling technology will and that were not being provide an instantaneous, assessment, then consider disclosed? What if the all of the other adjuster was presented virtual and seamless claims process. aforementioned with a BI dossier that aspects of the contained link analysis claim investigation that may be overinformation about ex-spouses, neighbors looked. This can result in some significant or acquaintances who could be contacted during the investigation? Perhaps there are leakage. criminal records that may call into quesNot Far Off tion the credibility of the party claiming The day is not that far off when a claim injury. What if scientific crash test data on will arrive at First Notice of Loss and real human subjects was not indicative of an injury being sustained in this particular receive an immediate recommendation for an appropriate handling path, such as type of crash? low touch or full investigation. Add to this While some of this data is currently the no-touch path, whereby claims will available, it can be time-consuming to simply be processed without a person ever obtain and aggregate. With the continuing evolution of technology, the key to success touching them. While this happens today in the world of towing and glass, there are lies in compiling all of the pertinent data, an estimated 30 percent to 40 percent of from auto physical damage to personal other claims that could ultimately fall into injury, in one easy-to-use portal that prothis process, as well. vides the adjuster with the framework

As technology continues to evolve, consider the end-to-end solutions that can be used to virtually estimate automobiles and provide robust data to validate or refute presented injuries, and consider how all of this data can be tied together in a meaningful manner.

It really wasn’t that long ago when adjusters were armed with nothing more than a Dictaphone and a Polaroid camera. While significant information can be gained with feet on the street, it is difficult to argue that arming adjusters with facts won’t be even more effective. As we supplant subjectivity with objective findings, the success of outcomes will serve to benefit policyholders covered by carriers that recognize the benefits that technology can provide.

Tidball is a casualty claims consultant with Mitchell International and the author of multiple claims process improvement books including “Re-Adjusted: 20 Essential Rules to Take Your Claims Organization from Ordinary to Extraordinary.” His claims career has spanned more than two decades with multiple top 10 P/C carriers as an adjuster, manager and corporate leader. Email: chris.tidball@mitchell.com.

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Fall 2013 | Claims Journal 37

IDEA EXCHANGE | FINAL OFFER

Simple Measurements Can Predict Real World Dynamic Rollover Performance

By Donald Friedman

R

ollovers have been a big problem for the last 40 years, resulting in onethird (9,000) of the annual automotive fatalities and a comparable number of catastrophic (brain damage and paralysis) injuries from head and neck trauma. The problem has been traced to inadequate roof strength, considering the proximity of the head and neck to roof intrusion.

Regulations implemented in the last five years have doubled the roof strength and reduced the number of new production vehicles which rollover, but with more than 250 million vehicles on the road the mix of the fleet changes slowly.

The regulations are not without problems. Recent studies and experimental tests have shown that increased roof strength of tall or square vehicles, like the Ford F-150 and the Scion xB, have little effect in reducing roof crush and injury.

A simple new car measurement procedure has been developed, but not yet adopted to assess and rate vehicle dynamic rollover performance in three categories: good, acceptable and poor. A solution to the problem requires a change in roof geometry to a rounded cross-section at the windshield and is compounded by the popularity of tall pickups and SUVs which constitute about 40 percent of current production.

The measurement and predictive rating system consists of identifying vehicles roof strength to weight ratio (SWR), as published by the Insurance Institute for Highway Safety (IIHS), roof elasticity and measuring the distance across the front of the roof at the windshield and comparing it to the published height of

Vehicle

SWR

MR

Elasticity

2004 Volvo XC90 (White) 2007 Chevy Tahoe 2007 Honda Ridgeline 2008 Scion xB 2000 Ford Explorer 2007 Honda CR-V 2010 Ford F150 Supercab 2009 Nissan Versa 2010 Toyota Prius 1998 Ford Explorer 2007 Toyota Camry Hybrid 2005 Volvo XC90 (Silver) 2008 Toyota Highlander Hybrid 1999 Hyundai Sonata (Gold) 2007 VW Jetta 2007 Toyota Camry

4.6

42.6

2.1 2.4 6.8 1.6 2.6 4.7

2.4

JRS Normalized Vertical Residual 0.41

Predicted Vertical Residual 0.74

Good

49.6 47.3 45.9 45.3 42.1 50.3

4.7 4.0 3.5 3.3 2.2 5.0

7.07 8.42 6.23 9.27 4.22 7.25

6.48 7.43 5.59 7.99 3.76 6.67

Poor Poor Acceptable Poor Acceptable Poor

3.7 4.2 1.6 4.3

43.7 39.9 45.3 42.7

2.8 1.5 3.3 2.4

6.17 5.55 8.85 6.74

5.41 4.70 7.65 5.81

Acceptable Acceptable Poor Acceptable

4.6

42.6

2.4

1.92

1.96

Good

4.7

44.3

3.0

2.09

2.19

Good

2.8

38.6

1.0

7.58

6.25

Poor

5.1 4.3

42.1 42.7

2.2 2.4

3.94 5.99

3.54 5.22

Acceptable Acceptable

the vehicle and its center of gravity. That measurement and calculation is called determining the major radius (MR).

One simple solution to the tall vehicle problem is to round the roof at the windshield in such a way that in a rollover the vehicle rolls and pitches and contacts the ground with forces taken up by the top of the fenders, hood and the strong pillar at the rear of the front door.

The geometry change would improve passenger car performance and put it into the “good” instead of “acceptable” category, but is a styling change that manufacturers find threatening to sales appeal.

The table above lists the measured parameters and compares the normalized performance (identified in dynamic rollover tests by the Jordan Rollover System) with the predicted performance. The results are also characterized by good, acceptable and poor performance.

The two identical Volvo XC-90s and Ford Explorers exhibit a measurement error of about an inch due to manufac38 Claims Journal | Fall 2013

Rating

turing tolerances, and testing variations.

Therefore one inch is the minimum margin of prediction error.

The table also indicates that a tall high (MR) aspect ratio vehicle, like the F-150, despite having an improved roof SWR of 4.7, has “poor” performance. Manufacturers believe that the high aspect ratio affords improved vision, is a major selling point and are reluctant to reduce the height of pickups. The reduced height (MR) of the Toyota Highlander SUV improves its injury risk performance. The Honda CR-V illustrates an alternate design with an SWR of 2.6 and “acceptable” performance (an investigation revealed a thin, structurally spaced, inner panel glued to the outer roof panel).

In summary, this low cost procedure is a way of calculating and predicting new vehicle dynamic injury risk within the margin of test error and advising the public of the results.

Friedman is a Calif.-based engineer and co-founder of the Center for Injury Research.

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