Claims Journal Fall 2014 by Insurance Journal

FALL 2014 | VOL. 3, NO. 4

FALL 2014

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FALL 2014 | Vol 3. No. 4

CONTENTS CLAIMS REVIEW 8

Incorrect Diagnosis Main Cause of Catastrophe Med Mal Payouts

Feds Propose New Design Rules for Buses to Reduce Rollover Crashes

Fewer Opioid-Related Deaths in Medical Marijuana States

10 Claims Data Key to Finding, Reducing Workers’ Comp Cost Drivers 10 Fort Collins Drivers Safest in Nation: Allstate Report 10 New Drone Rules Challenged by Lawsuits

SPECIAL REPORT

14 Playing Post-Accident Sleuth 16 Down With Auto Accidents! 20 Key Issues to Consider in the Tracy Morgan Crash 22 Why No-Fault Pharmacy Benefit Management Helps Payers and Injured Parties 23 A Different Breed: Best Claims Practices for Collector Cars 24 Are Left Turns a Deadly Maneuver?

IDEA EXCHANGE

27 New Software Promises to Cut Claims Assignment Time 30 Why Insurers Shouldn’t Produce Claims Files in Florida Coverage Matters 32 Essentials: When Does Directing Traffic Constitute Vehicle Use? 34 Final Offer: New Technology is Working to Reduce Crashes

4 Claims Journal | Fall 2014

CLAIMS DEPARTMENTS 6 11 12 13 19 26 29

Opening Note People Business Moves Dollars & Sense Web Exchange Adjuster Toolkit Snapshot

Use untested aftermarket parts and who’s going to know? Welcome to social media.

Consumers have gained powerful new tools thanks to the internet, and they’re not shy about using them to spread the word. Good or bad. But you can keep from inadvertently falling victim to the downside risk of social media by avoiding shoddy repair parts and specifying CAPA Certified replacement parts instead. As the nation’s leading parts certifying authority we protect your policyholders—and your reputation—by putting repair parts through tough tests to make

sure they fit, perform, last and are as safe as the originals. CAPA Certified parts combine high quality with affordability. So have your claims personnel specify them by name and confirm their use. Providing the quality repairs your policyholders deserve and expect is one sure way to generate a lot of “likes.”

The CAPA Seal is proof a replacement part is certifiedby the industry leader in parts certification: CAPA.

If it isn’t CAPA Certified, it isn’t a genuine replacement part.

CAPAcertified.org

Want to see what happens to a replacement bumper that isn’t CAPA Certified? Check out the video at CAPAcertified.org/crash

OPENING NOTE

CHAIRMAN Mark Wells

Anti-Fraud Technology Helps

he use of anti-fraud technology is growing as more insurers see a positive return on investment (ROI). Today’s technology is helping to counter emerging threats such as underwriting scams, money-laundering and cyberfraud. Yet advanced tools such as predictive analysis and geo-mapping are far from widespread among insurers. These are among the core findings of a study of insurer use of anti-fraud technology conducted by the Coalition Against Insurance Fraud, with assistance by the business analytics company SAS. “Insurers are investing in different technologies to combat fraud, but a common component to all these solutions is data,” said Stuart Rose, global insurance marketing principal at SAS. “The ability to aggregate and easily visualize data is essential to identify specific fraud patterns.” “Technology is playing a larger and more trusted role with insurers ‘Technology is playing a in countering growing fraud threats. larger role in countering Software tools provide the efficiency growing fraud threats.’ insurers need to thwart more scams and impose downward pressure on premiums for policyholders,” said Dennis Jay, the Coalition’s executive director. Nearly all insurers (95 percent) said they use anti-fraud technology, compared to 88 percent in 2012. SIUs also appear to be making headway in building a strong internal business case for anti-fraud technology. Only 8 percent of insurers said lack of ROI was a challenge to implementing anti-fraud weapons, compared to 36 percent in 2012. Fraud also appears to be spreading, creating a heightened need for tech solutions. Suspicious activity rose over the last three years, more than half of insurers said. Increased schemes also flowed through the entire claims cycle. Insurers, for example, saw more attempted fraud in applications and renewals — the so-called point of sale. This is especially prevalent with buying of online coverage. Insurer deployment of advanced tools could help. While most insurers (81 percent) use basic tools such as automated red flags/business rules, far fewer employ more-advanced technology such as link analysis (50 percent), predictive modeling (43 percent) and text mining (43 percent). Many insurers also appear to face a shortage of claims and anti-fraud professionals despite rising incidence of insurance crime. Technology can help bolster these often-understaffed teams. In fact the top two benefits of anti-fraud technology insurers cited were more referrals (59 percent) and higher-quality ones (69 percent). Improved investigator efficiency also was a crucial benefit (41 percent). “An anti-fraud strategy that includes the right mix of tools and technologies will result in a much-higher fraud-detection rate,” the study concludes. “This strategy will go a long way toward cutting overall losses for an insurer.” To access the full whitepaper, The State of Insurance Fraud Technology, visit: http:// www.sas.com/en_us/whitepapers/coalition-against-insurance-fraud-the-state-of- insurance-fraud-technology-105976.html.

Andrea Wells Editor-in-Chief

6 Claims Journal | Fall 2014

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 MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Steven Plitt Contributing Writers Bill Crowley, Jim Hyatt, Adrian Lund, Michael A. Packer, Justin Parafinczuk, Rey Quinones, Jason Wolf 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 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 Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford Accounting Manager Mark Wooster | mwooster@insurancejournal.com

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www.claimsjournal.com/subscribe Claims Journal, the National Property Casualty Claims Magazine is published quarterly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: Free to qualified readers. 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. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2014 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Claims Journal, Circulation Department, PO Box 3618, Northbrook, IL 60065-3618 ARTICLE REPRINTS: For reprints of articles in this issue, contact Ly Nguyen at (800) 897-9965 x125. E-mails can be sent to reprints@claimsjournal.com.

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CLAIMS REVIEW | NEWS & TRENDS

Incorrect Diagnosis Main Cause of Catastrophic Medical Malpractice Payouts

uge malpractice awards can be prevented by targeted interventions by healthcare provider organizations to reduce patient safety risks, such as reducing diagnosis errors, says a study published in the Journal for Healthcare Quality, a peer-reviewed publication of the National Association for Healthcare Quality. Despite the impact and influence of large malpractice payouts on healthcare costs, little is known about their specific characteristics and overall cost burden. Researchers at Johns Hopkins Medical Center, Baltimore, reviewed all U.S. paid malpractice claims from 2004 to 2010 to

identify key risk factors for catastrophic payouts, or those more than $1 million. They represent 8 percent of all paid malpractice claims. Results showed that the greatest percentage of catastrophic payouts occur from errors in diagnosis. The authors noted that errors in diagnosis have twice the odds for a catastrophic payout and that health systems should focus more on ensuring diagnostic accuracy. “Factors associated with catastrophic malpractice payouts present opportunities

for targeted risk management and quality improvement efforts,” said co-author Martin A. Makary, a surgeon and professor at Johns Hopkins. CJ

Feds Propose New Design Rules for Buses Fewer Opioidto Reduce Rollover Crashes Related Deaths in Medical T Marijuana States

he Department of Transportation’s National Highway Traffic Safety Administration recently proposed a new federal motor vehicle safety standard to protect motorcoach and other large bus passengers in rollover crashes. The proposal aims to improve the structural design of large buses to ensure that passengers are better protected in a deadly vehicle rollover by ensuring that the space around them remains sufficiently intact and the emergency exits remain operable. The proposed standard would establish performance requirements that each new motorcoach and large bus must meet when subjected to a dynamic test in which the bus is tipped over from a raised platform onto a hard level surface.

8 Claims Journal | Fall 2014

The proposed standard would: • Require space around occupant seating positions to be maintained to afford occupants a survivable space in a crash; • Require the seats, overhead luggage racks, and window glazing to remain attached to their mountings during and after the test; and • Require emergency exits to remain closed during the rollover test and operable after the test. In a separate rulemaking action to improve safety even further, the Department is planning on finalizing requirements later this year for stability control technologies in these vehicles, which would help prevent rollovers from occurring. “Approximately 700 million trips are taken on commercial buses each year. Raising the standard for a motorcoach’s durability is critical to saving the lives of the passengers inside,” said FMCSA Administrator Anne Ferro. CJ

n average, states allowing the medical use of marijuana have lower rates of deaths resulting from opioid analgesic overdoses than states without such laws. Opioid analgesics, such as OxyContin, Percocet and Vicodin, are prescribed for moderate to severe pain. A new multi-institutional study, published in JAMA Internal Medicine and led by researchers at the Perelman School of Medicine at the University of Pennsylvania, examined the rate of deaths caused by opioid overdoses between 1999 and 2010. The 13 states that allow the use of medical marijuana had, on average, 24.8 percent lower annual opioid overdose mortality rate after the laws were enacted than states without the laws. CJ

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Fall 2014 | Claims Journal 9

CLAIMS REVIEW | NEWS & TRENDS

Claims Data Key to Finding, Reducing Workers’ Comp Cost Drivers

arnessing workers’ compensation claims data is the key to finding areas to decrease costs. A white paper released earlier this year by Advisen and sponsored by The Hartford, highlighted areas in workers’ comp claims that could benefit from cost containment. These include employee tenure, using prescription painkillers to treat chronic pain and obesity. The report noted that claims data revealed these additional risks can drive up workers’ comp costs significantly. The report noted that medical costs account for more than 60 percent of total claim costs. According to the white paper, while claim frequency distinctions between older and younger workers have disappeared a new distinction has emerged — employee tenure. The white paper cited a study by the National Council on Compensation Insurance (NCCI) that found that greater severity was the primary driver for older workers’ higher claims costs. This is likely due to medical issues other than the injury that arise with age. The report, “Mining Workers’ Compensation Data Nets Valuable Cost-Control Gems,” states that the employee tenure risk can be mitigated

New Drone Rules Challenged by Lawsuits

ecent lawsuits filed by model aircraft enthusiasts, university researchers and commercial drone interests challenge a new government directive by the Federal Aviation Administration (FAA) that broadens the ban on commercial drone flights. Distinguishing the difference in the use of drones has been challenging for the FAA, which is required by law to issue rules pertaining to the use of commercial drones by late 2015. CJ

with appropriate safety training and engineering changes in the workplace. Another area where cost reductions can be made is in the treatment of chronic pain with prescription painkillers. The NCCI reported that narcotics accounted for 25 percent of drug costs associated with a workers’ comp claim. Besides the risk of a deadly overdose there are side effects, of which there can be many. In addition, the report noted that because most opioids cause drowsiness a stimulant is also typically prescribed. The white paper suggests that the opioid problem can be addressed by carriers partnering with employers to use physicians that know the best practices for managing chronic pain. In addition, cogni-

