Claims Advisor Summer 2009 by Liquid Line, Inc.

SUMMER 2009

www.claimsadvisor.com

Information for today’s claims professionals

Busted! A Look at the State of Adjusting and Fraud

Legislation Update

Sneaky Payoff The Need for a Strong Analytical Unit

Fraud in the Art World Would You Believe?

ADHD’s Role in Claims SCHIP: The Compliance Headache

change service requested 537 Deltona Blvd. Deltona, FL 32725

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We can help you turn things around by dealing with stress more effectively. At Temporary Accommodations, we’re conducting specialized training for our staff to understand, identify and cope with stress in all its forms, shapes and sizes. We also offer this training for adjusters as a Continuing Education course — just ask us. It’s another way Temporary Accommodations is always making a difference for you.

Contents in this issue summer 2009

46 16

Plan now for influencing your legislature on insurance fraud laws.

Court orders on property claims can give you precedents to work from.

By Howard Goldblatt

By Robert T. Horst, ESQ., Mark H. Rosenberg and John J. McHale

Paper Tigers with Teeth!

Order in the Court

Coalition Against Insurance Fraud

Cover Story

22 Busted! Technology helps adjusters establish claims’ legitimacy and flush out fraud. By Dave Willis

Insurance IntelligenceAnalyze This!

Would You Believe...?

Integrate your company’s inner self to achieve deep claims analysis.

It’s time for adjusters to get smart on the actual prevalence of fraudulent By Adam Featherling, CFE, CIFI, SCLA & claims. Nick Bogdan, CIFI

By Elise M. Farnham, CPCU, ARM, AIM, CPIW

Illumine Consulting

Is Attention-Deficit/ Hyperactivity Being Overlooked?

Intellectual Property, Fraud and Social Networking: A Perfect Liability Storm?

By Dr. Steven Carter, Psyd, lp Expert advantage

By jonathan faber luminary group, llc

cover: brand x pictures/Getty Images

CLAIMS ADVISOR | SUMMER 2009

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Contents in this issue, contâ&#x20AC;&#x2122;d... summer 2009

Sneaky Payoff Business fraudsters can get away with more than adjusters might think. By Robert D. Jones, CBM, CFE RGL forensics

Risk A Verse Claims professionals can help riskcontrol counterparts just by telling a few stories. By Ken Nogan, MS, CSP

PMA Companies

The Compliance Headache

Claims compliance standards are getting stickier with the addition of Medicare, Medicaid, and SCHIP Extension Act.

Shades of Grey How one art consultant finds clarity in the murky world of art claims.

By John V. Dâ&#x20AC;&#x2122;Alusio

Fine ARts Claims Consulting, INc.

avizent

By PJ Zadok

in every issue summer 2009

Estimates Unveiled

Edit: Letter from the Editor

Using general cost models for identifying and understanding areas of difference between estimates. By Bradley D. Sharp, BA, AIC GuideOne Insurance

Pulse: Your Responses to Our Online Polls

Cool Linx

The Commish

Interview: What Makes You Tick?

Write: Tips for Better Writing

Event: Calendar of Industry Meetings

Source: Advertiser Directory

Story: Claims Adjuster Musings

CLAIMS ADVISOR | SUMMER 2009

Edit Nothing New Under the Sun A recent Wall Street Journal article highlighted one of the latest ways people are coming up with to cheat their way out of debt. It’s called “friendly” fraud, and it’s confounding online companies from sporting goods retailers to jewelry merchants which have seen a 50% increase in the past year. When money gets tight, people get desperate…and creative. Sanjay Sarathy, senior vice president of marketing for Vindicia, Inc., a California-based company that makes software to combat online fraud, says that many people think of friendly fraud as “an easy way to reduce the amount they owe their credit card company.” How it works is simple. Customers order products and then send back empty boxes, lesser merchandise or, in some cases, rocks in order to get a credit card refund they don’t deserve. Others claim they never received the product, leaving the merchant in a pickle. Companies can dispute the claim and possibly lose a good customer or take the financial hit. Sadly, it is getting increasingly difficult to distinguish between legitimate problems and would-be criminals. Analyzing computer records for repeat offenders and photographing every package before shipment has reduced the problem for many companies. One retailer even teamed up with local police to resolve the problem of a “missing” $9,000 diamond necklace. For these online retailers, stepping up their game is the only solution. The same is true in the insurance industry. Whether the answer is better technology or education or both, the need is clear. Identifying fraud is a must for insurance companies to remain competitive and solvent.

Don’t miss an issue! If you want to be sure you keep receiving Claims Advisor, go online and subscribe today! www.claimsadvisor.com/ subscribe

Though there is some dispute as to whether or not insurance fraud is on the rise and how much money it costs carriers each year, adjusters are definitely questioning more as they deal with consumers who may be looking for a way out of their financial turmoil. It follows that adjusters need to become not only better educated to determine legitimate cases versus those worthy of closer scrutiny, but more savvy with the tools that help them determine fraudulent cases as well. From art to employees to technology and more, in this issue we continue to build awareness by looking at different aspects and sources of fraud. Fraud is prevalent whether it’s on the rise or not. Taking it down a notch is critical to your company’s bottom line and its competitive position in the future. Be sure to keep up on new developments and ensure your role as a valuable player in the game. King Solomon once said there is nothing new under the sun, and fraudsters prove that every day. However, there are both new developments in technology and ways to educate yourself so that you’re ready for whatever new spin on an old trick that comes your way. Until next time...

Information for today’s claims professionals

Summer 2009 VOLUME 3. NUMBER 3

Publisher & Editor Bevrlee J. Lips/editor@claimsadvisor.com Editorial Advisory Board Steven Carter

Expert Advantage

Glenn T. Gibson

Crawford & Company International

Patrick Harmon

IMACC

Patrick Jeremy

PowerGen Claims LLC

James R. Jones

Katie School of Insurance and Financial Services, Illinois State University

Robert Kelso Thomas W. Mallin John McHale Donna J. Popow

Kightlinger and Gray Property Loss Research Bureau Erie Insurance American Institute for CPCU/ Insurance Institute of America

Claims Advisor Staff Managing Editor/Maureen Latimer Contributing Writer/Dave Willis VP Finance/Michael Marsh VP Information Technology/Michael Kay Web Site Associate/Chris Walters Project Associate/Amanda Pierce Warren Editorial Assistant/Paige Kay Database Associate/Sheila Hoyer Database Associate/Teresa Baran-Carlson Design Assistant/Ashley Jones Design Assistant/Richard Shivers Human Resources/Shannon White Advertising Sales

Bevrlee J. Lips Publisher/Editor editor@claimsadvisor.com

For advertising information, call 866.276.7970 x1357 or e-mail advertise@claimsadvisor.com

Volume 3, Number 3, Claims Advisor (ISSN 1940-0993) is published four times a year in January, April, July and October by Claims Advisor, 537 Deltona Boulevard, Deltona, FL 32725. Printed in the U.S. Copyright © 2009 by Claims Advisor. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited. No charge for subscriptions to qualified claims adjusters and professionals. Annual rate for subscriptions to nonqualified individuals is $46 USD. Canadian $70 (in U.S. funds). For individual issues, $12 USD. For reprints, e-mail the editor at editor@claimsadvisor.com POSTMASTER: Send address changes to Claims Advisor, 537 Deltona Blvd., Deltona, FL 32725.

Founder/D. Scott Plakon

Claims Advisor

537 Deltona Boulevard, Deltona, FL 32725 office 866.276.7970 | fax 866.276.7972

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SUMMER 2009

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Property Loss Research Bureau Liability Insurance Research Bureau

2009/2010

Educational Opportunities

Regional Adjusters Conferences & Expositions Eastern: June 24 - 25

The Westin Providence Hotel & Rhode Island Convention Center Providence, RI Central: September 9 - 10 The Westin Lombard Yorktown Center Lombard, IL Western: October 20 - 21 Renaissance Austin Hotel Austin, TX These conferences are geared to front-line adjusters, supervisors, and managers and are held in three easy-to-reach locations. The conferences include 28 property and casualty insurance topics that provide up-to-date information on critical claims issues. Approximately 700 insurance professionals attend each Regional Adjusters Conference.

Large Loss Conference

2010 Claims Conference & Insurance Services Expo

November 2 - 4 Tampa Marriott Waterside Tampa, FL

March 21 - 24 San Antonio Marriott Rivercenter & Henry B. Gonzalez Convention Center San Antonio, TX

This Conference explores claims issues associated with the largest property and casualty losses. The audience includes general adjusters, EGAs, large loss claims managers, and service providers who work with them to effectively adjust these claims of $100,000 or more. Workshops include personal lines property, commercial lines property, and casualty claims.

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Attend the industry's largest educational conference and expo, hosted in 2010 in San Antonio. More than 100 educational sessions addressing the wide expanse of adjusting challenges will be offered, including adjusting property, business interruption, casualty claims, large loss, property coverage, claims management, special investigation/fraud, subrogation, and technology. The Insurance Services Expo offers an opportunity to visit with and compare the offerings of the country's leading property and casualty insurance service providers. Meet us at the Claims Conference & Expo where you'll discuss and connect with the major issues, resources, and players in the claims industry.

The exposition includes 80 regionally focused service providers with claims-specific services and expertise, beneficial to developing valuable contacts and networking with industry peers.

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For more information and to register, please visit www.plrb.org, or call 630-724-2200.

CLAIMS ADVISOR | SUMMER 2009

Paper Tige with Teet Plan now for influencing your legislature on insurance fraud laws.

SUMMER 2009

www.claimsadvisor.com

ers… th!

Quick Look C

State legislatures are distracted by budgetary demands and need prodding to focus on insurance fraud.

Claims professionals are well suited to aid in the drafting and passage of anti-fraud laws.

Prepare now to shepherd legislation through your capitol in the 2010 session.

By Howard Goldblatt

Most state legislatures have shut down for the year. In many cases, lawmakers are returning to their “regular” homes and jobs until their statehouses reopen next winter. Adjusters who want to have an impact on fraud by pushing for laws with teeth now have several months to design initiatives for 2010. This is the critical time to plan for success. Legislation is the backbone of fraud fighting. Prosecutors are more likely to take on fraud cases when they have strong laws by which to convict miscreants, and tough sentences serve as effective deterrents— the big win for insurers. Equally important, legislative activism can elevate the visibility and public image of adjusters as professionals who are fighting for the greater good of society. Involvement also creates a platform for educating the public, legislators and your clients about what you do and how your work benefits consumers. Most state legislatures are trying to balance their shaky state budgets. This overrides the importance of most bills of any kind because legislators have only so much time for non-budget issues. Thus, fewer fraud bills than normal

have been passed this year, so adjusters should have a solid action plan ready when statehouse doors start opening next winter. There will be no time for ad-libbing.