Fort Collins Drivers Safest in Nation: Allstate Report

or the fourth year in the report’s history, the top honor of “America’s Safest Driving City” is Fort Collins, Colo., according to Allstate Insurance Co.’s tenth annual “Allstate America’s Best Drivers Report.” Fort Collins has placed in the top 10 every year since the report’s inception. This year, the results indicate the average driver in Fort Collins will experience an auto collision every 14.2 years, which is 29.6 percent less likely than the national average of every 10 years The report, based on Allstate claims data, ranks America’s 200 largest cities in

terms of car collision frequency to identify which cities have the safest drivers. This year, new data uncovers how these cities rank when factors like population, population density and precipitation are considered. According to the National Highway Traffic Safety Administration, 33,500 car crash fatalities occurred in 2012. Additionally, Allstate research found that 70 percent of vehicles involved in auto claims are considered drivable, which indicates that most claims are the result of low speed (under 35 miles per hour) collisions. CJ

10th Annual Allstate America’s Best Drivers Report Top 10 Safest Cities City & Overall Collision Likelihood Compared Average Years Ranking to National Average Between Collisions

1. Fort Collins, Colo. 2. Brownsville, Texas 3. Boise, Idaho 4. Kansas City, Ka. 5. Huntsville, Ala. 6. Montgomery, Ala. 7. Visalia, Calif. 8. Laredo, Texas 10 Claims Journal | Fall 2014

tive behavioral therapy may be helpful. Nearly half of the states have also developed programs to stem opioid abuse. Longer workers’ comp claims have also been linked to obesity. The study found that the duration of temporary total and permanent total indemnity benefits for obese claimants was five times longer than for non-obese claimants. CJ

29.6% less likely 29.5% less likely 28.4% less likely 22.4% less likely 20.3% less likely 19.4% less likely 19.1% less likely 18.3% less likely

14.2 14.2 14 12.9 12.6 12.4 12.4 12.2

DEPARTMENTS

PEOPLE USAA’s Chief Operating Officer Stuart Parker has been named to succeed current CEO Joe Robles when he retires at the end of February 2015. USAA Capital Corp. President Carl Liebert will succeed Parker in the role of chief operating officer, effective immediately. As chief financial officer from 2012 to 2014, Parker led an enterprise team focused on building the financial strength of the enterprise to $26 billion in net worth and achieving product revenue growth of 8 percent year over year. He was named chief operating officer in May. In accordance with American International Group’s succession plan previously disclosed on June 10, 2014, Peter D. Hancock has assumed the role of president and CEO of AIG, and has joined AIG’s board of directors. Hancock succeeds Robert H. Benmosche, who retired and serves as an advisor to AIG. Hancock joined AIG in 2010 and was named CEO of AIG Property Casualty in March 2011, when the division was reorganized into two major global groups: Commercial and Consumer. He had previously served as AIG’s executive vice president of finance, risk and investments. Capital Insurance Group (CIG), a regional property/casualty insurer serving the western United States, named L. Arnold Chatterton president and CEO. Chatterton succeeds Peter Cazzolla, who retired after a 21-year tenure with the company and has an advisory role with the company. During Chatterton’s 30 years in the property/ casualty insurance industry, he has progressed from frontline agency and underwriting positions to management and senior officer assignments with a leading western regional and international insurance company. Fireman’s Fund Insurance Co. appointed Tiffany Alvey to vice president of field claims and risk services. She brings more than 20 years of experience to her role and has held leadership positions in claims and risk services since she joined Fireman’s Fund in 1996. Parallel to this appointment, Frank Sapio has expanded his responsibilities to include risk services and will continue in his role as commercial vice president, field claims and risk services. Sapio has 25 years of insurance industry experience in claims and under-

writing, and has been with Fireman’s Fund since 2003. Swiss Re Corporate Solutions has named Robley Moor head of casualty North America. With this appointment, Moor becomes managing director. He succeeds Daniel Vetter, who has been promoted to global head of casualty, in the Products & Global Markets unit of Corporate Solutions. Moor and Vetter will be based in New York City. Moor will lead the Casualty North America underwriting team, responsible for operations in the United States and Canada. He will report to Robert Petrilli, head of North America. Moor joined Swiss Re in New York in 2001. In 2007, he was promoted to senior vice president and has led the Central U.S. regional Casualty team in Chicago since that time. Vetter, as global head of Casualty, will report to Nikolaj Beck, head of Property & Casualty and Special Lines. He will have global responsibility for Corporate Solutions’ Casualty portfolio. This includes managing large transactions, developing new products, steering the portfolio from a strategic perspective, and overseeing the company’s Casualty underwriting and growth strategy. He joined Swiss Re in 2000 and served as head of Casualty North America from 2007 to 2014. The Allstate Corp. has named Pam Dufour president of Allstate Roadside Services. She will lead all business operations of Allstate Roadside Services, including developing strategies for operational performance, managing call center operations and leveraging state-of-the-art technology. She will report to Kathy Mabe, president, Business to Business of The Allstate Corp. Dufour has served in a number of leadership roles in roadside and rescue services, customer service, claims management, marketing and sales. Before joining Allstate, she served as senior vice president and chief operations officer for Allianz Global Assistance USA and the Americas Region. Brentwood Services Administrators Inc. (BSA), headquartered in Brentwood, Tenn., has appointed Sandra Gordon to its Occupational Accident Department team as senior claim representative. She will review, process and handle occupational accident claims, as well as determine claims coverage and extent of liability. CJ

Stuart Parker

Peter Hancock

L. Arnold Chatterton

Tiffany Alvey

Robley Moor

Fall 2014 | Claims Journal 11

DEPARTMENTS

BUSINESS MOVES systems. Privately-held, Chicago-based Ventiv Technology will maintain close relations with Aon as the parties have entered into a multiyear distribution agreement through which Aon will exclusively resell Ventiv’s iVOS (insurance processing software platform) and RiskConsole (risk management information system) solutions.

businesses will be added to the corresponding business units in SCM Insurance Services: ClaimsPro, Cira Medical Services and Forensic Investigations Canada (FIC). Rochon Engineering will continue as a standalone company. Tenco Services Tenco Services Inc. has created a new subsidiary, Tenco Marine and Transportation Services (TMTS), specializing in inland marine surveys, truck liability claims and motor truck cargo claims. Adjusters may send assignments via email to claims@tencomts.com. Athens Administrators

Nationwide Ohio-based Nationwide Mutual Insurance Co. will align its products and services under its most recognizable brand, Nationwide. The company, which operates under multiple brand names — including, but not limited to Nationwide Insurance, Allied Insurance, Harleysville Insurance, Nationwide Financial, Scottsdale Insurance, Crestbrook Insurance and Veterinary Pet Insurance — is moving to a one-brand approach to more effectively leverage its diverse product portfolio, financial stability and business relationships. To highlight the shift to one Nationwide brand, the company is introducing an updated version of the Nationwide N and Eagle brand mark that harkens back to the company’s heritage and the famous 50-year-old tag line, “Nationwide is on your side.” Nationwide will transition to the new brand look over the next 18 months. Ventiv Technology Aon eSolutions’ leadership team has changed its name to Ventiv Technology, following Aon plc’s sale of the company to Symphony Technology Group. As a cloud-based risk management information systems provider, Ventiv delivers risk management, claims administration, auditing and safety management 12 Claims Journal | Fall 2014

AIG American International Group Inc. (AIG) has expanded in Olathe, Kan., which will bring 300 new jobs to the state by the end of 2015. AIG’s expanded facility at 17300 West 119th Street will provide claims and policy servicing operations worldwide. The company currently employs more than 600 workers at its offices in Olathe. Geico Geico, a member of the Berkshire Hathaway family of companies, is hiring auto damage adjusters in Seattle. Interested candidates should apply through the company’s auto damage careers page. SCM Insurance Services, Granite Divisions SCM Insurance Services has acquired the property/casualty businesses of Granite Global Solutions. The businesses being acquired are known by the following names: Granite Claims Solutions, a national adjusting firm; Granite Health Solutions, a provider of medical assessments and health services; CKR Global, a national provider of risk mitigation and investigation services; and Rochon Engineering, a forensic engineering and environmental consulting company. The claims, health and investigations

Calif.-based Athens Administrators, a full-service, third-party claims administration services provider since 1976, is expanding into Texas and appointing Vance A. Root as executive vice president, in charge of driving expansion and operational efforts in the southern United States. Athens’ move to the Texas market maintains its national growth strategy. Root will lead the company’s new business development and expansion initiatives into Texas and surrounding states, as well as provide management and oversight of Athens Administrators’ liability claims unit. Coverys, PPIC

Boston-based Medical Professional Mutual Insurance Co. (ProMutual), a Coverys company, has finalized the acquisition of Preferred Professional Insurance Co. (PPIC) in Omaha, Neb. PPIC was formerly owned by 18 Catholic healthcare systems, seven of which are in the top 25 largest nonprofit hospital systems in the United States. Through the acquisition of PPIC, Coverys will expand its presence as a leading medical professional liability insurer. Coverys is the eighth largest medical professional liability insurance provider in the country based on direct written premium. Its member companies insure medical providers in 27 states. CJ

DEPARTMENTS

DOLLARS & SENSE $1.4 Billion

The amount in emergency disaster aid that FEMA paid out after Superstorm Sandy. Approximately 179,000 New York and New Jersey households received payments after the storm. The agency is currently reviewing 4,500 households that may have received improper payments and has already requested $5.8 million to be repaid. The average demanded sum is $6,987.

The number of hours that employers will now be required to notify the U.S. Occupational Safety and Health Administration (OSHA) of work-related fatalities. Work-related in-patient hospitalizations, amputations or losses of an eye will now be required to be reported within 24 hours.

4,405

The number of workers killed on the job in 2013 according to the Bureau of Labor Statistics.

9,441

The number of pickup trucks stolen between Jan. 1, 2010, and Dec. 31, 2013, according to the National Insurance Crime Bureau (NICB). Of the 9,441 total pickup thefts, 4,428 are of the 2011 model year, 3,235 are of the 2012 model year, and 1,778 are of the 2013 model year. Full-sized pickup trucks had more thefts with 8,367 thefts versus

895 for compact pickups. Mid-sized pickup trucks had the fewest thefts with 179. Texas experienced the highest number of pickup thefts with 2,130, representing nearly 23 percent of all pickup truck thefts in the U.S.