Some Issues at Hand While each state has its own set of hot-button insurance issues for the legislature to contend with, a few are getting broad-based attention and can aid adjusters and investigators nationwide. Maryland made being an unlicensed public adjuster an act of insurance fraud, but those who hold licenses in other fields also can act as schemers when they ply their trade in unscrupulous manners. Such “ambulance chasers” are on the verge of being restricted from accessing automobile accident reports in Texas through a law passed at the end of the 2009 legislative session this spring. By containing the dissemination of auto accident information, the state hopes to prevent lawyers, chiropractors and other medical professionals from recruiting often-unsuspecting accident victims into schemes to make fake injury claims against auto insurers. The bill awaited the governor’s signature at press time.

Another approach that could add potency to the anti-fraud arsenal is to require drivers to sign affidavits of loss for claims of car theft. The goal is to make would-be insurance schemers think twice before lying that someone stole their vehicle. Currently, claimants in many jurisdictions are not required to sign, under penalty of perjury and associated criminal prosecutions, that the information they are providing on a claimed auto theft is true. Arizona, Louisiana, Massachusetts and some agencies in Florida and Michigan have required affidavits, and Miami-Dade has reported a 6.5% drop in auto theft rates since implementing the requirement. On the health front, prescription-monitoring programs can aid in identifying claims fraud. These can vary in detail, but, at their most basic, they cut down on prescription abuse and resale by using a statewide database to crossmatch pharmacies, doctors and consumers on numbers and types of prescriptions. HIPAA has a law enforcement carve-out, so there shouldn’t be a problem with federal privacy infractions.

How to Lobby Claims advisors can make a difference in passing fraud legislation. Your credibility as an insurance claims professional can translate into a lobbying strength. A complete political planning guide would fill several encyclopedias, but here are 11 steps to success: 1. Form a leadership group. Create a planning council. These are the committed, politically astute adjusters who will form your legislative leadership. Keep it reasonably lean to allow swift decision-making. 2. Identify gaps in fraud laws. Determine the gaps in your state’s fraud laws. Does a fraud law need overhauling or just tweaking? Is an entirely new law needed? Have you seen a problem with owner give-ups, auto rate evasion, workers’ comp premium fraud or another scheme? 3. Draft your bill. Have your proposed bill, or at least detailed talking points, in place before approaching potential bill sponsors. Groups such as the Coalition Against

CLAIMS ADVISOR | SUMMER 2009

Insurance Fraud Is Not a Victimless Crime Who hasn’t equated the losses from insurance fraud with profits, bottom lines and premiums? But there’s another, even more compelling story of victims of insurance fraud—a story that gets nearly no publicity, a story that in some cases is almost too gruesome to read. It’s the story of children who suffer at the hands of adults committing insurance fraud. Children often are disposable props to help make scams work, and other times they simply are caught in the wrong place at the wrong time. When you are lobbying in the legislature or the press, don’t forget that the horrid truth can be a potent force of change. Here are some of their stories.

Leo Lopez and Elsa Moure stuffed their six-year-old son into a car, then rammed another car in a staged accident in Lawrence, Mass. They’d planned for the child to pretend he was hurt and make bogus injury claims through a shady clinic. But the boy was injured for real and ended up in the hospital. The child also lost his dad for nearly a year when Lopez received nine months for the scam. Members of the Gipson family also used children as young as age seven for props in staged accidents in Ft. Smith, Ark. Adults carefully coached them on how to act hurt. Few insurers would challenge an injured child, they reasoned. But one parent took realism to a new level by hitting a boy in the head to create a real injury.

Nobody tried to hurt two-year-old Joanna Lopez during a setup crash on the Long Beach, Calif., freeway. Two insurance swindlers just didn’t care what happened to her. The conmen braked their car, trying to maneuver a big rig into rear-ending them so they could make bogus claims. A car driven by Joanna’s parents was crushed between the frantically braking rig and another rig behind them. She and her entire family died in the flaming wreck. In another con, Timothy and Deborah Nicholls were deeply in debt to a drug-dealing motorcycle gang. Timothy’s home-framing business also was failing, and the Colorado Springs, Colo., couple saw only one way out: Torch their home for insurance money. Timothy didn’t care what happened to their three children. He sprinkled lighter fluid on their pajamas, and the couple left them to die in the blaze. They received life in prison. Meanwhile, five-year-old Brandon Dillbeck thought he was getting routine teeth cleaning at a North Carolina dental clinic. But the dentist strapped him to a board, then drilled and replaced 16 teeth with stainless steel caps during a two-hour ordeal. The clinic used Brandon to make inflated claims for worthless dental treatment. The clinic owners paid $10 million to settle a variety of charges. Insurance fraud is far from a nameless, faceless crime. Let the legislatures and the public know that anti-fraud legislation does more than reduce losses. Behind the numbers are real victims, and often they’re the littlest ones.

SUMMER 2009

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Insurance Fraud can assist with drafting. Research the issue. What evidence supports the need for your bill? How many people might be victimized by targeted schemes—especially in the sponsor’s district? How will they be harmed? Any loss figures? Also, gather compelling, real-life cases. Enlist bill sponsors. Do your homework. Make sure possible sponsors have clout and commitment. Do they have a history of support for fraud or other crime bills? Do they have the ear of key committees? Are they on key committees? Also see if anyone on your planning council knows potential sponsors through past personal or legislative dealings. Learn the legislative leaders. Know the doorways into the legislature. What committees decide which fraud bills reach the statehouse floor? You’ll probably also need companion bills in two chambers, such as a senate and assembly. Tap local insurance groups. Seek to involve insurer state/regional government affairs offices and insurer associations (e.g., American Insurance Association), insurance federations or councils, and agent/broker associations. They should know the political climate well. Enlist other allies. The more groups that throw their weight behind your bill, the more likely that legislators will listen. Consider seeking the buyin of your state insurance department, fraud bureau,

attorney general’s office and local prosecutors. 9. Tap national experts. National groups can provide valuable support throughout your campaign. Reach out to experienced groups such as the Coalition Against Insurance Fraud, the National Insurance Crime Bureau and the National Association of Insurance Commissioners for advice and practical tools. 10. Promote your bill. Send news releases and backgrounders to reporters, and consider a news conference. Line up compelling data and memorable examples. But note: Some bill sponsors prefer to maneuver quietly behind the scenes. Work this out in advance. 11. Educate legislators. This should be ongoing, not just one lobbying campaign. Invite key legislators to discuss fraud issues at association chapter meetings. Have them tour insurer facilities and talk with other adjusters. Take part in legislative days held by insurance groups in state capitols, or consider holding one yourself. With adequate planning and targeted information, claims professionals can make a significant imprint on state laws, and even national legislation, that make investigating claims and identifying fraud activity easier and that permit or mandate effective penalties for cA insurance fraud. Howard Goldblatt is director of Government Affairs for the Coalition Against Insurance Fraud. He can be reached at (202) 393.7332 or howard@ insurancefraud.org.

By Michael Kelly

Insurance Int

â&#x20AC;&#x201D;An

SUMMER 2009

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telligence

Quick Look C

Special investigation units can provide deep claims analysis that indicates precursors to fraud and systemic problems that enable it.

Access to data and communication across company units is key to a successful investigation.

Quantifying the value of a deeper SIU intelligence effort can promote management buy-in and support.

nalyze This!

Integrate your company’s inner self to achieve deep claims analysis. By Adam Featherling, CFE, CIFI, SCLA and Nick Bogdan, CIFI

It’s the 21st Century, the Age of Information, in which everything you ever wanted to know about anyone or anything is available at a keystroke. So why is it so hard to integrate companywide and industry-wide data to identify patterns of and precursors to fraud? A couple of key words come to mind: silos, reactive, incommunicative. What is a smart insurer to do? As they say: Knowledge is power. Knowing where and how to access information is the backbone of intelligence analysis and a vital part of a successful special claims investiga-

tion unit. Additionally, analyzing the information internally can provide cost savings and a real return on investment to insurance companies. Instead of paring SIU operating budgets and staff or outsourcing special investigations, companies can leverage their existing investigation units or build intelligence programs to become integrated, proactive and communicative. An effective intelligence analysis operation can make sense of disparate data and turn it into actionable information. Being proactive is the first step. Proactively generating field referrals

can be a challenge given the cost of data-mining tools and training, but it’s a step that yields results—hard results—such as a return on investment of beyond 9:1. Proactive SIUs can generate in excess of 20% in total field referrals. The key is to find actionable intelligence and avoid “holy grail” searching. Finding actionable intelligence requires access to multiple data sources: claims, underwriting, point of sale, and vendor data, such as medical bill review and auto parts suppliers. The great challenge, however, is overcoming the “stovepipe” or “silo” business unit men-

tality present in almost every company. Combine that with multiple and incompatible data management systems and substandard reporting capabilities, and you have a chronic anemia that afflicts claims investigation. Companies must learn to think and act “globally,” at least within the company itself. The SIU operation need no longer be limited to operating reactively to field requests for assistance. It can be the bridge linking company business units into a strong business partnership unified in combating/ deterring insurance fraud. To motivate management to

CLAIMS ADVISOR | SUMMER 2009

support this new, proactive, integrated approach, take a deep dive into the numbers and identify the bleeding that results from not beefing up the SIU. Speak the corporate language of profit and loss. Communication on such issues is usually best done in person, but at the very least it should be done via WebEx (real time) so the correct interpretations and recommendations can be made and answers can be supplied immediately. Just forwarding a report full of numbers could result in unwanted, undesired and even incorrect interpretations of the data and breakdowns. A Practical Matter How would an SIU operation transition from reactive to proactive? For example, a suspicious claim referral is generated to the SIU field operation, and a successful resolution is realized. Rather than shelving the investigation as a closed file, an intelligence analysis could review the attributes unique to that case with an eye to its evolution and its application to other cases. New information flows into investigative units periodically but somewhat irregularly, so proactive

SUMMER 2009

efforts are best when they are automated. Any program that is utilized should have the ability to comb through new incoming data on a daily basis and notify the analyst automatically when predetermined information has been identified. If this capability is not available, utilizing a canned but manual report on a weekly or biweekly basis is your best shot. Running reports with a lag time of five to 10 business days is a problem stemming from a claims department’s cycle time in turning over claims. By analyzing the data in depth and in an ongoing fashion as more data become available—yes, even after a case is “closed” —the SIU can make a clearer assessment of where the systemic problems are and what corrections and improvements need to be made. It can determine what breakdowns occurred that should have been identified at the point of sale, underwriting level, and claim level. Furthermore, the analysis could clearly articulate what those breakdowns cost the insurance company in losses. Recommendations would be made

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to each of those departments to correct the breakdowns. The recommendations and subsequent corrections should be completed in the form of an official project with formal proposals, timelines and compliance action reports. These are best conducted by a project manager and pushed downstream rather than upstream. Analytic conclusions from one case can be applied in an intelligence model for future use, but each case has to be redefined or calibrated to some degree because each claim is unique. True unit-wide intelligence analysis must be a company policy. Quality results are possible only with full access to all data sources traditionally held solely by one business unit or another. SIU intelligence analysis must compile data from all internal unit resources in order to generate an operational overview beneficial to all business partners. By interacting “globally” and identifying shortfalls from broker through adjuster, the intelligence unit and the entire SIU program will prove itself cost effec-

tive and provide a measurable return on investment. Good old-fashioned number crunching will help quantify success. Declines in a department’s true expenses or better savings or improved loss costs can all be measured. Benchmarking improvements year over year will also show the sustained value of the proactive approach. A lower overall loss ratio for the company should result from an invigorated SIU, and that can be illustrated as data are quantified. The key is getting management buy-in and support to knock down those barriers to data access and integrated communication. Then the SIU itself has to make in-depth, quality hindsight and analysis a living practice and quantify the results to prove its worth and benchmark its own progress over time. cA Adam Featherling, CFE, CIFI, SCLA, is the national SIU director for Safe Auto Insurance, and Nick Bogdan, CIFI, is the major case director for Nationwide.