$2 Billion

The amount in economic losses related to the 6.0 August Napa earthquake, according to Aon Benfield. Aon Benfield’s Impacting Forecasting report indicated major flooding in parts of the U.S. Midwest, Northeast and Mid-Atlantic also caused more than $2 billion in economic losses, with insured losses to both the federal flood insurance program and private insurers surpassing $500 million. Super Typhoon Halong hit Japan killing 10 people, injuring 96 and causing hundreds of millions of dollars in economic damage, Aon Benfield reported. The storm affected the southern and central parts of Japan and dropped more than 42 inches of rain during 72 houses on parts of Shikoku Island.

The number of tornadoes that hit Oklahoma through June 2014 — the lowest recorded since 1988. Weather experts attribute the low tornado count to cold weather.

152

The number of EF1 or stronger tornadoes recorded in the United States through May, according to National Weather Service data. That’s the lowest number of tornadoes recorded since 2005, when 105 tornadoes of the same strength were recorded.

24,000

The number of Colorado flood insurance policies purchased in 2014. Prior to the devastating floods in September 2013, there were an estimated 22,000 flood insurance policies in force statewide. According to the Rocky Mountain Insurance Information Association, up to 20 percent of flood claims come from low to moderate risk areas. During the past 10 years, the average flood claim has amounted to more than $33,000.

$800 Million

The amount of additional auto liability claim payments in 2013 that may have resulted from Florida’s third-party bad-faith lawsuit environment. The Insurance Research Council estimates that this cost averages approximately $79 in additional claim costs for every insured vehicle in the state. According to the study, Third-Party Bad-Faith in Florida’s Automobile Insurance System,

Florida experienced an increase in bodily injury liability claim frequency and an overall increase of 68 percent in average claim payments per insured vehicle from 1995 to 2013. Other large no-fault states that do not authorize third-party badfaith lawsuits against insurers, including New Jersey, New York and Pennsylvania, experienced significant declines. CJ Fall 2014 | Claims Journal 13

SPECIAL REPORT | AUTO

Playing Post-Accident Sleuth

truck gets into a collision with a car. The two drivers dispute fault and witness statements have been taken and are part of the filed police report. The insurance company for the truck’s owner is left to try to determine liability, even beyond what is in the official report. Thousands of dollars in property damage could be at stake, not to mention much more if either party claims physical injuries. Ferreting out the truth is critical to minimizing an insured’s fault and economic liability. By Jason Wolf & This leaves the process in the hands of the insured’s insurance provider and, more directly, the claims adjuster. Beyond reviewing the police report and possibly talking with Justin Parafinczuk the truck’s operator, what can the claims adjuster for the trucking company’s insurance provider do to uncover the truth or ensure the veracity of statements made? 14 Claims Journal | Fall 2014

First Things First Typically, the adjuster will ask for a personal statement from the insured describing the accident and the driver’s belief as to who was at fault. The adjuster also will seek statements from others, including drivers, passengers and those witnesses who remained on the scene after the dust settled, both to get their perspectives as well as to find corroboration and conflicting opinions. Of course, a copy of the accident report as filed by the police agency that responded is vital to getting the official determination of fault. In some states or jurisdictions, reports are provided for a fee by third-party accident reporting services. These are the most obvious sources of evidentiary material, the “low-hanging fruit,” as it were, that’s most easily gathered. From this point, questions asked and sources explored may need to get creative. The information gathered can help piece together a puzzle and turn the table in defense of an accident claim. What questions should you ask or what other information should you look for? The list below includes common sources of evidentiary details, as well as some that

can prove a deeper wellspring of data in the search for that corroborating information. In fact, the list below should be part of a standard array of questions asked of those involved or sources of data collected after any accident where fault is contested. Sworn statements. Claims adjusters often will seek sworn statements from the insureds. Drivers of passenger vehicles legally are obligated to provide sworn statements. Drivers of commercial vehicles, like trucks, covered by commercial policies are not under any such obligation. Moreover, conversations between representatives of the insurance provider and the vehicle operator are considered privileged and not subject to standard disclosure requirements. Vehicle(s). The need for accident site or vehicle preservation often conflicts with the drivers’ or owners’ desires to repair damages. Therefore, time is of the essence. If a vehicle is being repaired or has been deemed a total loss and is headed to the scrap heap, get visual evidence of it before it’s repaired or junked. Once fixed or destroyed, any chance at supporting evidence could be lost. Video or still photography images.

what already existed. Matching property Cameras are nearly everywhere in public. nance was at least partly to blame. damage, like damage to rails, signs, fences, Subjective questions. Often, the From a driver’s, passenger’s or witness’s other structures, even trees or large folismartphone camera, to commercial secusimplest questions may go unasked, leavage, to marks on either vehicle can re-crerity cameras in the surrounding area, to ing key, even obvious details uncollected. ate trajectory of the vehicles before, during Adjusters should ask the driver to recall traffic cameras and “red light” cameras, and after the accident itself. to “dash cams” in various vehicles, photosuch issues as the weather at the time of “Snapshot” data. Increasingly, insurgraphic evidence may exist. But adjusters the accident. Was there rainwater, snow ance companies are encouraging drivers to or ice on the ground? What was the speed won’t know unless they ask. install small data collection devices into At the time of the accident, did the at the time of the accident, both the the onboard diagtrucking company insured’s and that of the other vehicle? It’s vital to collect as much nostics, or an OBDhave dashboard When did you first see or hear the other II port, under the cameras, or sidevehicle involved in the accident? evidence as possible to vehicle’s dashboard and rear-view What other vehicles were on the road ensure an honest or steering column. cameras installed that may have affected the accident? Was rebuilding of the accident. Coupled with GPS on the vehicle in another vehicle involved in any way, possitracking data, often question? Did anybly blocking either or both drivers’ views installed on trucks, this digital data can one shoot images of the accident itself or of the road or vehicles? Ask the insured help the insurance adjuster collect otherthe aftermath? how he or she reacted. A driver’s reaction wise hard-to-gather insights. Images from nearby security cameras or can help highlight possible outcomes. Vehicle maintenance. From aestheteven an overhead view from Google Earth With this data in hand, traffic and ics to performance, a vehicle’s age and may be available. Visiting area commeraccident experts and reconstructionists upkeep can affect its role in the accident cial or retail properties might reveal the can piece together a re-creation of the and the value of a claim. presence of security cameras positioned accident. It’s vital that as much informato capture the accident scene. Increasingly For example, a car with 100,000 miles tion is collected and as much evidence as used for property insurance claims, images could have numerous exterior dents or possible is preserved to ensure an honest blemishes, which would reduce the value from Google Earth could prove beneficial rebuilding of the situation — and the of a claim. More importantly, though, the in vehicle accidents as well. solving of the puzzle. CJ brakes, tires, transmission or joints on Remember to ask for images as soon as older vehicles may have worn dangerously possible after the event. Data from securiWolf is the managing partner at Koch Parafinczuk and perilously over time. ty cameras often is overwritten at regular & Wolf, P.A., a statewide insurance defense firm Review service records or receipts to intervals. in Florida. Parafinczuk is a shareholder at Koch Similarly, the adjuster must work quick- help determine whether poor mainteParafinczuk & Wolf. ly to ascertain whether street-view cameras were operational and captured any useful images. It could take a court order to secure the imagery. Traffic light programming. As departments of transportation seek to smooth out traffic flow, they program traffic lights to run in sequence. Requesting such traffic light and “ ” time-stamp information can help accident re-creation or reconstruction U.S. Forensic has built a strong reputation for providing concise, experts place a vehicle at an intersecaccurate answers to complex questions involving building failures, tion, and tell whether the light was product failures, fires and automobile accidents. Our staff of over green, yellow or red and who might 50 professionals have assisted insurance companies, manufacturers, have had the right of way. government entities and the legal community in evaluating the Other property damage. cause, extent and legitimacy of various claims, incidents and injuries. Matching property damage to vehicular damage or marks can line up reality regarding the accident. Are there tell-tale scratch patterns on the car, skid marks on the street, or collateral or ancillary property damT (888) 873-6752 F (888) 436-3092 www.usforensic.com age that may be used as evidence? Try to determine what was new, and

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Fall 2014 | Claims Journal 15

SPECIAL REPORT | AUTO

By Denise Johnson

he claim frequency in private passenger auto insurance has been declining steadily over the past decade — a trend linked to a number of factors including a rise in the number of aging drivers, graduated teen licensing and crash avoidance technology. According to Susanna Gotsch, lead analyst for CCC Information Services Inc. and author of a report on the trend, Crash Course 2014, aging drivers become safer drivers and graduated teen licensing programs also encourage driver safety and thus reduce teenage accident frequency. The fact that the baby boomer generation is the largest driving population in the United States is a key factor in reduced accident frequency, agrees Greg Horn, vice president of Business Analytics, at San Diego-based Mitchell International. “What we’re starting to see is the baby boomers are starting to retire, their miles driven are going down, they may be con16 Claims Journal | Fall 2014

solidating to one car and they’re in that good driving period still,” said Horn. “We have a few years before the majority of baby boomers will get into what we call the ‘blue hair accidents’ where they back up into the pole that wasn’t there when they pulled in.” In addition to the many safe older drivers getting into fewer accidents, teens are less prone to crashes now also thanks to graduated drivers licensing programs. “There’s graduated driver’s licensing in various states, which is having a positive impact. So lower claims for teenagers and new drivers than had been in the past. We’re in a good situation,” Horn said. Gotsch sees the positive trend continuing as technology steps up where aging baby boomers could get into trouble. “Long term, as the baby boomer population ages, hopefully they will get those backup cameras, the backup warning systems, auto-braking systems in their

vehicles, because they don’t appear to be wanting to give up their driving rights. They’re going to have to have a little bit of assistance as they go forward.” While safer driving has helped, the recession has been another factor in reducing crashes, CCC’s Gotsch said. “The recession, where we had about 22 million fewer new vehicles entering the mainstream. That, in general, helped reduce the average number of cars per household, and fewer cars on the road, less accidents,” said Gotsch. Injury Claims Trending Higher While auto claims frequency is down, average auto injury claims costs have increased since 2005, according to the Insurance Research Council’s Trends in Auto Injury Claims 2011 edition. This is despite a decrease in serious auto-related injuries. The report noted that fewer auto injury claimants required hospitalization,

Auto Injury Trends Summary 2005-2010 Percentage Change in Frequency, Severity, and Loss Costs, by Type of Coverage, Countrywide 31%

22%

-7%

-15% Severity

Frequency BI Liability

PIP

Loss Costs PD Liability Source: Insurance Research Council

days off from work or restricted activity. The report stated that bodily injury claims and personal injury protection costs per insured vehicle increased 4 and 22 percent between 2005 and 2010. This was mostly due to rising medical costs. Auto insurance laws can have an impact on claim outcomes, according to the IRC report. No fault states tended to have low bodily injury claim frequencies along with higher bodily injury claim severities because the tort thresholds screen out less serious and expensive injuries. This raises the cost of the average claim. The IRC analysis noted that bodily injury severity increased 50 percent nationwide between 1990 and 2010. During that same time frame personal injury protection (PIP) severity increased 139 percent. Property damage severity increased 93 percent. Total Loss Frequency Rises The aging vehicle fleet has been a major driver behind the increase in vehicle total loss frequency over the last several years. According to the CCC research, total loss frequency is highest for vehicles aged seven years or more. The CCC report found that approximately 9 percent of all vehicles that had an appraisal written in 2000 were flagged as a total loss; by 2013, the figure had

increased to 14 percent. The volume share of vehicles aged seven years or more grew from 32 percent in 2004 to 46 percent in 2013 — which Gotsch pegged as a primary factor driving up total loss frequency overall. Comprehensive Losses Weather is a factor in comprehensive coverage losses. Most comprehensive losses are due to hail, except in some states including Pennsylvania or New York where the majority of comprehensive losses are the result of deer collisions. “We see a lot of hail losses or wind damage, trees falling on cars. Comp losses have really been driving a lot of the volatility from a frequency perspective because the weather patterns are becoming more severe,” Gotsch said. “Actually, this year we’ve had a fairly mild hail season. 2012 was one of the hardest hit, and you’ll actually see that in our numbers,” Horn said. “The second quarter of 2012 was one of the highest average paid severities because there was very heavy hail across the U.S. and Canada,” Horn said. Severe weather trends have changed, said Gotsch, pointing to fewer hurricanes and more frequent tornadoes, strong storms and hail.

Impact of Smart Cars Auto claim frequency is expected to decline during the next 25 to 35 years as a result of crash avoidance systems and self-driving vehicles. As more new vehicles are sold, many will likely include crash avoidance technology, however, the caveat, according to the CCC report, is that they will be traveling alongside an older fleet, in which vehicles are not equipped with the same type of technology. “Of the numerous factors that have helped drive frequency down over the last 20 years the adoption of these systems has the likelihood of a sharper impact,” the report notes about crash avoidance technology. “We believe that we’ve seen some very minor impact on additional reduction of frequency from those systems to date,” Gotsch said. “If you take that number out 10, 15, 20 years, it looks like you’re getting in the neighborhood of about 8 to 10 percent overall additional reduction in frequency by 2040, but that’s quite a ways out.” Mitchell International predicts it will take about 15 years before most cars on the road will have this type of technology. “We project that it’s probably going to be about 15 years before vehicles with collision avoidance warning systems will continued on next page Fall 2014 | Claims Journal 17

SPECIAL REPORT | AUTO continued from page 17 become the majority of vehicles on the road today,” said Horn. “Absent any government mandate like they just announced in the European Union that all cars are required to have autonomous braking by 2016, it will take about 15 years plus for the car park to be majority equipped with accident avoidance systems that will make an impact on claims frequency.” According Gotsch, the impact of driverless cars is much further off. “What will happen, is the overall marketplace, from a crash avoidance perspective, will definitely benefit, because those technologies will continue to advance and will help the driver. But the point at which the driver gives up complete control, we’re quite some time off,” Gotsch said. Regardless of when crash avoidance technology or driverless cars dominate on the roads, adjusters shouldn’t worry about their jobs. “The one good thing is if you look at somebody in the body shop business or in the insurance claims business, claims are not going to go away overnight,” Gotsch said. CJ

Technology Helps Source Parts; Vehicles More Complex

he distribution of dollars spent on auto repair parts and labor has been much the same over the past 15 years, except that there has been a significant shift to generic from original equipment manufacturer (OEM) replacement parts. According to Susanna Gotsch, lead analyst for CCC Information Services Inc. and author of the report, Crash Course 2014, there has been only a moderate shift among the major costs of parts (40 percent on average), labor (40 percent), paint materials (8 to 10 percent) and taxes. However, there has been a different story within the parts category. “Within the parts segment, we’ve seen a great deal more focus around looking at using non-OEM parts, where they’re available, and where the guidelines in a certain state support it,” Gotsch said. 18 Claims Journal | Fall 2014

Potential Impact on Frequency for All Losses as Collision Avoidance Systems Are Adopted 35 Yrs 30 Yrs 25 Yrs 20 Yrs 15 Yrs 10 Yrs 5 Yrs 2013

Projections based on annual rate of change between 2010 and 2013 – may accelerate based on faster market adoption and system improvements -8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

2012 2011 2010 -0%

Source: CCC Information Services Inc.

At the end of 2013, replacement part dollars were split at 63 percent OEM versus 37 percent non-OEM, according to CCC Information Services Inc.’s report. In 2009, OEM was at 64.8 percent and has gradually been trending downward since that time. Labor rates are increasing annually with inflation. The parts costs are going up at a minor percentage basis as well, she added. Taxes, she said, have not changed much. Mitchell International repair cost distribution statistics match CCC’s. “Basically you have about 46 percent labor, 44 percent parts, and 10 percent paint materials making up that repairable estimate. What we’ve seen is a fairly flat overall cost of parts, and that’s driven in large part by insurance companies choosing alternate parts that are less expensive so it keeps the overall dollars spent very, very flat over the last five years or so,” said Greg Horn, vice president of Business Analytics, at San Diego-

based Mitchell International. Technology has helped with sourcing parts, making it easier to get parts on time, said Gotsch. “We’ve seen non-OEM usage grow, with technology making more of that data available real-time. So people know what the inventory levels are, can reserve the part at the time of the estimate, so that when the shop goes to order the part, it’s sitting there waiting for them. A lot of technology has facilitated some of that whole process in terms of sourcing parts,” Gotsch said. On the other hand, vehicle complexity has added to labor costs, Gotsch noted. “We believe we’re trending towards fewer repairers but higher costs,” Gotsch said. “Over time vehicles have gotten more complex. Manufacturers have incorporated more things in the car to improve the overall comfort and experience of the driver.” CJ

DEPARTMENTS

WEB EXCHANGE Video Highlights Foremost Claims Learning Lab Places Adjusters on the Scene http://www.insurancejournal.tv/videos/11366/ According to Tom Beuschel, learning delivery specialist, more than 1,000 adjusters have trained at the Foremost Claims Learning Lab in Caledonia, Mich. From scoping to estimating damages, adjusters receive training on real-world building components to enhance claims handling skills. Assessing Hail Damage on Gravel Ballasted Built-up Roofs http://www.insurancejournal.tv/videos/11025/ In this interview with Denise Johnson, Ryan Chauncey, executive director of operations at Nelson Forensics, explains the difficulty of assessing hail damage on gravel-ballasted built-up roofs and why hail size isn’t enough to evaluate damage.

Podcast Highlights Avoiding Bad Faith Land Mines During Trial http://www.insurance journal.tv/videos/11429/ In this edition of Claims Insight, Kevin Quinley, found-

er and principal of Quinley Risk Associates, says that communication and documentation during a trial is important, and he explains why it’s equally important to never surprise the boss. In addition, he shares five tips to navigate bad faith land mines during trial.

In a Reader’s View Father on Trial for Killing Drunken Driver Who Caused Sons’ Deaths An Associated Press article following the trial of a Texas man

accused of fatally shooting a drunken driver who caused an accident that killed his two sons yielded several comments.

David Barajas is accused of shooting 20-year-old Jose Banda in December 2012 after Banda plowed into a vehicle that Barajas and his two sons had been pushing on a rural road after it had run out of gas. Barajas’ sons were killed. Evidence linking the Texas father to the crime was questioned amid the possibility Banda could have been shot by his cousin or half-brother, both of whom witnessed the crash, fled the scene and admitted they didn’t call 911. Read a few of the comments below: Lisa says:

Sounds like time for ... jury nullification. Lynda says:

No gun, no gun residue, no witnesses ... no brainer. This one should not even make it to court, but if [it] does, there should definitely be a “not guilty” verdict. Raye says:

In a state where a prosecutor is pursuing Rick Perry for a flimsy case because they don’t like what he did with his powers as governor, there must be a contest to see which case is weaker. It’s a toss-up. CJ

ClaimsJournal.com Web Poll If drones gain approval from the FAA, when do you expect insurers to begin using them?

41.3%

(102 votes)

Immediately upon approval by the FAA

28.74%

(71 votes)

Within one to two years from approval date

15.79%

(39 votes)

Within three to five years from approval date

14.17%

(35 votes)

Unsure Total Votes: 247

Fall 2014 | Claims Journal 19

SPECIAL REPORT | TRUCKING

® AP Photo 2014

Key Issues to Consider in the Tracy Morgan Crash

he Tracy Morgan crash is certainly a tragedy. It caused the death of Jimmy Mack and seriously injured Tracy Morgan. The accident has sparked a great deal of debate nationally about the safety measures taken by semitruck drivers and the companies that employ them. The simple, knee-jerk reaction of most people who hear about any semi-truck in an accident with another vehicle is that By Justin Parafinczuk it must have been the big truck that caused the accident. In the Morgan case, it is virtually certain, barring some unknown evidence that Kevin Roper, the driver of the Walmart truck, was at fault. The major questions now are: What was the actual cause of the accident? How should Walmart handle the case from a litigation perspective? And, are the status quo semi-truck driving regulations adequate? Key Issues It’s fair to say that most attorneys would opine that Walmart has an uphill battle 20 Claims Journal | Fall 2014

if it chooses to litigate this case. The key issues that Walmart would focus on to defend itself are all public information now. Although there has been a great deal of publicity regarding the fact that Roper had worked for about 13 and a half hours at the time of the crash, federal rules permit truck drivers to work up to 14 hours a day, with a maximum of 11 hours behind the wheel. There have been no reports that Roper exceeded his work time or his driving time in violation of the federal rules. As a matter of liability, Roper and Walmart were not negligent in this regard. Semitruck drivers routinely use up exactly all their working hours or just below the maximum 14 hours. The real issue is simple: Roper was speeding and rear-ended the vehicle. Reports state that Roper was driving 65 mph in a zone where the speed limit was 45 mph. In almost every state, the law is that if one vehicle rearends another, the vehicle that caused the collision is presumed to be at fault. There are some states that allow the vehicle that rear-ended the other vehicle to assert a defense that the vehicle in front of it stopped short or was driving erratically. If Walmart were to contest liability in