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Attention-Deficit/Hyp

Being Overloo

SUMMER 2009

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Quick Look

peractivity

ooked?

ADHD in adults can be overlooked as the cause behind claims for post-event distress.

Investigation of claimants’ medical and behavioral history must be pursued to validate claims.

ADHD can present as brain damage, so evaluating the traumatic event in light of historical evidence is key.

By Steven Carter, PsyD, LP

Claimants demand that insurers pay for a wide variety of mental disorders and neuropsychological impairments that were allegedly caused by an insured event. The equitable resolution of these claims requires that other explanations be excluded. One commonly overlooked possibility, particularly in adults, is Attention-Deficit/ Hyperactivity Disorder. Believing that they have permanent brain injury when, in fact, they have a treatable mental disorder does not help claim-

ants. Moreover, the financial compensation is wasted when it is spent on treatments for the wrong disorder. A basic familiarity with the diagnostic criteria and types of ADHD will help in recognizing when it is potentially relevant to claims investigation. Although ADHD is a childhood developmental disorder, the symptoms frequently persist into adulthood.

ADHD is not new and not just “acting badly.” It causes neuropsychological impairments that can easily be mistaken for signs of brain damage unless a careful analysis of the claimant’s history and childhood medical records is performed. It is frequently

accompanied by comorbid mental disorders that can be mistakenly attributed to an insured event when, in fact, they are the result of living for years with ADHD. DSM-IV-TR Diagnostic Criteria for ADHD The Diagnostic and Statistical Manual of Mental Disorders, 4th Edition, Text Revision (DSM-IV-TR) contains the diagnostic criteria used in clinical settings. All of the DSM-IV-TR criteria must be present for a diagnosis of ADHD. For a valid diagnosis,

CLAIMS ADVISOR | SUMMER 2009

a claimant must exhibit the core symptoms of attention problems, hyperactivity/impulsiveness, or both. It is also necessary that: • Symptoms are present in more than one setting, such as home, school, or work, or in more than one relationship (e.g., parents and grandparents in children, or spouse and coworkers in adults). • Symptoms result in significant impairment in educational, social, or occupational functioning. • The core problems have been present for at least six months • The problems began before seven years of age. As yet, no medical screening tests, for example, electroencephalograms (EEGs), heavy metal concentration, thyroid, blood or organ imaging tests have proven to be useful as screening or diagnostic tools for ADHD. Their use should be dictated by specific medical indications, not by the possibility of ADHD. Currently, Independent

SUMMER 2009

Medical Exam (IME) doctors must rely on rating scales and behavioral observations designed specifically for diagnosing ADHD. No other psychological, general intelligence, neuropsychological or personality tests are of proven value in the diagnosis of ADHD, but they might help exclude other mental disorders. DSM-IV-TR Types of ADHD Currently, the DSM system allows for the following diagnostic possibilities: • Attention-Deficit/Hyperactivity Disorder, Predominantly Inattentive Type • Attention-Deficit/Hyperactivity Disorder, Predominantly Hyperactive-Impulsive Type • Attention-Deficit/Hyperactivity Disorder, Combined Type • Attention-Deficit/Hyperactivity Disorder, Not Otherwise Specified (NOS) The NOS diagnosis is used for individuals whose symptoms and impairments meet the

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diagnostic criteria for Attention-Deficit/Hyperactivity Disorder, Predominantly Inattentive Type, but whose age at onset is seven years old or older. It can also be used for individuals with clinically significant impairment who present with inattention, but a behavioral pattern marked by sluggishness, daydreaming, and hypoactivity rather than hyperactivity. The NOS diagnosis can be used for adult claimants when it is impossible to establish onset before seven years of age. ADHD Is Not New Many people think of ADHD as the latest excuse for selfish and impulsive behavior. In fact, ADHD is not new. It was first described around the start of the 20th century but then was largely lost from view as theories of environmental causes became paramount in the 1920s and dominated into the late 1960s. Then there was a shift away from perceiving children’s problems as merely a reflection of parenting and other situational variables

and towards stable “disorders” within the child, often with a contributing genetic or biological cause. The diagnosis of ADHD has been subjected to an enormous amount of scientific scrutiny regarding its reliability and validity as a disorder and the implications for etiology, treatment and prognosis. It has long been established as a legitimate mental disorder. ADHD Is Not Just ‘Acting Badly’ Heredity is the largest determinant of who will get ADHD. Twin and family studies show that heredity accounts for about 50% of the variance. Children of a parent with ADHD have a 50% likelihood of having ADHD. Among affected children, 8% of biologic parents and only 2% of adoptive parents also had ADHD. The biologic families of ADHD children have high rates of alcoholism, mood disorders, and antisocial personality. Ineffective parenting, bad neighborhoods, and other situational variables are not

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considered causes, but may exacerbate preexisting symptoms and genetic vulnerability. Other potential etiologic factors for ADHD include low birth weight, birth trauma, childhood traumatic brain injury, fetal alcohol syndrome, heavy metal poisoning, deficiencies of minerals and vitamins, sleep apnea, and prenatal nicotine exposure. ADHD Is a Developmental Disorder That Often Affects Adult Claimants Most recent studies indicate that a majority of children with ADHD will show core symptoms at least through adolescence and about half of the time into adulthood. Approximately 4% to 5% of adults have ADHD, making it one of the most common psychiatric disorders. Diagnosing ADHD in adult claimants can be dif-

ficult because many adults with ADHD have developed coping mechanisms and deny that their impairments exist. For example, a salesman takes pride in his heavy schedule of high-energy sales calls because they produce a lot of business, but he is tortured by his inability to sit still at home or even on vacation. Other adults with ADHDcaused hyperactivity choose careers where the impairment is practically part of the job description—emergency medicine physicians, professional cooks, or even many claims adjuster positions. ADHD Looks Like Brain Damage In the seventies, ADHD was called “minimal brain dysfunction,” and there is modern evidence that the old label was not far off the mark. An organic neuro-

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John s. arter

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President

Property General Adjuster P.o. Box 1245 salem, oH 44460 serving all of oH & western Pa

Over 20 Years Experience

SUMMER 2009

office

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logical disorder involving the frontal lobes and the basal ganglia in the brain also has experimental support. Positron emission tomography (PET) scanning has demonstrated that adults with past and current histories of ADHD showed 8.1% lower levels of cerebral glucose metabolism than controls, with the greatest differences in the superior prefrontal cortex and the premotor areas. This can impair a claimant’s ability to plan, organize, pay attention to details and instructions, screen out irrelevant information, carry a plan through to completion, and avoid distractions. Quantitative electroencephalography (QEEG) also reveals changes in people with attention deficits. Excessive cortical slowing in prefrontal midline areas, with a decrease in posterior beta activity, might indicate under arousal and partially explain why stimulant medications are safe and effective treatments for ADHD. ADHD Causes Neuropsychological Impairments A recent study combined the findings from 104 measures and 50 standardized tests across 24 studies to determine differences in the neuropsychological functioning of adults with and without ADHD. The largest differences were found for verbal memory, focused attention, sustained attention, abstract verbal problem solving, and working memory. Smaller effects were found for executive functions, visual memory, and visual problem solving. These results are consistent with the hypothesis that the inattention symptoms more so than the hyperactivity symptoms of this disorder persist into adulthood.

Signs That ADHD Should Be Considered in an Adult Claimant Inattention • Difficulty completing tasks that require lengthy paperwork and reading • Ineffective time management • Difficulty finishing tasks (e.g., multiple partially repaired cars in yard, carpentry projects in house, or garden renovations) • Frequently loses forms related to claim • Forgets depositions and teleconferences Hyperactivity • Talks excessively • Conspicuous finger tapping and foot jiggling • Risky and adventurous activities during leisure time • Occupation that requires a frenetic work pace (e.g., cook, ER physician, sales) • Depression that quickly passes when a specific difficulty is resolved • Ordinary pressures of life are experienced as repetitive and never-ending crises Impulsivity • Intrudes on and interrupts others conversations and activities • Higher than average number of speeding citations, license suspensions, crashes, and crashes involving bodily injury • Failed attempts to complete vocational and college programs • Occupational achievement below expectations for intelligence • Impulsive job changes, major purchases, and long-distance moves • Interpersonal difficulties

•

in multiple settings due to shortlived relationships or loss of control (e.g., multiple divorces, domestic violence charges) Work and home tasks impetuously initiated without a plan for necessary materials, staffing and time

Other Commonly Seen Signs • Low self-esteem • Abuse of alcohol and other drugs • Heavy use of legal stimulants (e.g., caffeinated coffee, soda, “power” drinks, caffeine tablets) • Illegal stimulants (e.g., methamphetamine) • Use of illicitly acquired prescription stimulant medication (e.g., Ritalin, Adderall)

claimant with impulsivity due to brain A longitudinal history supplied by damage are nearly impossible to distin- outside observers is helpful in assigning guish without the benefit of extended the symptoms to the appropriate cause. observation by outside observers. ADHD symptoms usually are lifelong Dysthymia, a form of low level depresand less episodic than are those of cA sion that lasts at least two years, could comorbid disorders. be unconnected with the claimant’s undiagnosed ADHD or be the result Dr. Steven Carter, PsyD, LP, is CEO of of living for years with its frustrations. Expert Advantage® (www.Expert-AdSubstance abuse can be the claimant’s vantage.com), which provides medical way of coping with ADHD symptoms evidence analysis, independent examinaof restlessness and hyperactivity or a tions and testimony nationwide. He can way of coping with the trauma of an be reached at (218) 749-3107 or stevenMunters Ads-ClaimsAdvisor:DRS Ads_half island 2/22/08 3:06 PM Page insured event. carter@mchsi.com.

Childhood Medical Records Are Critical Though the diagnosis of ADHD in adults depends on verifying that symptoms first appeared in childhood, obtaining childhood recollections and early records is difficult. Reviewing childhood medical and school records is critical. Attempts should be made in any case where an adult claimant is exhibiting the above signs of adult ADHD but alleging that the problems were caused by an insured event that occurred during adulthood.

Whatever the damage, rest assured.

Outside Observers Critical Reports from persons familiar with the claimant (e.g., spouse, coworkers) will typically contain far more problems than the claimant will report. Outside observers will also often be the best sources of information about comorbid but non-proximally caused mental disorders that affect three of every four adults with ADHD. Mood disorders (major depression, bipolar disorder, and dysthymia), anxiety disorders, substance abuse, personality disorders and learning disabilities are the chief psychiatric comorbidities. Outside observers and pre-morbid medical records will often indicate evidence that signs and symptoms of these disorders long predated the insured event and followed a waxing and waning course that was not appreciably altered by proximally caused injuries. The recent reckless behavior of a claimant in the manic phase of bipolar disorder, a claimant with ADHD, and a

We understand that the damage caused by a natural disaster, leaking roof, burst pipe, or faulty electrical wiring is not only disruptive, but can also be costly due to business interruption. If you are faced with a disaster restoration project, we’d like to help. We’ll listen, respond immediately and handle your project— from start to finish—the right way. Munters’ services include, but are not limited to: water extraction, clean up and debris removal, structure and content drying, mold remediation, and document recovery. To find out more about our Disaster Restoration Services, please contact: 1-800-MUNTERS, mcsinfo@munters.com 79 Monroe Street, PO Box 640, Amesbury, MA 01913-0640 Munters is an ISO 9000 Registered Company.

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CLAIMS ADVISOR | SUMMER 2009

Quick Look C

Fraudulent claims seem to rise when the economy declines.

Technology aids adjusters in spotting fraud and supporting estimates.

Instincts, developed over years of experience, give adjusters a sixth sense to spur claims inquiries.

Busted! Technology helps adjusters establish claims’ legitimacy and flush out fraud.

By Dave Willis

“People are facing, at the least, financial distress and, at most, financial ruin. This is a very powerful motivator for insurance fraud.” That’s the warning from Jim Quiggle, director of communications for Washington, D.C.-based Coalition Against Insurance Fraud, who says insurance fraud tends to spike during economic downturns. “Normally honest people, who wouldn’t steal a candy bar from a drugstore, are reflexively turning to insurance schemes to protect themselves from falling off a financial cliff.” All too often, he adds, people turn to insurance as an economic stimulus package and view insurance fraud as a harmless prank with no real victim other than the insurer.

SUMMER 2009

“To many of these people, scamming an insurance company is a no-brainer,” Quiggle believes. “They’re thinking, ‘Heck, the insurer won’t miss the money. Nobody pays a price. I am being made whole, financially. So why not?’” Calculated crimes can rise, too, he says because “the recession creates opportunities for criminals to exploit others’ anxiety, vulnerability and desperation.” William Bokel, CFE, SCLA, chief investigator for the Maryland Insurance Administration’s Insurance Fraud Division, has seen an uptick, but not just in claims counts. “Common schemes are becoming more complex,” he says. His observation is largely limited to his region,

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and the same holds true for his peers. That’s because few data are aggregated—anywhere. “Every county might have its fire marshals, but they don’t report to anybody else,” explains Bokel, who chairs the Association of Certified Fraud Examiners Maryland Chapter President’s Advisory Committee. They may turn arson investigations over to police. But again, no clearinghouse exists. Multiply the situation by 50, and take into account the absence of a national clearinghouse. “Nobody is actually keeping a firm tab on exactly what the numbers are,” Bokel says. Compounding the reported increases in fraud numbers and complexity

is the pressure on insurers to trim staff and operating expenses while still meeting demand for quality. Expectations are that claims will be adjusted quickly, says Marty Brown, president of Brown Adjustment Service in Fayetteville, Ark., and 2008-2009 president of the National Association of Independent Insurance Adjusters. That’s not just on the carrier’s part, either. “It’s become a pretty immediate world,” he adds. “Clients expect instant response, too.” Technology to the Rescue “With laptops, BlackBerrys, GPS units and everything else, we’re just go, go, go,” says Tim Middlebrook, claims management special-

CLAIMS ADVISOR | SUMMER 2009

Nixon & Company Incorporated, an independent adjusting firm and third party administrator headquartered in St. Louis, was recently called on to adjust a substantial loss. The carrier’s underwriting file was sparse, but within a couple of minutes, he got a picture of the building online and knew what to expect. Marty Brown also tapped the Web for a recent house fire claim he was working. He found a Web site where the homeowner documented the entire process of building the house and took credit for doing nearly all of the work. “While the owner claimed our guy had done something that led to the fire, the Web site told a different story,” Brown says. Because the house burned to the ground, it was tough reconstructing much on the scene, but when Brown showed up armed with pictures and accounts printed off the Web site, the liability issue was resolved. Nixon has found The Three Stooges Have Nothing Web searches also on Nicholas Di Puma come in handy for Di Puma’s house and auto were destroyed finding out if a propby fire. He says he was grilling steaks using four pans on his stove and had the erty is for sale— barbecue grill burning on his porch when something that’s not alcohol in the pans caught fire. He tried to put out the fire with a always mentioned dishrag, but the rag caught fire. So in the course of an instead, he threw one pan out the investigation. Brown front door. It landed in the back seat of his convertible and set adds, “Companies the car on fire. He tried to toss can even look at a out a second pan but tripped roof from the sky on a box. The pan landed on a leather couch, catching it on fire. The and give accurate judge somehow kept a straight face but measurements of it.” handed Di Puma five years of probation. Facebook, YouTube, Twitter and other community/social sites are finding their way into “Such technology used conversations—and investigato be ‘nice to have,’” says Paul tions. Brown cites attorneys DeMasi, MetLife assistant who found pictures on Facevice president for information book of supposedly injured technology, who supports MetLife Auto & Home. “Now, kids jumping off a wall. Web-based claim the hardware and software are management systems help ‘must-haves.’” Mark Nixon, president of adjusters meet challenges ist with Selective Insurance Company’s Northeast Region. Communication is anytime, anywhere. “If you’re out in the field, BlackBerrys get you online quickly. With a wireless laptop, just pull into a Dunkin’ Donuts or Starbucks, get connected, tap some keys quickly and get a report, even when you’re running between appointments. “We have access to much more data than even six or seven years ago,” he adds. While on the road, adjusters can now retrieve much of the information they can access from their own offices. Technology helps adjusters handle communication challenges better, too. “We can send text messages, call from anywhere, even shoot a picture of the site and send it on the spot,” Brown adds. Digital recorders and digital cameras also make the claims business run more quickly and more smoothly.

SUMMER 2009

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Drag Race Hoping to win tickets to tween pop sensation Hannah Montana’s concert, a Hartford, Conn., man donned a dress, wig, and high heels in a radio station-sponsored 40-yard dash. Apparently, when a local TV news crew covered the drag race, an alert viewer spotted workers’ comp claimant Garrett Dalton, 41, and blew the whistle. Dalton, a corrections officer, was arrested for workers’ comp fraud. As Hannah Montana’s album cover says, “I got nerve!”

by letting them handle claims anywhere. “It gives great supervision ability,” Nixon says. “We don’t need a paper file in our hands to review the status. We are able to manage and supervise it a lot better in real time.” Technology also feeds collaboration. Imaging allows all sorts of files to be transferred, DeMasi notes. “If you’re an experienced adjuster in New Jersey and I’m a rookie in Rhode Island, you could help me on a particular claim because now everything is in digital format. You could look at it along with me.” Middlebrook uses technology for back-and-forth with special investigation unit (SIU) staff. “They’re always ready to give us a hand,” he explains. “If something doesn’t look right or sound right, we give them a buzz and talk about it.” Often, the investigator on the other end of the line does a quick Web search to validate a hunch or rule something out. Carrier Initiatives At MetLife Auto & Home, collaboration may be getting easier. “Our chief claims officer is bullish on technology,” DeMasi says, “and welcomes with open arms anything that delivers a benefit.” Among the technologies the firm plans to deploy is an online community that lets staff interact better. Carriers are building out other functionality, too. “We have seen insurance carriers beginning to budget and allocate more money for claims technology than they have in the past,” Nixon says. Also in MetLife Auto & Home’s arsenal is software that identifies, up front, potential fraud. It takes available

information, analyzes it, and, if something doesn’t add up, it alerts the company’s SIU. “It’s a predictive analytics product,” DeMasi says. “We worked with our quantitative research group in modeling what is potential fraud.” Some claims are referred directly to the SIU for investigation. “For others, one or two more pieces of information might be needed to generate a more accurate score,” he adds. “In that case, a message goes to the adjuster, who does research and fills in the blanks.” Then it’s rescored. The company is also helping adjusters meet challenges by automating assignments and dispatch. “The software can schedule an adjuster’s day and optimize his or her route,” DeMasi notes. “If you’re going to adjust five or six claims during the day, we want to make sure they’re within an area you can handle. It takes the scheduling and routing process away from the adjuster.” Effective adoption of technology has, in large part, allowed adjusters to put their skills to work where they’re best suited. “We’re getting back to basics,” says Middlebrook. “These tools get us back to what we do best: adjusting claims—investigating, spending time to see if something looks suspicious.” Brown complements technology with workflow improvements and training. He

CLAIMS ADVISOR | SUMMER 2009

In the Hot Seat Then Off the Hook

a potential scam.” As the home crisis has erupted, desperate homeowners have been torching their houses for insurance money, especially as foreclosure looms, Quiggle notes. “Some people will dramatically raise their policy limits very shortly before torching the house in order to inflate the insurance payout.” On the auto side, one of the scams of this recession involves people ditching unwanted vehicles for insurance cash, Quiggle adds. Bokel says give-ups, as they’re called, have been increasing for several years. “Although the number of stolen vehicles is relatively the same in recent years, the number being recovered burned has increased dramatically since 2004,” he says. Bokel’s department investigators work with a task force in Baltimore and another in Washington, D.C., to combat give-ups. Too often, in the course of investigations, they run into communication snags. Problems continue to the prosecution stage. Bokel believes adjusters—his first line of defense—can help. “They are the ones interacting with claimants,” he explains. “They do a good job of picking up on the red flags.” Their suspicions, in most cases, turn into investigations.