this matter, it would have to hire an accident reconstructionist to analyze all the available data from the crash and suggest that the driver of Morgan’s vehicle was, in fact, negligent because he was driving erratically or stopped short. However, a major problem would exist for any expert or accident reconstructionist opining on this accident, which is that Roper was driving 20 mph over the speed limit. This fact alone, if Walmart cannot disprove it, is enough to make Roper and Walmart liable for the crash. Of course, other arguments have been made by the attorneys representing the passengers in the vehicle, including that Roper did not sleep for 24 hours before the crash and fell asleep. However, these are only allegations at this point. As to causation, Roper was driving 20 mph over the speed limit, and was unable to slow down or stop to avoid the collision. There has been no evidence released or uncovered that he was actually asleep at the time of the accident. There is currently only an allegation by the plaintiffs’ attorneys. The last major allegation that the plaintiffs’ attorneys have made is that the speed control function in the vehicle was not

functioning properly and could have prevented the accident by forcing the semitruck to slow down and avoid the impact. The most basic speed control function is a “governor,” which simply caps the speed of the truck at 65 to 70 mph. There are many safety systems that can be put in semi-trucks or any other vehicle for that matter. Again, it is not a proven fact that the speed system in Walmart’s truck was not functioning properly, but it has been alleged. Walmart’s Path Walmart could choose several different paths to handle this case and should consider some key factors in forming its litigation plan. The first issue is the recent negative publicity that Walmart has received and the even more negative publicity that may ensue. If depositions are conducted, and the plaintiffs actually prove some or all of their allegations, the media will surely publish articles in the future about the ongoing litigation. This accident is not something that Walmart wants on the front page of newspapers. The negative publicity alone is enough of a reason to settle the case now. However, the plaintiffs may be asking for a settlement amount that Walmart believes to be too high based on jury verdict and settlement reports from similar cases. In that situation, Walmart must expeditiously use investigators, forensic experts, accident reconstructionists and economic damage experts to disprove or discredit plaintiffs’ allegations. If Walmart is able to disprove at least some of the allegations, it will improve its bargaining power and hopefully convince the plaintiffs to settle for a lesser amount. The worst case scenario here for Walmart is if this case actually goes to a jury trial. This is highly unlikely, but if the settlement demand is too high, some cases must be decided by a jury. The jury would have to consist of individuals who have virtually no knowledge of the accident, so that there is no prejudice to Walmart. But, realistically, if a jury were to only hear that a Walmart truck rear-ended the plaintiffs’ vehicle, the truck driver

was traveling 20 mph over the speed limit and Jimmy Mack was killed and Tracy Morgan was seriously injured, the jury would render a significant multi-million dollar verdict. No other facts would really matter, unless the judge allowed the plaintiffs to seek punitive damages. Then the verdict could double. The sooner Walmart resolves this case, the better. Federal Rules & Regulations The federal rules and regulations for semi-trucks have also come under fire as a result of Morgan’s accident. Critics of the federal rules and regulations suggest that the rules are not stringent enough regarding working and driving hours, mandatory rest time and safety equipment on the semi-trucks. Trucking companies and their insurers across the country have resoundingly rejected such arguments. Trucking companies counter that if the rules are changed even slightly, the effects could be counterproductive. The main argument that more stringent restrictions on hours is counterproductive is that it would force companies to put semi-trailers on the road during the day for long periods of time in heavy traffic, which would cause even more accidents. The reality is that auto accidents are

SEALC002.indd 1

® AP Photo 2014 going to happen, whether they are semitrucks or cars. The Tracy Morgan case may be exposing drivers to safety concerns regarding semi-trucks. This is only one case and should not create an automatic reaction pushing to overregulate semitrucks. Unfortunately these types of accidents happen all over the country and many drivers never hear about them. Most importantly, companies with semi-trucks and the Federal Transportation and Safety Department have been working together to improve safety long before the Tracy Morgan crash and will continue to do so to ensure the safety of truck drivers and automobile drivers. CJ Parafinczuk is a shareholder at Koch Parafinczuk & Wolf, P.A., a statewide insurance defense firm in Florida.

4/21/14 11:48 AM Fall 2014 | Claims Journal 21

SPECIAL REPORT | AUTO

Why No-Fault Pharmacy Benefit Management Helps Payers and Injured Parties By Rey Quinones

o-fault medical losses cost payers an estimated $18 billion in 2013. Of this amount, nearly $9 billion is attributed to personal injury protection (PIP), with pharmacy-related claim expenses just shy of $1 billion, or roughly 11 percent of total PIP claim payments. Nearly $1 billion in pharmacy-related claim expense is meaningful. When compared to workers’ compensation, the average price per prescription was 30 percent higher and the average number of prescriptions per claim was 220 percent greater. There’s an opportunity for payers and injured workers to benefit from a pharmacy benefit manager (PBM). PBM services help payers make better decisions, delivering claim-handling efficiencies. They offer insight into claim activities that might be high-risk or highcost, and provide the tools to intervene should it be necessary. A PBM’s pharmacy network assures access to medications and reduces costs through network discounts. For the injured party, the PBM offers convenience. Not only are injured parties able to more easily obtain claim-related medications, but they can also gain access to home delivery services, and need not submit pharmacy receipts for reimbursement of out-of-pocket costs. These conveniences are essential to customer satisfaction and policy retention. There are more than two million auto injuries in any given year. Physicians will prescribe medications to many, if not the majority, of cases. Therefore, a payer’s ability to ensure the injured party receives the right medication at the right time, and at the right price, is significant. Key Features of a PBM Program When looking for a PBM, a no-fault payer should look for programs that provide excellent service, an extensive pharmacy network, evidence-based clinical programs, and advanced technology and reporting tools. Analytic insight and 22 Claims Journal | Fall 2014

veteran industry expertise, advocacy in government affairs, competitive pricing and expertise with catastrophic care coordination also are important. Key Program Features Excellent Service: The ability to provide accountable service is critical. Payers should look for accessible service associates, passionate account management and visible, engaged leadership. Tools, resources and support should be available when you need them. Extensive Pharmacy Network: Pharmacy networks should include all major chains to assure ease of access to claim-related medications. In addition to robust retail networks, home delivery capabilities can help to control costs and enhance utilization management. The more information available about a medication therapy regimen, the better positioned a payer is to make changes when needed, such as with misuse or abuse. Evidence-Based Clinical Programs: Clinical expertise and programs emphasizing global medication management are central to controlling cost and utilization of pharmacy-related claim expenses. Payers should seek programs founded in evidence-based medicine and recognized medical guidelines. The PBM’s proactive

management of medication therapies involving opioid analgesics is important. Tools such as medication formularies and drug utilization review (DUR) help detect drug-to-drug interactions, duplicate therapies, inappropriate medications, excessive length of use or dosage, generic availability, and other therapeutic concerns. Intervention tools that address concerns regardless of complexity is important to ensure the injured party receives the right medication at the right time. Technology and Reporting Tools: An effective PBM program should enhance a payer’s claim operation. Communication portals built on redundant technology platforms that prioritize security and efficiency are imperative. Similarly, timely provisions of actionable reporting information that provide insight into program performance are critical. When it comes to selecting the right PBM, it is important to consider cost and value. Competitive per transaction costs are as important as a proven record of accomplishment. Proficiency in delivering results should be evident, and delivered cohesively. CJ Quinones is vice president of product development for Helios, the new name for Progressive Medical and PMSI.

SPECIAL REPORT | AUTO

A Different Breed: Best Claims Practices for Collector Cars By Bill Crowley

hen it comes to claims, collector cars require special expertise. If you’re an automobile aficionado, you’ll likely know the difference between a 1967 Pontiac GTO and a 1967 Plymouth Barracuda. The horsepower, the torque, the available engine sizes, the number of barrels in the carburetor and zero-to-60 MPH times are some of the things that separate these two highly sought after machines. The same is true when it comes to settling automobile claims. And that’s just for modern vehicles. Adjusting a claim for a classic car — say, a 1942 Packard — is an entirely different animal. Without knowing the subtle nuances between handling claims on a collector car versus a standard auto, some insurance adjusters can seriously botch collector car claims. Customers expect their insurer to offer comprehensive coverage in case of an accident, and it’s the insurer’s responsibility to ensure a reputable and seasoned adjuster who understands this niche market is a part of that coverage.

The Expert Within Many collector cars require a complex approach to repairs. This is due to a variety of factors, including potentially high costs of parts and labor and trying to find appropriate parts. Restoration and the cost of materials isn’t the only issue. Handling the emotions of disheartened customers, who have just witnessed one of their most prized possessions incur substantial damage, is also crucial. Without impeccable customer service skills, the game of rebuilding and repairing a collector car could be over in a flash. There are many aspects of collector car claims that are similar to regular auto claims. First off, the accident needs to be promptly reported, and the insurer needs to gather facts around how the incident occurred and explain the claim process to the customer. As always, the company will then assess the damage, which includes deciding whether or not the vehicle is a total loss. In all but the smallest of damage claims, someone will be assigned to physically inspect the vehicle.

An agreement on the scope and cost of repairs will be completed and will form the basis for the payment made by the company. The next step is to evaluate and inspect if, and how, the vehicle can be repaired. Unlike regular modern automobiles, there is no readily accessible database containing parts lists, parts pricing, labor associated with parts replacement and painting for most collector vehicles. This means that it is up to the damage appraiser and the repairer to reach a mutual agreement based on knowledge and expertise, through negotiation on many of these things. A Team Approach Meanwhile, as the insurance company moves through its claim processes, it’s vital that the adjuster keep the customer in the loop. Not only should the customer understand the policy and the coverages provided, but they should also have a say in who they would like to use to repair the vehicle. Typically, it will be someone continued on page 25 Fall 2014 | Claims Journal 23

SPECIAL REPORT | AUTO

Are Left Turns a Deadly Maneuver? By Jim Hyatt

he act of driving is deceptively simple and, for most of us, part of our daily routines. Safe driving, which requires focus and attention, is becoming more of a defensive act every day, thanks in large part to the use of cellphones. Left turns are at the top of the list of the most challenging and dangerous driving maneuvers. In 2013, 31 percent of Arbella Insurance Group’s severe accidents — claims totaling at least $100,000 in bodily injury and property damage — involved a left-turning vehicle. The insurance industry should be communicating the risks of left turns — as well as the benefits of avoiding them — to their insureds. In addition, municipalities should continue to make changes to roads and intersections to lessen the risk for drivers. The U.S. Department of Transportation reports that nationwide, 53.1 percent of crossing-path crashes involve left turns. Additionally, a study by New York City transportation planners 24 Claims Journal | Fall 2014

found that left turns were three times as likely to cause a deadly crash involving a pedestrian. Why Left Turns? The reason making a left turn is so complex is because the act itself disrupts the flow of traffic. Drivers must judge the speed and distance of oncoming cars, battle the glare of headlights, and watch for motorcycles, bicycles and pedestrians — many of whom are becoming increasingly distracted themselves. Driving requires vigilance when watching and reacting to other drivers, and making a left turn is one of the greatest risks. The National Highway Traffic Safety Administration (NHTSA) reports that close to half of the 5.8 million car crashes in the U.S. are intersection-related and the majority of those are the result of making a left turn. If you’re still skeptical about the potential hazards of left turns, consider this scenario: You’re on your way home from work and it’s raining. Traffic on the high-

way is heavy, other drivers are carelessly weaving through lanes and you realize that you have been on autopilot going 60 mph for the past 20 minutes of your commute. Finally, you’re in your neighborhood, just around the corner from your home — waiting at an intersection to turn left. You’ve done this drive hundreds, maybe thousands, of times, and you take for granted that when you inch out into oncoming traffic, other drivers will let you into their path — those same drivers who may be distracted by smartphones and on autopilot themselves. These false assumptions happen all too frequently. The NHTSA reports that of the 787,236 intersection-related crashes that were reported from 2005 to 2007, 30 percent were attributed to drivers’ “decision errors,” such as driving too fast or too aggressively, making false assumptions about others’ actions, illegal maneuvers, or misjudgment of the gap or the other car’s speed. Environment-attributed reasons were at 1.4 percent, while 78.6 percent of the crashes occurred in clear weather.

What Can Be Done? Is anything being done to address such hazardous driving behavior? In response to the high probability of left turn accidents, municipalities nationwide have changed roads and intersections in an attempt to lessen the risks of intersection-related or left turn accidents. Some of these changes include installing Jersey barriers to prevent left turns on specific roads, jug handles, rotaries and left turn arrows on traffic lights. The New York State Department of Transportation found that these adjustments are working: Their research found a 50 percent reduction in accidents after adding left turn-specific lanes at intersections and a 54 percent reduction where there was also a left turn signal. The case for eliminating left turns altogether may seem extreme, but the benefits are overwhelmingly positive. In 2004, UPS eliminated left turns for its drivers as part of a route-optimization strategy. Since then the company has saved an estimated 10 million gallons of gas and drivers have been able to deliver more packages in continued from page 23 who has either assisted in the previous restoration of the vehicle or who has an existing relationship with the owner. If the owner is not familiar with any repairers, the insurance company should assist in identifying possible options. On the other side, the repairer should also have some familiarity with the type of vehicle. While a regular collision shop can certainly repair a collector vehicle, it may not be aware of all the distinctions associated with a particular brand and model. In fact, in some cases, the vehicle owner may have some parts available that could be utilized, and should be compensated for using these parts. For some vehicles such as certain 1950s or 1960s American or British cars, parts may be relatively easy to find. They might be “NOS” (new old stock), newly made replacement pieces or even used parts. Sometimes, collector cars must be sent to specialized repair facilities. Typically, in some cars from the 1920s and 1930s, there are no parts readily available so they will need to be fabricated by hand. These are typically done on a time and

even less time. For UPS and the average ing the benefits of eliminating left turns American commuter alike, a route that from daily driving routines — the average avoids left turns may be longer, but movcommuter may be surprised to know that ing with the flow of traffic rather than consecutive right turns are faster and against it makes for more fuel-efficient. less idle time, greater Could the future of Nationwide, 53.1% of fuel efficiency and driving be free of left crossing-path crashes turns? Perhaps, but it’s safer driving condiinvolve left turns. tions. unlikely. Thankfully, So what can the vehicle-to-vehicle techinsurance industry do to help mitigate the nology has reportedly advanced to such a risks associated with this problem? We degree that the NHTSA could start requirmust communicate the dangers involved ing it in all new vehicles as soon as 2020. with left turns and encourage our insureds Having this technology on the road could to make the maneuver as safe and riskprevent as many as 592,000 left turn and free as possible. Arbella does this by intersection crashes a year, saving 1,083 sharing safety information with agents lives. But until a rolling stock of these and customers. Recommendations include vehicles is on the highway, left turns will using intersections controlled by left turn continue to pose serious risks to drivers, arrows, jug handles or rotaries; paying and we need to continue to mitigate those close attention to distracted pedestrians; risks through increased communication staying alert when combating the sun and improved engineering on all roads or oncoming headlight glare; and paying across the United States. CJ close attention to other vehicles’ speed and actions, rather than anticipating what Hyatt is vice president of Personal Lines for Arbelthey will be. Consider also communicatla Insurance, a New England regional insurer. material basis and can be extremely costly. Chubb once spent more than $30,000 to build a set of bumpers for a rare 1930s French vehicle. It’s not unusual for repairs on rare cars to take years. In these situations, the damage appraiser should visit the repairer throughout the life of the job, checking on progress, negotiating prices and photographing repairs. It is important that the vehicle owner has faith in their insurer to stick with the claim for the long-haul. Additionally, on a major job, it would be rare for the initial damage estimate agreed to by both the damage appraiser and repairer to be the final cost. Often times, there may be a number of smaller follow-up issues such as panel adjustments. Paint matching can also add a dimension of considerable complexity to the repair. With modern vehicles, new technologies and paint matching systems have all but eliminated this as an issue. With collector vehicles, that is not the case. In some cases, the paint material type (lacquer vs. enamels as an example) may

no longer be available; it may be quite old and difficult to match in both color and shine. For example, modern urethane paints are much shinier than paints used in the past and may not be appropriate for an accurate restoration. Agreed Value Some statistics indicate that fewer than half of the collector vehicles on the road today are insured by collector programs. This vies poorly for the fate of damaged collector cars, but fares even worse for cars that are total losses. Generally, if a vehicle is totaled and the owner has collector car insurance, there will be an agreed value on the vehicle at the time the policy is written. Although the insurance policy may grant the salvage rights to the company, many collector vehicle owners desire to retain the salvage, which is negotiable in terms of how much would be deducted from the settlement amount. CJ Crowley, worldwide auto claim manager at the Chubb Group of Insurance Cos. in Warren, N.J., is an avid car racer who has been with Chubb for 37 years. Fall 2014 | Claims Journal 25

DEPARTMENTS

ADJUSTER TOOLKIT

Roof Monitor wireless sensor installed on a low slope rooftop promises to monitor water and snow loads, according to Brad Beldon, owner and founder of the Roof Monitor and a third-generation roofing contractor.

Although Beldon started working on the product in 2002, it wasn’t released until earlier this year. “Whether you’ve got a clogged drain that water is building up or if you’ve got snow, we can measure the density of the load and transmit that data in real-time through our controller to the end-user,” Beldon says. The monitor can be used for both residential and business. “It can be used for anything with a low slope. It can be used on a steep slope, we just have to write specific algorithms for that project; we’re trying to keep it on low slopes for the time being,” he says. The monitor comes equipped with a UV stabilizer and is resistant to most weather elements. In addition, it has a battery life of a little more than two years, although the UV stabilizer can last 10 years. Building owners can check battery life daily, according to Beldon. “Every day you get real-time notifications of the battery status in increments of one to six. When it gets into its last 15 percent or 16 percent of its life, you’ll know that. You’ll know it’s about time to think about replacing it,” he says. The monitor has been in beta testing in San Antonio, Texas, and in Boston. The proof of concept was completed with the University of Texas in San Antonio. “Our goal is to prevent business interruptions and roof collapses,” he says. “We’re not going to eliminate the need to remove snow, but what we’ll be able to do is to identify whose building is at greater peril than somebody else’s based on the structure itself.” CJ Online Access to Auto Accident Records Automobile accident reports from police departments across the United States are now accessible through Carfax’s accident reports service, Crashdocs.org. Insurers, lawyers and other interested parties can order accident reports from all 50 states and the District of Columbia through an online site.

There is no cost to create a Crash docs.org account, and there are no added fees from Carfax to order the accident reports online. CJ 26 Claims Journal | Fall 2014

For more information, visit www.Crashdocs.org.

State by State Look at Graduated Driver Licensing Laws

According to the Governors Highway Safety Association, (http://www.ghsa. org/html/stateinfo/laws/license_ laws.html), young drivers have higher

crash rates. Graduated driver licensing (GDL) programs provide teen drivers driving experience while controlling their environment. Programs usually include three stages: • Learner Stage: supervised driving, cumulating with a driving test; • Intermediate Stage: limiting unsupervised driving in high-risk situations; and • Full Privilege Stage: a standard driver’s license. The types of restrictions under a GDL program vary by state, the GHSA reports: • Nighttime Driving Restriction: 48 states and D.C. restrict nighttime driving during the intermediate stage. • Passenger Restriction: 47 states and D.C. restrict the number of passengers during the intermediate stage. • Novice Driver Decal: New Jersey is the only state with a measure requiring those younger than 21 without full-privilege licenses to display a decal on their vehicle identifying them as new drivers. CJ

IDEA EXCHANGE | TECHNOLOGY

New Software Promises to Cut Claims Assignment Time CEO Sees Product Moving in Same Direction as Uber App

By Denise Johnson

ew software released by IAS Claim Services, a nationwide independent insurance adjusting company, promises to cut the time it takes to assign claims as well as processing time, according to CEO Larry Cochran. He said the software will make it easier for field adjusters and quality control personnel to do their jobs. The San Antonio-based company handles third party administration, large loss, commercial loss adjusting, personalized and catastrophe claims. The product innovation came about as a result of a suggestion from a top IAS client. “When we asked them what the next

big opportunity to make improvements in the claims process, they said…the biggest challenge and opportunity is with respect to the way claims are assigned to adjusters,” Cochran said. “We're currently using Claimatic with all the assignments that come into our company, across all lines.” Nature of Claims Insurers assign claims based on the nature of the claim, the complexity, the loss location, the adjuster's skill set and location and the availability or capacity for the adjuster to handle that, he said. “It typically takes a human being that has some level of skill and experience to evaluate that claim and say, ‘OK, this is

a commercial or this is a personal lines claim. This is a claim that is going to require a ladder assist, or this flood's going to require a flood certified adjuster or this claim is going to require someone with a roof certification or someone with a license in various states,’” said Cochran. “It may be a claim that requires a rope and a harness certified adjuster, because it's on a steep roof. If so, then it'll also go to the data bank of adjusters and search only for those that are rope and harness certified.” According to Cochran, running through that logic can take up to 20 minutes for an individual claim. continued on next page Fall 2014 | Claims Journal 27