An Erie County, N.Y., judge recently gave a man a $270 fine, five years of probation and random drug and alcohol testing after he pled guilty to attempted arson and reckless endangerment. Yes, the Bowmansville home renovator’s house burned to the ground, and he agreed that he tried to do it. Too bad that wasn’t enough for the judge to award the insurance company restitution. Why? He wasn’t prosecuted on fraud charges. Ouch.

currently employs an intern to help with paperwork, mounting photos, doing diagrams, picking up reports and other less technical parts of the business. This lets him focus his expertise on actual adjusting work. The association has a similar program underway. When things do require a second look, technology can augment adjuster expertise and instincts. “If you get something that even looks suspicious, you can search for information and get some background before you go off to a scene or a business,” Middlebrook says. “It can validate your instinct.” Still, instinct must be developed. “Instinct may make you a little more curious, but instinct is based on your experience,” Nixon says. “Without the experience, the instinct isn’t going to lead you to ask any further questions. You need a combination of instinct and experience to take you down the right road.” Cause for Suspicion This instinct—or curiosity, expertise or experience—is being called on more and more. Some carriers, Quiggle explains, have lowered the threshold for investigations. “It takes less to trigger a fraud investigation during a recession than it might during easier times,” he says. “This mandate gets passed down to the adjusters who are watching for the warning signals of

SUMMER 2009

Just Keep Talking According to Bokel, adjuster interviews are vital to successful prosecutions down the road, especially if things proceed beyond the civil stage to criminal. A few tweaks, he believes, could boost prosecu-

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tion success rates. Recorded interview setups represent one opportunity. “It’s easy to assume it’s the claimant they’re talking to,” he explains. To make statements most valuable, he suggests asking definitive, pointed questions. “Verify their identity. Maybe ask the last four digits of their Social Security number, the number they are calling from, where that number is located, whether it’s their residence or work, things like that.” The latter helps when venue issues arise. “If we are looking at the place of a crime, and then you play a recording of the contact giving false information, that’s a crime right there,” Bokel explains. On the auto side, law enforcement agencies have a short-list of pertinent questions Bokel encourages adjusters to ask. These help lock people into certain scenarios, he adds, which can be later verified or proven false. “This can determine how good of a criminal case you can make,” he notes. Such questions include: Who was the last person operating the vehicle? Did they have a key to the car when they used it? What kind of condition was the car in at the time? How many keys were there and can they all be accounted for? Do you have any idea who may have taken the vehicle? Are your payments up to date? Was the vehicle ready for repossession or have you been contacted by anybody for that? Have you been trying to sell your car? Were there any valuables in the car? “Most of these aren’t so pointed that they’d violate a company’s internal policy,” Bokel notes. Forensic examination of the recovered auto can

validate or refute the answers. Bokel also has a broader instruction. “When the hair on the back of your neck stands up, you’ve got something. Keep asking questions. Follow company policy, of course, but ask as many questions as you think are pertinent. As long as they are answering, keep talking.” Proper Perspective Brown notes that the majority of claims don’t involve fraud. “They’re just people making claims, and we’re there to help them through the process,” he says. “This is a people business. The adjuster—whether it’s a staff adjuster or an independent adjuster—is still the insurance company representative.” Workflow and technology improvements help adjusters, of course. But they, too, help customers. “These all cut the cycle time,” DeMasi says. “If we can turn things around more quickly and save a rental day, for instance, that keeps our expenses down. But the customer also gets the car back quicker.” Perhaps the greatest benefit—and for DeMasi, a key motivator—is how technology and workflow changes can improve work-life balance. “By removing or reducing administrative tasks, adjusters can do their assignments in a timely manner,” he explains. “That adds to customer satisfaction, of course, but it affects the adjuster’s work-life balance, too.” In the end, considering what seem to be increased demands from every side, the ability to maintain such a balance may be the biggest challenge adjusters cA face today. Dave Willis is a Claims Advisor contributing writer.

The National Insurance Crime Bureau suggests indicators that could point to potential fraud. Adjusters should keep an eye out for these when handling claims. Selected indicators, by line of business, include:

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Workers’ Comp Fraud • • • • • •

Employee is disgruntled, soon-to-retire or facing imminent firing or layoff. Employee is involved in seasonal work that is about to end. Employee took unexplained or excessive time off prior to the claimed injury. Employee takes more time off than the claimed injury seems to warrant. Listed number is a mobile/cellular phone. Employee is a drifter and has a history of short-term employment.

Vehicle Theft Fraud • • • • • •

Vehicle is towed to an isolated yard at the owner’s request. Salvage yard or repair garage takes unusual interest in claim. Prior owner cannot be located. Vehicle is recovered totally burned after the theft. Fire damage is inconsistent with the loss description. VINs were removed prior to fire.

Homeowners Fraud • • • • • •

Insured contacts agent to verify coverage or extent of coverage prior to loss. Insured is overly pushy for a quick settlement. Insured is unusually knowledgeable regarding insurance terminology and the claims settlement process. Insured handles all business in person, thus avoiding the use of mail. Insured is willing to accept an inordinately small settlement rather than document all claim losses. Insured is recently separated or divorced.

When you make a commitment to your employees and invest in real professional development, you’ll see greater engagement, better decision making, and more efficient performance. It’s what we call Return On Knowledge. Ad\ dc id lll#V^XeXj#dg\$'Xdbb^i#]ib and download our free brochure that will help you rethink how professional development positively affects your business. The American Institute for CPCU and the Insurance Institute of America have a wide variety of education solutions. Contact us, and we’ll help you develop a comprehensive plan to help you improve performance and prepare your employees for future challenges and opportunities.

Commercial Fraud • • • • • •

Building is in deteriorating condition and/or lacks proper maintenance. Fire scene investigation suggests that property contents were heavily overinsured. Commercial losses include old or nonsaleable inventory or illegal chemicals and materials. Commercial fire occurs on holiday, weekend or when business is closed. Fire department reports fire cause is incendiary, suspicious or unknown. Fire alarm and/or sprinkler system failed to work at the time of loss.

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CLAIMS ADVISOR | SUMMER 2009

Court orders on property claims can give you precedents to work from. By Robert T. Horst, Esquire, Mark H. Rosenberg and John J. McHale

The last two years have seen a number of significant property insurance coverage decisions issued by courts throughout the United States. These opinions have addressed numerous issues that will likely be relevant in the analysis of first party property coverage decisions in the future, including the oft-discussed wind/flood distinction, consequential damages, ensuing loss, and the impact of a policyholder’s non-cooperation following a theft loss. Notably, the New York and California state courts have issued some influential opinions, while some Federal District Court opinions may prove to be persuasive and influential. This article will provide, in no particular order, a summary and discussion of these cases. Northrop Grumman v. Factory Mut. Ins. Co., 538 28

SUMMER 2009

F.3d 1090 (9th Cir. 2008), opinion amended, 2009 WL 861475 (9th Cir. Apr. 2, 2009)—This matter concerned a policyholder’s claim that a standard flood exclusion in an excess commercial policy did not apply to losses caused by storm surges related to Hurricane Katrina. The policyholder specifically contended that while the primary policy at issue stated that the flood exclusion applied “whether [the flooding was] driven by wind or not,” the excess policy lacked such language, thereby creating an ambiguity. In rejecting this argument, the United States Court of Appeals for the Ninth Circuit noted that a storm surge fell within the “ordinary” meaning of the term “flood” as “an overflowing or inundation

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of water over dry land.” Northrup Grumman, 538 F.3d at 1094. The court further held that the omission of the phrase “whether driven by wind or not” did not render the flood exclusion ambiguous, as the failure to include this phrase is “more indicative of a lack of specificity on [the insurer’s] part than an omission evidencing its intent to narrow its exclusion.” Id. at 1097. Accordingly, the Ninth Circuit reversed the trial court’s decision granting summary judgment in the policyholder’s favor. Major v. Western Home Ins. Co., 169 Cal. App. 4th 1197, 87 Cal. Rptr. 3d 556 (4th Dist. 2009)—In this opinion affirming a punitive damages award in a bad faith case, a California appellate court analyzed whether the insurer could be held liable for such damages for the conduct of an independent claims adjuster, under the terms of a state statute providing that a corporation cannot be held liable for punitive damages for the conduct of an employee

unless the conduct was authorized by a managing agent. In holding that the independent claims adjuster could be deemed a “managing agent” for purposes of the punitive damages statute, the court emphasized the fact that the adjuster exercised “substantial discretionary authority” with regard to the claims handling decision, with no day-to-day oversight exercised by the insurer. Major, 87 Cal. Rptr. 3d at 576. Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 886 N.E.2d 127, 856 N.Y.S.2d 505 (2008)—In this case, the New York Court of Appeals examined whether a policyholder could recover consequential damages for an insurer’s purported bad faith handling of a claim under a commercial business interruptions policy, which allegedly resulted in the collapse of the policyholder’s business. The trial court and intermediate appellate court held that the insurer was not liable for such damages, given a policy provision which excluded coverage

Quick Look

Flood claims get attention from courts, with common sense and clarity in policy language prevailing.

Courts find against policyholders who deviate from their responsibilities as stated in their coverage.

CLAIMS ADVISOR | SUMMER 2009

for “consequential losses.” In reversing the trial court’s order granting summary judgment to the insurer on such grounds, the Court of Appeals emphasized that “[t]he purpose served by business interruption coverage cannot be clearer—to ensure that [the policyholder] had the financial support necessary to sustain its business operation in the event disaster occurred.” Bi-Economy, 886 N.E.2d at 131, 856 N.Y.S.2d at 509. Therefore, the court concluded that “the very purpose of business interpretation coverage would have made [the insurer] aware that if it breached its obligations under the contract to investigate in good faith and pay covered claims it would have to respond in damages to [the policyholder] for the loss of its business as a result of the breach.” Bi-Economy, 886 N.E.2d at 132, 856 N.Y.S.2d at 510. The court further held that the policy exclusion for “consequential losses” did not apply, as these losses “clearly refer to delay caused by third-party actors or by the ‘[s]uspension, lapse or cancellation of any license, lease or contract,’” rather than those “additional damages caused by an insurer’s injurious conduct.” Id. (quoting policy language). The court therefore concluded that the policyholder should be allowed to pursue a claim of consequential damages, as such a claim “was reasonably