IDEA EXCHANGE | TECHNOLOGY continued from page 27 “If you're only dealing with a few claims that are coming in every hour, it's pretty easy to handle that kind of decision-making and then really mapping it out and saying, ‘OK, this is definitely the most efficient resource and the best resource to handle that claim,’” he stated. Problems arise when there is a spike in

‘It’s just impossible to ramp up the resources you need internally to make each of those independent decisions to assign to the optimal field adjuster.’ claims, such as during storm season. “That process becomes pretty overwhelming because the claims come in at such a rapid speed,” said Cochran. “It's just impossible to ramp up the resources you need internally to make each of those independent decisions to assign to the optimal field adjuster.” Logic The company developed logic that was programmed into an algorithm that takes information from various data repositories. The logic can read the loss notice, get the important information off of it and then scan other databases that have personnel information. The software can be fine-tuned with each individual adjuster's availability based on what is known about their capacity. “Some adjusters turn claims faster than others, and that's just the human nature of this business. We can put that threshold wherever we want to in the system,” Cochran said. “Claimatic will run through the algorithm, searching all of the information from the client's claim through the personnel information and automatically assign that claim to the best adjuster. It can do this in just a couple of seconds at the most for each claim.” The difference in assignment time is that humans get tired and frustrated. “It's amazing how much more effective it is at clustering claims for an adjuster in a really tight radius, versus when you take a person, a person will do a pretty good job usually for a dozen claims or so. Then, 28 Claims Journal | Fall 2014

they start to wear down, as the claims just keep piling up, they'll just start dumping, ‘OK, I'm going to put these 10 claims or these 30 claims with this person and then that fills them up and I'm going to move to the next person,’” said Cochran. Before, the average drive time for claims could be 30 minutes or more as adjusters crisscross one another throughout the day in the same area. The program can also identify a complex loss and kick it out to a manager for assignment. Once it's made the assignment, it will send an email to the manager responsible for that claim letting them know who the claim was assigned to. Depending on the client’s choice, an automated email can also be generated and sent to the insured providing the name and contact information for the assigned adjuster confirming receipt of the claim. Savings Cochran said savings are seen in a number of areas including drive time and manual claims assignment time reduction. “There has been about 20 percent reduction in overall time in process for our claims,” he said. The company plans to license the software to insurers later this year. Cochran said there are likely two different components of value opportunity for companies. The first is labor cost savings. “When you can turn claims 20 percent less, you're going to save on that labor cost per claim by theoretically that much. You're also going to be saving on the cost associated with…travel, fuel, depreciation, those kinds of costs, because you're going to be cutting down the average drive between claims,” Cochran said. The second is the reduction of costs associated with assigning claims. The IAS CEO said that most excitement is centered around what insurers see as

improved customer service and how that will affect marketing and their ability to take or preserve market share, because it's so hard to attract and retain quality insureds. The intent is not only to improve claim file assignment time but also to relay information back to the insurer that can be used later for underwriting. “We can also show them comparisons from one event to the next, which will show them average drive time, and then

‘There has been about 20 percent reduction in overall time in process for our claims.’ all of that overlaid with their loss information, what the average total loss was, claim value and so forth,” he said. Cochran said he’d like to see this product move in the direction of the Uber mobile app. “We really see this application and this system moving in that direction, to where adjusters could be driving down from one location to another and receive an assignment that says, ‘You're within two miles of a claim that came in. Would you like to accept it?’ We're really excited about all the different opportunities that this can bring down the road,” he said. CJ

DEPARTMENTS

SNAPSHOT Before & After: 1965 Chevrolet Chevelle Malibu SS American Modern Insurance Group, a specialty insurer known for its collector car coverage, unveiled the completed restoration of a 1965 Chevrolet Chevelle Malibu SS during a collector car show held Thursday, July 10, 2014, at its headquarters in Amelia, Ohio. The car, which the company named “Ami,” came to the company totaled and destined for the scrap yard. In the past 20 months, the car has received a second chance and has been restored through a collective undertaking by more than 100 American Modern employees. CJ

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IDEA EXCHANGE | BEST PRACTICES

Why Insurers Shouldn’t Produce Claims Files in Florida

very time an insurance company is sued for breach of the insurance contract, it receives a Request for Production for its claims file. In Florida, however, the claims file is not discoverable in a first party breach of contract lawsuit. But how can an insured prove a case without the claims file? And how can the insurer defend By Michael A. Packer a lawsuit without producing the claims file? The answer is that Florida courts have ruled that a claims file is not relevant in such matters. Also, under Florida law, the claims file is protected by the work-product privilege. These principles of Florida law were most recently reaffirmed in the Fifth District Court of Appeals case, State Farm Florida Insurance Co. v. Marascuillo, Case No. 5D13-4218 (July 3, 2014). Relevant Discovery It is axiomatic under Florida law that all discovery must be relevant and a party is not “carte blanche” entitled to irrelevant discovery. Allstate Insurance Co. v. Langston, 655 So.2d 91 (Fla. 1995); Brooks v. Owens, 97 So.2d 693 (Fla. 1957). Rule 90.401 of the Florida Evidence Code defines relevant evidence as “evi30 Claims Journal | Fall 2014

dence tending to prove or disprove a material fact.” With regard to the claims file in a breach of contract case, the Florida practitioner should ask: “How does the claim investigation prove or disprove whether on the date of the alleged loss there was a covered claim?” In Langston, although the plaintiff did not allege bad faith or unfair claims handling practices, the plaintiff sought discovery related to the insurer’s internal procedures and handling of the claim. The Supreme Court noted the information requested was irrelevant and quashed the District Court’s Order “to the extent that it permits discovery even when it has been affirmatively established that such discovery is neither relevant nor will lead to the discovery of relevant information.” In this respect, Florida Courts have consistently held that information relating to an insurer’s handling of a claim is not subject to discovery in an action seeking a determination of insurance policy benefits. The reason is such information is irrelevant to the question of whether the policy obligates the insurance company to provide the requested coverage. Nationwide v. Demmo In Nationwide Insurance Co. of Florida v. Demmo, 57 So. 3d 982 (Fla. 2d DCA 2011), the District Court granted Nationwide’s

petition for writ of certiorari and quashed the trial court’s discovery order in a case involving damages to property allegedly caused by sinkhole activity. The trial judge ordered the production of claims file materials including claims notes, activity logs, property loss notice information and property loss notice forms. The appellate court stated the “trial court focused on the question of what is and what is not work product with regard to the documents sought.” But that was not the determinative issue. Rather, the issue turns to what type of action Demmo had brought. Here she was not pursuing a bad faith claim, but rather seeking relief for breach of contract. “A trial court departs from the essential requirements of the law in compelling disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved.” Seminole Cas. Ins. Co. v. Mastrominas, 6 So.3d 1256,1258(Fla. 2d DCA 2009) (emphasis added). “Further, requiring the disclosure of claim file materials during the litigation of coverage issues would result in irreparable harm that cannot be adequately addressed on appeal.” In Marascuillo, Florida’s Fifth District Court of Appeal extended the foregoing Florida rule of law to claims files from previous claims. As the court pointed out: “[M]ost courts addressing the issue

have held (either expressly or impliedly) that the work product doctrine protects documents created in anticipation of terminated litigation as well as anticipated litigation that never materializes.” See generally Annotation, Work Product Privilege as Applying to Material Prepared for Terminated Litigation or for Claim Which Did Not Result in Litigation, 27 A.L.R. 4th 568 (2014); Russell J. Davis, Annotation, Attorney’s Work Product Privilege, under Rule 26(b)(3) of the Federal Rules of Civil Procedure, as Applicable to Documents Prepared in Anticipation of Terminated Litigation, 41 A.L.R. Fed. 123 (2014). This is the rule explicitly adopted in Florida. See Ruhland v. Gibeault, 495 So. 2d 1243, 1244 (Fla. 5th DCA 1986) (holding that the work product privilege does not expire when a case is closed); Alachua Gen. Hosp., Inc. v. Zimmer U.S.A., Inc., 403 So. 2d 1087 (Fla. 1st DCA 1981) (holding that the work product privilege extends beyond the anticipated litigation and noting that “the weight of modern authority clearly provides that work product retains its qualified immunity after the original litiga-

tion terminates, regardless of whether or not the subsequent litigation is related”). We still view this as the correct rule, and also believe this rule to be implicit in the Florida Supreme Court’s holding in Ruiz. In other words, there would have been no reason for the Supreme Court to carve out an exception calling for the production of a coverage claim file as part of discovery in a bad faith action, but only upon conclusion of the coverage litigation, if the work product privilege expired at the conclusion of the coverage litigation anyway. Rather, Ruiz can be read as essentially concluding that the good faith exception (to the work product privilege) can always be met in a bad faith action because the coverage claim file “presents virtually the only source of direct evidence with regard to the essential issue of the insurance company’s handling of the insured’s claim” such that its production will always be “necessary to fairly evaluate the allegations of bad faith-information” and “to advance [the bad faith] action . . . .” Ruiz, 899 So. 2d

Nay, Nay! While experts may opine as to whether sinkhole activity has caused damage to a structure; wind speeds were strong enough to damage a roof; or if a fire was intentionally set; what the claim adjuster did or when he or she did it is not going to provide answers. Whether it is the vacancy provision in a vandalism claim, or the leakage, seepage exclusion in a water loss claim, the subject insurance policy and fact witnesses will dictate whether the policy provides coverage for a claim and not the adjuster’s interpretation of the policy. So remember, the next time counsel for the insured serves you with a request for the claims file in a first party breach of contract case, you may confidently say, “Nay, nay!” CJ Packer is a shareholder in the Fort Lauderdale office of Marshall Dennehey Warner Coleman & Goggin, where he serves as supervising attorney for insurance coverage and bad faith matters in the state of Florida. He can be reached at 954-8474921 or by email: mapacker@mdwcg.com.