SUMMER 2009

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foreseeable and contemplated by the parties.” Bi-Economy, 886 N.E.2d at 133, 856 N.Y.S.2d at 511. Seaport Park Condominium v. Greater New York Mut. Ins. Co., 828 N.Y.S.2d 381 (A.D. 1 Dep’t 2007)—This case arose from an insurance claim for damage to a condominium building’s cooling tower. After the loss was reported, the property insurer retained an independent adjuster, who in turn retained an expert to examine the cooling tower and determine whether the damage was a covered loss. An initial inspection took place, which was attended by representatives of the policyholder as well as a representative

from the company hired by the policyholder to replace the cooling tower. Following the inspection, the expert determined that a more detailed examination of the cooling tower was required. Accordingly, the parties attending the inspection agreed that the cooling tower would be removed and preserved for further inspection. However, the cooling tower was subsequently destroyed, resulting in the denial of the claim. The policyholder brought suit against the insurer with regard to the claim. The trial court denied the insurer’s motion to dismiss, concluding that an issue of fact existed as to whether the company retained to replace the cooling tower was contractually obligated to preserve the tower for further inspection. In reversing the trial court’s decision, the Appellate Division of the New York Supreme Court held that the issue of whether this contractual obligation existed was irrelevant. Rather, the court emphasized that the insurance policy at issue contained language clearly obligating the policyholder to preserve damaged property if feasible and make it available for further inspection. As the policyholder had agreed to preserve the damaged cooling tower for further inspection, the court held that the disposal of the tower warranted denial of coverage. Latha Restaurant Corp. v. Tower Ins. Corp., 831 N.Y.S.2d 411 (A.D. 1 Dep’t 2007)—In this opinion, the Appellate Division of the New York Supreme Court affirmed the trial court’s order granting

summary judgment in an insurer’s favor and dismissing a commercial policyholder’s breach of contract action. The court’s determination was primarily based upon the fact that the policyholder’s “proof of loss statement included duplicative items, items in which it demonstrably had no insurable interest and a representation of loss attributable to…an expense it later admitted it never incurred.” Latha, 831 N.Y.S.2d at 412. The court held that such an “overvaluation of insured property” created a “presumption of fraud” which “becomes conclusive where, as here, the insurer demonstrates that the difference between the amounts claimed in the proof of loss and the losses actually shown to have been sustained are grossly disparate and without reasonable explanation.” Id. Most notably, the court held that the policyholder’s “attempt to attribute the gross disparity here at issue solely to its public adjuster is unavailing under agency principles,” as “the adjuster was acting within the scope of [the policyholder’s] authority when he submitted the claims,” and the “plaintiff signed the sworn proof of loss.” Latha, 831 N.Y.S.2d at 412. Feinbloom v. American Intern. Ins. Co., Docket No. 276928, 2008 WL 1836563 (Mich. Ct. App. Apr. 24, 2008)—In this matter, the Michigan Court of Appeals analyzed the scope of a standard homeowners mold exclusion providing that no coverage under the policy would be provided for “‘any loss caused by rust, mold, rot, gradual deterioration or warping’” but established that coverage would be provided for “ensuing covered loss unless another exclusion applies.” Feinbloom, 2008 WL 1836563 at *2 (quoting policy language). The plaintiff policyholders contended that such language should be interpreted to provide coverage for mold that resulted from a covered loss: in the plaintiffs’ case, water damage following a flood. The court held that such language is “clear and unambiguous” and “unequivocally states that all losses due to mold are excluded from coverage under the policy.” Feinbloom, 2008 WL 1836563 at *2. The court rejected the policyholders’ contention that such

an interpretation of the policy would render the language providing coverage for “ensuing covered loss” meaningless. The court explained that, while the policy language established that mold damage was always excluded from coverage, the “ensuing covered loss” provision establishes coverage for other damage that may occur as a consequence of the mold, as long as such damage would not fall within another exclusionary clause. Accordingly, the court affirmed the trial court’s decision

to grant judgment as a matter of law in the insurer’s favor. Eckstein v. Cincinnati Ins. Co., Civ. Act. No. 5:05CV-043-M, 2007 WL 2894049 (W.D. Ky. Sep. 27, 2007)—In this case, the United States District Court for the Western District of Kentucky analyzed whether standard “ensuing loss” language in an exclusionary provision could be interpreted to provide coverage when the damage at issue is a covered loss but is nevertheless the result of an excluded risk. Although the court’s opinion does

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not cite the precise policy language at issue, such language likely mirrored policy language of cases cited in the opinion, excluding coverage for “[e]rrors in design, errors in processing, faulty workmanship or faulty materials, unless loss or damage from an insured Peril ensues and then only for such ensuing loss or damage.” Eckstein, 2007 WL 2894049, at *2 (citations and internal quotations omitted). In requesting that the trial court reconsider its prior decision denying

the defendant insurers’ motion for summary judgment on the coverage issues, the defendants contended that under such policy language, coverage for an “ensuing loss” would be provided only if the ensuing loss were the result of an intervening occurrence that occurred separately from the insured risk. Relying upon Sixth Circuit precedent, the court held that the policy language at issue was capable of more than one reasonable interpretation, including the

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Trucking and Transportation Products Liability Professional Liability Construction Law General Tort Defense You can reach John W. Patton, Jr. at:

330 N. Wabash Ave., Suite 2900 Chicago, IL 60611 Direct: (312) 261-5160 Fax: (312) 261-5161

w w w. p a t t o n r y a n . c o m

SUMMER 2009

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interpretation that such language provides coverage for ensuing losses resulting from excluded risks. Accordingly, the trial court declined to reconsider its prior decision. Savage v. American Family Ins. Co., 178 Ohio App. 3d 154, 897 N.E.2d 195 (10 Dist. 2008)—In this matter, an Ohio appellate court examined whether a trial court properly granted summary judgment in an insurer’s favor in a lawsuit arising from the insurer’s failure to pay a claim for theft of personal property. Although the insurer had not denied the claim at the time the lawsuit was filed, it had not issued payment due to the policyholders’ failure to produce tax returns that the insurer requested. This request was made in order to ascertain whether the policyholders could reasonably have acquired certain property in the years after the policyholders filed for bankruptcy. Applying a standard cooperation clause that required the policyholders to “provide [the insurer] with documents [it] requests,” the Ohio Court of Appeals held that the insurer had no obligation to pay the claim until the policyholders had satisfied the condition precedent of providing the tax returns. Accordingly, the court affirmed the decision to grant summary judgment in the defendant insurer’s favor. City of Hollister v. Monterey Ins. Co., 165 Cal. App. 4th 455, 81 Cal. Rptr. 3d 72 (6th Dist. 2008)—In this case, a California appellate court affirmed a trial court’s decision granting a declaratory judgment that a property insurer was estopped from relying upon a coverage provision requiring the policyholder to enter into a contract for the repair or replacement of the insured building within 180 days in order to receive coverage for the full replacement cost of the building. The court held that the trial court correctly based such a decision upon the determination that the insurer had improperly delayed its investigation and threatened to deny coverage, thereby rendering it “practically impossible, or at least unreasonably difficult,” for the policyholder to enter into a repair contract during the required period of time, given the risk that the policyholder

could be liable for repairs that were not covered by the insurer. Hollister, 81 Cal. Rptr. 3d at 108. Sher v. Lafayette Ins. Co., 988 So. 2d 186 (La. 2008)—In this matter arising from the extensive flooding in New Orleans following Hurricane Katrina, the Louisiana Supreme Court addressed whether a standard flood exclusion in a commercial property insurance policy could be deemed ambiguous and, therefore, construed in favor of the policyholder. In finding that the flood exclusion was ambiguous, an intermediate court held that the policy language failed to clarify whether the exclusion applied only to natural disasters or to both natural disasters and man-made events. In rejecting this conclusion,

the Louisiana Supreme Court observed that “[t]he plain, ordinary and generally prevailing meaning of the word ‘flood’ is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.” Sher, 988 So. 2d at 194. The court further noted that “this definition does not change or depend on whether the event is a natural disaster or a man-made one.” Id. In addition, the court observed that an interpretation of the flood exclusion to apply only to natural occurrences would be “per se unreasonable,” as “there is no indication within the four corners of the insurance contract that the parties intended to use such a restrictive definition of the word ‘flood,’ and because such a definition is not the plain, ordinary and generally prevailing meaning

of the word.” Sher, 988 So. 2d at 195. Accordingly, while affirming much of the trial court’s judgment in the policyholder’s favor for breach of contract and bad faith claims handling, the court amended the judgment to eliminate damages for losses attributable to flooding. cA

Robert T. Horst is a founding partner of Nelson Levine de Luca & Horst, LLC. Mark H. Rosenberg is an associate attorney with Nelson Levine de Luca & Horst, LLC. John J. McHale is a senior supervisor of the Investigative Services Section of Erie Insurance.

CLAIMS ADVISOR | SUMMER 2009

Would You 34

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Believe

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Quick Look C

Big fish stories dominate the claims fraud headlines, but most claims are legit.

Unfortunately, the honesty barometer is reading “low” for younger policyholders.

Can adjusters keep from becoming cynical and impugning good-client claims?

It’s time for adjusters to get smart on the actual prevalence of fraudulent claims. By Elise M. Farnham, CPCU, ARM, AIM, CPIW

e…?

Put two adjusters together in a room, and it won’t take long before they are swapping anecdotes about claims they have handled. Some stories are spectacular, some are poignant, some are funny, and all are noteworthy for some unusual aspect of the loss, damages, or persons involved. Give them a few more minutes, and they’ll be playing the “one-upmanship” game of insurance fraud—each adjuster trying to outdo the other with tales of deceit, misrepresentation, greed, and overstated values. Overhearing the conversation, a casual

CLAIMS ADVISOR | SUMMER 2009

passerby might think that most claims are exaggerated or outright fraudulent and that most claimants are out to get all they can get. I call it the “House-effect,” named after the irascible Hugh Laurie character, Gregory House, M.D., who states again and again with each new case history, “Everybody lies.” But do they? You might be surprised! Fraudulent claims involve some form of lying at some point in time, yet it would appear that the House-effect can only be applied to a minority of the claimants alleging loss and damage.

SUMMER 2009

neither reflects a majority The Insurance Information Institute estimates that 10% of losses. So why do adjustof losses are fraudulent, or about $30 billion per ers focus on fraud as a year. The Coalition Against commonplace occurrence Insurance Fraud estimates about which they must be the losses much higher, constantly vigilant? Every in the $80 billion range. adjuster knows the list of The problem with these “red flags” that would indiestimates is that no one cate the possibility of fraud. really knows for certain Every adjuster carefully how much insurance fraud reviews the facts of each is committed case to ensure in the United There’s no there has been States. With no fraudulent question losses hoverbehavior. But ing at the that society’s are these suspi$300 billion cions supported opposition range, each by evidence of estimate is sig- to fraud is widespread imnificant, but behavior, deteriorating. proper or do the fraudulent cases just stick out in our minds? Take the “Fraud: Fact and Fiction” test to determine if your beliefs about fraud and society’s willingness to rein in fraudulent activity stack up against the statistical data we have available. You may be surprised! There is no question that society’s opposition to fraud is deteriorating. A study by the Association of British Insurers found that more than 70% of individuals over 65 years old would never commit insurance fraud, compared with only 40% of individuals stating the same thing in the 15-to-24 age group. This does not bode well for the insurance industry. Making matters worse, in the same study, 5% of the people polled said that nothing would put them off from committing insurance fraud if they had a claim. The Skeptic Turns Septic So why does it matter if

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claims professionals become a little jaundiced over time? The answer may be a question…of trust. When trust is betrayed, it can be a professional and personal affront to the claims representative. Once an adjuster has had an experience where trust in an insured or claimant has been undermined (or obliterated), restoring good will for the next claim can be difficult. Claims representatives may ultimately become unable to feel empathy toward the injured or damaged parties, impairing their ability to establish a relationship that could result in quick resolution and fair outcomes. The mistreatment of policyholders by jaded claims professionals has, indeed, tainted the industry and led to bad faith lawsuits and fist-pounding sermons from legislators on a crusade to find unfairly denied claims. The insurance industry is already near rock-bottom in the public’s eye—witness the media hype and legal onslaught over unpaid claims after Hurricanes Katrina and Rita. Adjusters largely must rely on the basic honesty of their claimants. It is virtually impossible to prove absolutely everything about a claim. The value of the items lost is often not known, receipts are lost, wear and tear occurs naturally, the property is damaged beyond recognition, and the claimant often forgets what is owned. These are all natural occurrences. Who among us could do a complete inventory of our household goods today without physically viewing the items? Often, there may

be nothing left but the word of the insured or claimant. So listen to the stories, and in time youâ&#x20AC;&#x2122;ll have plenty of your own. Playing the one-upmanship game is fun and entertaining. Just keep in mind that most claimants and insureds are truthful and willing to work with you in a professional manner to submit an authentic and cA valid claim.

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Elise M. Farnham, CPCU, ARM, AIM, CPIW, is an international speaker, industry consultant and president of Illumine Consulting. She can be reached at (770) 367-3148 or at elise@elisefarnham.com.

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Insurance Fraud: Fact and Fiction Test your knowledge of insurance fraud. 1. What was the Insurance Research Councilâ&#x20AC;&#x2122;s estimated percentage increase in fraudulent auto business insurance claims from 2002 to 2007? 2. What was its estimated percentage increase in fraudulent claims for personal injury protection? 3. According to a 2007 study by the Coalition Against Insurance Fraud, how many states still do not have a fraud bureau? 4. How much money in restitution was ordered according to the 2007 annual study of state fraud bureaus by the Coalition Against Insurance Fraud (CAIF)? 5. In the same study, CAIF learned that the combined budgets for all state fraud bureaus totaled what amount? 6. According to the Insurance Information Institute (I.I.I.), how many states have defined â&#x20AC;&#x153;insurance fraudâ&#x20AC;? in their statutes? 7. According to I.I.I., how many states require mandatory insurer fraud plans in which companies formulate a program for fighting fraud and sometimes establish special investigation units to identify fraud patterns? 8. According to I.I.I., how many states limit the protection offered by immunity statutes? 9. The earliest case of recorded life insurance fraud occurred when? 10. According to a study by Progressive Insurance Company in 2001, what percentage of Americans would commit insurance fraud if they thought they could get away with it? ANSWERS: 1. 2% increase. IRC estimates the rate increased from 9% in 2002 to 11% in 2007. 2. 1% increase. IRC estimates the rate increased from 5% in 2002 to 6% in 2007. 3. 9: Alabama, Illinois, Indiana, Maine, Michigan, Oregon, Vermont, Wisconsin and Wyoming. 4. $179,036,100 5. $147,738,214 6. 50 states plus the District of Columbia 7. 19 states plus the District of Columbia 8. 5: Alabama, Massachusetts and Wyomingâ&#x20AC;&#x201D;arson only; Rhode Islandâ&#x20AC;&#x201D;WC, arson, and auto only; Hawaiiâ&#x20AC;&#x201D;auto only 9. 1730s in England, in a case of pretended death, in which a father and daughter staged a succession of scenes in which the daughter appeared to convulse with heart spasms then go limp in apparent death, while the father stood by distraught. 10. 10%

CLAIMS ADVISOR | SUMMER 2009

Intellectual Property, Fraud and Social Networking:

A Perfe Liabili Storm 38

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Quick Look C

Misrepresentation and fraud on Web sites can lead to claims on identity and intellectual property.

Laws will change as behaviors and claims change.

Experts will likely be needed to establish the value of loss and appropriate compensation.

d By Jonathan Faber

Distinguished legal scholar Roscoe Pound once said, â&#x20AC;&#x153;The law must be stable, but it must not stand still.â&#x20AC;? By design or necessity, the law usually can only be reactive to new developments in commerce and technology. Recent social networking sites like MySpace, Facebook, and Twitter, and sites populated by user-driven content like YouTube and Zazzle, have accelerated those developments with which the law must keep pace. In early June, misuse of Twitter was the subject of a public statement by the Indianapolis Colts and, separately, a

ect ity m?

CLAIMS ADVISOR | SUMMER 2009

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Miscellaneous Actions and Subpoenas: How to Get The Records You Need Without Adverse Litigation Use of Financial Records in Investigation of Commercial Claims Fraud in Behavioral Health Care Public Adjuster Fraud, Bad Faith Implications and Pre-Litigation Techniques Pursing Clarity in a Land of Confusion Cargo Theft Eastern European Financial Crime Understanding Property Appraisals Health Insurance Fraud - A Thief Among Us The Underwriting & Claim File...Key Tools For Your Investigation Current Trends in Chiropractic Fraud Cellular Technology and Evidence for the SIU Investigator Management Panel Analyst Track - Major Case Investigations from the Analystâ&#x20AC;&#x2122;s View & Opportunities and Challenges; Making Data and Analytics Effective in Identifying Claim Fraud Injury Causation: Did the injuries Really Happen Here? Assessing Injury Causation Using Biomechanical Engineering Evolving Standards for Determining the Origin and Cause of Fire Methods & Techniques of a Successful Telephone Interview An Adjusters Primer - Avoiding Bad Faith Analyst Track - Building Fraud Queries & Data Mining & Medical Investigations - The Value of Analysis Ethics and The Special Investigator Discovering Compromised Vehicles & Vins Catastrophe Fraud - Are You Ready? International Track Current Fraud Trends in Vacant, Foreclosed & Mortgage Flipped Houses Everything You Wanted to Know About Medical Fraud But Didnâ&#x20AC;&#x2122;t Know to Ask Auto Property Damage Claims: From Repair Fraud to Alleged Engine Damage The Hot Seat: Mock Witness Stand Educating Producers on Workersâ&#x20AC;&#x2122; Comp Fraud - Why and How & Avoiding Investigative Pitfalls, Securing the Prosecution Detecting Fraudulent Psychological and Neuropsychological (Brain) Injury Claims Provider Facility Inspection & Clinic Equipment Demonstration Auto Property Damage Claims: From Repair Fraud to Alleged Engine Damage

lawsuit from Cardinals Manager Tony La Russa. While the statement on the Colts’ Web site was simply an advisory that a Twitter user posing as Peyton Manning was not the “real” Peyton Manning, La Russa filed a lawsuit against Twitter. The suit claimed that an unauthorized Twitter page used his name to make light of drunken driving and two Cardinals pitchers who had died. The suit also claimed that tweets were disseminated that appeared to have come from La Russa. Such activity raises potential issues ranging from fraud, defamation, invasion of privacy and, potentially, violation of his intellectual property rights, such as trademark and right of publicity. Born out of the right of privacy, the right of publicity concerns the right of every individual to control the commercial use of his or her identity. (For more information on the right of publicity, see http://www. rightofpublicity.com.) Some sites historically have enjoyed safe harbor from user-posted content that violates applicable laws. But it is conceivable that certain sites are so susceptible to abuse that those safe harbors might be reduced and an affirmative duty to regulate content and prevent infringements would apply. In addition to La Russa’s Twitter lawsuit, consider sites like Zazzle, which allow users to post content and designs and to create a storefront through which products like Tshirts and coffee mugs can be purchased. If the company handles fulfill-

ment of the order, packages it in the company’s branded materials, and takes a substantial commission from the sale price, that process likely implicates the Web site company to a higher degree than perhaps a site like eBay (which is mainly just a conduit between the buyer and seller and only involves a small commission from the transaction price). Facebook has been in the news periodically in relation to policies which raise a variety of intellectual property issues. Early in 2009, Facebook announced a policy claiming ownership to any content that is posted on a user’s page. Following immediate public outcry, Facebook quickly retracted the policy. Most recently, on June 13, 2009, Facebook announced that trademark owners could create personalized usernames (instead of the random, lengthy numerical sequences that had been used). This will allow trademark owners to register their brands with Facebook, but the registration process is on a first-come, first-served basis. The potential for abuse is substantial and foreseeable. La Russa’s Twitter lawsuit was quickly settled in mid-June. While his claim obviously could have been asserted against the individual posing as La Russa, the suit was directed at Twitter. Just about everyone should take heed: product manufacturers, advertising agencies, individuals and companies with Web sites, insurance companies, and the claims adjusting community. Lawsuits alleging violation of a

famous person’s intellectual property can become expensive very quickly. When litigation alleging violation of a famous person’s intellectual property ensues, the claim often hinges on valuation. How does one assess damages in a case like La Russa’s Twitter suit? Or in the lawsuit rapper 50 Cent filed recently against Taco Bell for a press release reporting that Taco Bell had approached 50 Cent about a possible promotional campaign? In 50 Cent’s case, the only “use” was a press release stating that an offer had been extended. Typically, such claims will be monetized through use of an expert witness. Valuation experts often perform the integral task of translating the scope of

damages that the alleged violation has caused. In some instances, the misuse of social networking sites could conceivably cause a famous individual to lose a valuable contract on the basis that the fraudulent postings violated the morals clause in the individual’s contract. The elements for a perfect storm of liability appear to be in place, but Roscoe Pound needn’t worry. The law can and will continue to evolve because, in the face of a storm, standing still is not an option. cA

CLAIMS ADVISOR | SUMMER 2009

Jonathan Faber, head of Luminary Group, LLC, a leading licensing and enforcement agency, is an attorney at the Indiana firm of McNeely Stephenson and a professor at Indiana University law school.

Sneaky Pa 42

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Quick Look C

Claims investigations into embezzlement can overlook some foxy moves.

Personnel files may show prior criminal activity or other information that nullifies coverage.

Forensic accounting dissects books and roots out illicit cash activity.