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IDEA EXCHANGE | ESSENTIALS

When Does Directing Traffic Constitute Vehicle Use?

ome courts have concluded that law enforcement officers, while on foot, directing traffic constitutes the “use” of a police vehicle provided that the police vehicle was nearby and was part of the overall traffic management activity. See, e.g., Maring v. Hartford Cas. Ins. Co., 126 N.C.App. 201 484 S.E.2d 417, 420 (1997) (use of police vehicle found when By Steven Plitt lights and sirens on the vehicle were activated and the police radio was turned up so that the officer could communicate from outside the vehicle while standing in the intersection directing traffic); Argonaut Ins. Co. v. Jones, 953 N.E.2d 608, 612, 622 (Ind. Ct. App. 2011) (placement of police vehicle in a highway lane, leaving the engine running, and activating the emergency lights to redirect traffic constituted vehicle use “for one 32 Claims Journal | Fall 2014

of its intended purposes”); Oberkramer v. Reliance Ins. Co., 650 S.W.2d 300, 302-03 (Mo. Ct. App. 1983) (where police vehicle was parked across the road in a road-blocking position with its lights activated constituted vehicle use when the police officer was standing away from the vehicle directing traffic). Tractor Trailer In determining whether a person was “using by guiding” a vehicle, courts have focused on how much control the driver of the vehicle ceded to the person who was acting as the guide. As an example in Slagle v. Hartford Ins. Co., 267 Va. 629, 594 S.E.2d 582, 587 (2004), an individual was helping a tractor-trailer driver back up onto a work site. In finding in favor of vehicle use, the court reasoned that: “[the] hand signals to the driver effectively determined the direction and movement of the tractor-trailer and were required by the driver for the completion

of the intended maneuver of the vehicle. Accordingly, there was a causal relationship between the incident in which [the signaler] was injured and the employment of the tractor-trailer as a vehicle...” Similarly, in Woodrich Const. Co. v. Indemnity Ins. Co. of North America, 252 Minn. 86, 89 N.W.2d 412, 418-19 (1958), the court found that the signaler was using a truck because the signaler had “participate[d] in the operation of the truck to such an extent as to be a user of the vehicle.” The court found that the signaler had “active control or guidance of a backward movement of [the] truck.” Similarly in Liberty Mut. Ins. Co. v. Steenberg Const. Co., 225 F.2d 294 (8th Cir. 1955), a subcontractor was supplying mixed concrete for the general contractor’s use in laying a floor. An employee of the general contractor signaled the subcontractor’s truck driver while backing up and the cement truck struck and injured a third person. The court held that the

active directing by the general contractor of the backward movement of the truck and the following of signals given to him by the subcontractor’s driver were both activities which were performed as incidents to the construction work. As such, the participation of the general contractor in the backing-up process as a signaler became part of the actual operation of the truck so that the general contractor was using the truck within the meaning of the policy’s omnibus clause. The court in Ins. Co. of North America v. Royal Globe Ins. Co., 30 Wash.App. 78, 631 P.2d 1021, 1023 (1981), also found vehicle use when the signaler was placed in a following flag car with a radio in order to communicate with the driver of a truck because the driver of the truck could not see the boom’s position from outside the truck. The court concluded that the person communicating with and guiding the truck was “using” the truck within the meaning of the relevant policy language. Signaler Using the Vehicle The court in Hake v. Eagle Picher Co., 406 F.2d 893, 895, 896 (7th Cir. 1969), discussed the problematic analysis which is involved when determining whether a signaler can be deemed to be using the vehicle being signaled: “It is difficult and probably impossible to formulate an exact measure of the degree of control which a person not owning or driving a particular automobile must exercise over it in order to have the type of responsibility for its potential to do injury so as to be deemed entitled to the protection of automobile liability coverage. Obviously, the expression “while using” is intended to describe the appropriate relationship, but does not readily supply an answer in situations of the type now before us.” The facts in Hake involved a situation where a property owner was ultimately deemed to be the user of an automobile for purposes of coverage “where by signaling directions to the driver the owner of the premises or his employee [had] exercised immediate control over the movement of the automobile.” A recent case by the Wisconsin Supreme Court demonstrates when the signaling or directing by a third party is insufficient to constitute vehicle use. In Jackson v.

Wisconsin County Mut. Ins. Corp., 354 Wis.2d 327, 847 N.W. 2d 384 (2014), a deputy sheriff was struck by a vehicle while assisting the vehicle to enter a lane of traffic at an airport. The deputy sheriff testified that she was on duty on a sidewalk at the Milwaukee Airport when a lost motorist pulled up to her and asked how to get to a specific hotel. The deputy sheriff directed the motorist to pull over to the curb, which the motorist did. The deputy sheriff then bent down to speak into the window, standing one or two feet away from the car, to answer the motorist’s question. After the deputy sheriff gave directions to the hotel, the driver then asked the deputy sheriff “how am I going to get back in traffic?” The deputy sheriff responded “I will go in front of your car, and I will come around and help you get in traffic.” As the deputy sheriff walked on the pedestrian walkway in front of the car, the car “move[d] three or four feet” at about 5 mph and hit her. The court in Jackson acknowledged that “a person may be considered to be ‘using’ a vehicle for purposes of the omnibus clause by guiding or giving signals to the actual operator of the vehicle.” The court stated: “In determining who constitutes a user of a vehicle for the pur-

‘Control is therefore the primary factor in determining whether signaling directions elevates an individual to the status of ‘user’ under an omnibus clause.’ poses of an omnibus clause, it is generally required that if one who claims to be a user was not actually driving the vehicle, that individual must have exercised some form of control over it. Control is therefore the primary factor in determining whether signaling directions elevates an individual to the status of ‘user’ under an omnibus clause…. [W]here the driver cannot see where he is going and completely trusts the guide to direct his movements, the guide can be considered a user because the actual driver is essentially an automaton, responding solely to the guide’s directions.”

Control of the Vehicle In determining whether an individual was “using the automobile by guiding it” the focus is on how much control the driver of the vehicle has ceded to the person who was acting as the guide. The deputy sheriff in Jackson described the accident in the context of the whole encounter with the driver which started with the direction given to the driver to pull to the curb and ended with the final order to park the car after the accident with the deputy sheriff had occurred. The deputy sheriff argued that in her series of interactions with the driver of the vehicle, she was in the process of manipulating the vehicle, in the sense that she was controlling where it went, citing to a dictionary definition of “manipulate” as meaning “control.” According to the deputy sheriff, her stepping in front of the vehicle was a part of the process that began when she indicated to the driver that he needed to pull over to the curb and would have lasted through the point when she helped him pull back into traffic and the driveway. However, the insurance company characterized the deputy sheriff’s actions as merely helping the occupants of the vehicle rather than controlling or manipulating the vehicle’s movements. The insurer argued that the deputy sheriff was simply walking in the pedestrian walkway in front of the vehicle when the accident occurred and that the deputy sheriff was not gesturing or waving. The Wisconsin Supreme Court held that the deputy sheriff in Jackson was not using the vehicle. The deputy sheriff had conveyed four points of information to the driver: (1) a request to pull to the curb; (2) directions to the hotel he was seeking; (3) an offer to help him pull back into traffic; and, (4) an order to park the car after she was hit. Unlike the cases where the person guiding or giving directions was “controlling” and therefore deemed to be a user of the vehicle, the deputy sheriff was not exercising control over the vehicle to the extent that she essentially became the user. CJ 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 Fall 2014 | Claims Journal 33

IDEA EXCHANGE | FINAL OFFER

New Technology on Vehicles is Working to Reduce Crashes

utonomous or “driverless” cars generate a lot of media buzz because of the public’s fascination with new technology and what vehicles may be like in the future. Yet, there’s a revolution underway that is changing vehicles right now that has more immediate implications for drivers and for insurers than autonomous cars do. Increasingly, vehicles are equipped with advanced safety techBy Adrian Lund nologies that Institute research shows are preventing some kinds of common crashes. Crash Avoidance Technology As with any new technology, crash avoidance systems started out as options on a few luxury models and have steadily spread to more of the fleet. The goal is to assist the driver with a warning or even automatic braking to help avoid or mitigate a crash. Systems include front crash prevention, lane departure warning, blind spot detection, adaptive headlights, park assist and back-over prevention. Advances also are being made in intelligent transportation systems that allow vehicles to communicate with one another or with road infrastructure to help avoid crashes. The Institute’s long-running crash test program has helped drive major improvements in how well vehicles protect people when crashes happen. Crash avoidance technology promises to prevent many crashes from happening altogether. So far, Institute research shows significant benefits from front crash prevention features such as forward collision warning and automatic braking. Front crash prevention systems use various types of sensors, such as cameras or radar, to detect when a vehicle is getting too close to the one in front of it. Most systems issue a warning and precharge the brakes to maximize their effect if the driver responds by braking. Many systems can brake the vehicle autonomously if the driver doesn’t respond. The aim of the 34 Claims Journal | Fall 2014

The insurance industry, through the research of the Institute, will help drive the spread of crash avoidance technologies. technology is to either prevent the crash if possible, or at least reduce its severity. This technology is working on the road. Institute research finds that automatic braking systems are reducing property damage liability claims by around 14 percent. The systems are typically optional, often included in technology or safety packages with other features. Volvo is a step ahead of many of its competitors, making its auto-brake system called City Safety, which operates at low-speeds, a standard feature across its product line. Forward collision warning systems, without auto-brake, also are reducing crashes, but the effect typically isn’t as large. Systems without auto-brake probably have more modest benefits because they rely on drivers to respond appropriately to the warning and can’t directly avoid crashes. We’re also seeing crash reductions with adaptive headlights, which are designed to pivot with steering wheel input to help drivers see better on dark, curved roads. When researchers looked at adaptive headlights offered by Mazda, Mercedes and Volvo, they found property damage liability claims fell as much as 10 percent. That’s surprising because only a small

percentage of multiple-vehicle, nighttime crashes occur on curves, where adaptive headlights would have an effect. VRC Expansion To help better understand how various crash avoidance systems are working, insurers have embarked on an exciting, $30 million project to expand the Institute’s Vehicle Research Center (VRC) facility near Charlottesville, Va., to enable researchers to undertake more rigorous scientific evaluations of these technologies. Work is nearly completed on a 300-by-700 foot covered track where engineers will evaluate vehicle-based systems year-round using robotic targets and vehicle controllers. An existing outdoor track has already been expanded to conduct higher speed maneuvers than were possible before. Fully “driverless” cars are a long way off, but the technologies that are the building blocks for the vehicles of the future are on the road right now. The insurance industry, through the research of the Institute, will help drive the spread of crash avoidance technologies. CJ Lund is president of the Insurance Institute for Highway Safety, located in Arlington, Virginia.

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