By Robert D. Jones, CBM, CFE

Business fraudsters can get away with more than adjusters might think.

ayoff Ever been to a teen gathering where the icebreaker activity is untangling your 30-foot strand of twine from the 40 others that have been woven into a gigantic web? Figuring out the losses, timeframe, and methods of embezzlement can be a similarly complicated task. Without accurate forensic accounting, claims can be under- or over-paid. Employee fraud is most likely to occur in a workplace environment where office and accounting duties are not segregated or are “siloed”—delegated to only one person. While embezzlers have myriad maneuvers to cook the books—paying for services that were never

rendered, compensating phony travel, deleting accounting records—nothing lines pockets like cash. Claims professionals who are dealing with hard-to-track money like cash or with complex payment schemes involving stocks or multiple fraudsters need to get accounting experts involved with the investigation.

employee who served as the company’s office manager and bookkeeper. The employee’s office responsibilities included managing the accounts receivable and depositing receipts (cash and checks) into the company’s bank account when received from customers. In addition, he performed the reconciliations of the company’s cash balances on the books to

Highlights / Low Lights

Drilling for Dollars The owner of a successful water well drilling and pump installation company had suspicions that an employee was stealing cash. The company had annual revenues of approximately $10 million. Under suspicion was a longtime, trusted

that of the bank accounts. The owner of the company observed a customer paying with cash (hard currency) and became concerned about how cash receipts were being handled. The owner also noticed that the employee who accepted the cash payment provided that cash to the office manager/bookkeeper to post the payment on the

•

Cash was received from customers and not deposited into company bank accounts.

•

Books and records were falsified to conceal the theft of cash, thus proving the intent on the part of the manager/bookkeeper to misappropriate.

•

Unauthorized checks were written for additional wages and vacation time.

•

Unauthorized checks were cashed and subsequently deleted from the company’s accounting system.

•

The amount of loss was verified for the period covered by the insurance policy.

CLAIMS ADVISOR | SUMMER 2009

company’s books. Now the owner needed to determine whether or not the cash had been placed into the cash drawer or the petty cash box prior to its deposit. Fortunately for the owner, the office manager/bookkeeper was out the following day, and while he was away, the owner searched his office for the cash but was unable to locate it. The owner then contacted his bank to see if the cash had been deposited. The bank advised that no cash had been deposited into the account since it had been opened two years earlier. A review of the books and records of the company, including all of the business bank accounts, was performed. Bank deposit slips were analyzed and compared with entries in the general ledger, and it was determined that several general ledger entries identified as cash receipts from customers were not deposited into the bank account. Fortunately for the owner, his company’s business insurance policy had recently been renewed and included coverage for employee theft. The office manager/bookkeeper ended up confessing to the misappropriation of cash and further admitted to writing himself extra payroll checks that he cashed and subsequently voided from the company’s accounting system. The amount of loss was determined for the period covered by the insurance policy as well as the period prior to the policy renewal date, which is also covered under certain conditions. What to Look For Fraud experts agree that three components are typically present when a fraud

SUMMER 2009

of this type occurs: motive, opportunity and rationalization. Investigation of the suspected thief may reveal information about incident dates and amounts that are needed for establishing accurate claims payments. What may also be present are disqualifying factors—circumstances that nullify insurance coverage. Claims investigators can start with motives when trying to expose information to aid data collection. Living beyond one’s means, poor credit or unexpected need can not only motivate someone to embezzle, but can also provide a chronology and a series of data on the suspect’s expenditures that can often be tagged to dates of theft. The insurance adjuster should ask to review the subject employee’s personnel file to determine if any prior misconduct has taken place. If the subject employee has been involved in prior criminal activity or was suspected of theft or other dishonesty, it often is sufficient reason for the claim to be denied. Reducing the Take Understanding motive, opportunity and rationalization aids in prevention and early discovery of fraud. The opportunities mentioned above—non-segregated accounting duties or a “siloed” bookkeeper—can be exacerbated by negative employee workplace issues, such as a lack of motivation, a lack of recognition, or the sense they are underpaid. Thieves will even rationalize that they are not hurting anyone because the company is covered by insurance! Combine all that with an employee with motive, and you have

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a business tailor-made for pocket-lining. The following list of bookkeeping procedures may help prevent employee fraud. Management should ensure that: • Mail is opened by an employee who does not perform bookkeeping functions. • Cash receipts are not handled or recorded by employees having access to accounts receivable or general ledger. • Cash receipts are deposited daily. • Sales staff and/or drivers do not handle or accept cash receipts.

•

• •

Bank accounts are reconciled independent of cash receipts, accounts receivable, and general ledger functions. Employees responsible for posting receivable accounts have no access to cash receipts. Cash receipts are applied to specific invoices rather than current balances. Delinquent accounts are followed up independently of the cashier.

Education is key for the small-business owner as well as the insurance adjuster. With the implementation of some basic

loss prevention internal control procedures and the proper insurance coverage, small-business owners can prevent or significantly impair employee theft. Employee dishonesty insurance protects the employer from financial loss due to the fraudulent activities of employees that result in the employees’ personal financial gain. Most employee dishonesty insurance policies are written on a blanket basis so that all employees are covered, and the loss can be the result of the employee's theft of money, securities, or other property of the insured. Insurance adjusters must be aggressive in their investigation of losses. An understanding of the underlying motives to commit fraud provides adjusters with background knowl-

edge that may assist them in their investigations. When necessary, adjusters should seek the assistance of forensic financial consultants in investigating and verifying loss amounts. The Forensic Accountant’s Role Forensic accountants wear many hats and can assist the claims professional in fraud investigations in a variety of ways. Often, they are certified public accountants, certified fraud examiners, and sometimes private investigators. They are independent and impartial, taking into account both the financial records and employee behavior. Because fraudsters work hard at hiding their crimes, forensic accountants must look beyond the numbers. For example, a public

record search may reveal the subject owns numerous residences, cars, boats, and investment land. This will be a red flag to a forensic accountant—especially if the wealth was accumulated on a moderate salary. Conversely, the information related to the tangible assets of the suspected fraudster can be helpful to the insurance company and the defrauded business for potential monetary restitution for the amount of stolen money. A typical fraud engagement includes an in-depth review of the books and records of the defrauded business and an analysis of its internal control system. The method of defalcation is then determined, and the financial quantification of the loss is calculated. Beyond calculating damages, personnel files may be reviewed

and employee interviews may be conducted in the search for clues and factual evidence. The reports generated by the forensic accountant are often useful in mediation or arbitration, or they provide the basis for the forensic accountant’s expert witness testimony in court. In summary, forensic accountants are more than just number crunchers. They know how to conduct investigations, navigate various computer programs, and communicate well. They exist to solve problems and help the insurance, legal and corporate communities. cA Robert D. Jones, a partner with RGL Forensics, is a certified fraud examiner, certified business manager and licensed private investigator. He can be reached at (213) 996-0900 or bjones@us.rgl.com.

CLAIMS ADVISOR | SUMMER 2009

The

Complian

Headac

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nce

Quick Look C

The Medicare, Medicaid and SCHIP Extension Act (MMSEA) of 2007 requires quarterly reporting by the P&C industry on claims involving Medicare entitlements.

Data requirements, already onerous, are complicated by electronic filing mandates, and fines await those who fail to report fully, accurately, or on time.

Settlements for clients will suffer delays while payer responsibilities get sorted out.

Claims compliance standards are getting stickier with the addition of the Medicare, Medicaid and SCHIP Extension Act. By John V. D’Alusio

Is the federal government intentionally trying to sabotage the prompt settlement of property and casualty (P&C) claims when the injured party is Medicare-entitled? Here are the facts:

che

• The Medicare Secondary Payer (MSP) law—embedded in the Omnibus Budget Reconciliation Act of 1980—was passed by Congress with the intent to protect Medicare as a secondary payer when a primary payer (workers’ compensation, liability and auto no-fault) exists.

• In December 2007, Congress passed the Medicare, Medicaid and SCHIP Extension Act (MMSEA) requiring quarterly P&C industry reporting to the federal government of claims involving Medicare-entitled people. These laws not only protect Medicare from making unnecessary payments but, by identifying primary payers, allow Medicare to pursue its statutory right of recovery when it has made conditional payments that were a third party’s responsibility. In addition, Medicare’s interest is to be taken into consideration under the following circumstances: when settlements are being formulated that involve irrevocable closure of future medical benefits; when the injured party is Medicare-entitled at the time of resolution; and when the injured party has potential Medicare entitlement within 30 months of

CLAIMS ADVISOR | SUMMER 2009

the date of settlement. So what’s the beef? Two Laws, One Giant Headache Under the 1980 law, the methodology of protecting Medicare was a financial vehicle called a Medicare Set-Aside Allocation (MSA). MSA requires the primary payer to set aside a certain amount of funds at settlement in an account that is meant to protect Medicare from making any future medical payments related to the condition or injury for which the primary payer settled a claim. The need for MSAs, some of which were to be submitted to the Centers for Medicare and Medicaid Services (CMS) for review of adequacy prior to settlement, added a whole new layer of costs on claims involving Medicare-entitled

claimants and potentially Medicare-entitled beneficiaries. First, a “cottage industry” sprang up to provide MSAs to primary payers at an average cost of $2,500 of allocated expense per MSA. Second, the settlement of the claims was delayed while awaiting CMS review of the MSA amount. This resulted in workers’ compensation primary payers spending more on indemnity and medical benefits while they were waiting for CMS to respond on the acceptability of the dollar amount to be set aside to protect Medicare in the MSA at the time of resolution. To further complicate matters, the Code of Federal Regulations (Title 42, Section 411.20) stipulates that the three primary payers in the P&C industry are workers’ compensation, liability and no-fault auto.

Yet the CMS procedural memoranda dealt only with procedures for workers’ compensation claims. In December 2007, the MMSEA was passed, requiring reporting of workers’ compensation, liability and no-fault auto claims involving Medicare beneficiaries to the Secretary of the Department of Health and Human Services (who promptly designated CMS to oversee the program). The law contains staggering civil monetary penalties of $1,000 per day per file for each day of non-compliance (with no cap) when cases are reported late. The effective date of the law by legislation is July 1, 2009; however, CMS issued an Alert on May 11 altering the date of implementation to Jan. 1, 2010. The first 90 days will be a testing period, so actual reporting now

incepts on Apr. 1, 2010. Although that provides the industry (as well as CMS) with more breathing room, the train is still coming down the track. The legislative intent of the MMSEA was primarily two fold: (1) to allow Medicare to identify primary payers and cease payments to beneficiaries for conditions attributable to an accident or medical condition for which a primary exists; and (2) to provide Medicare with a “target rich environment” to pursue its statutory right of recovery under the Medicare Secondary Payer law against a primary when Medicare has previously made “conditional payments.” What’s Going On Here? The property and casualty industry is now struggling with pending MMSEA

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compliance. For each claim involving a Medicare beneficiary where a loss payment is made, the case must be reported by the responsible reporting entity (RRE). Although there are myriad questions as to what constitutes an RRE, the key answer is that the entity funding the loss payments is the RRE. That can be an insurance carrier or a self-insured company but not a third party administrator (TPA). The MMSEA reports require more than 100 data elements for each claim reported. Many of these data elements are in the process of being added by every claims handling entity in the country. The technology costs are significant. Now the industry must bear the costs of the MSP and the additional costs of electronically reporting claims under the MMSEA. Additionally, settlements will be delayed as primary payers attempt to quantify what, if any, Medicare conditional payment recovery is owed. No primary payer wants to settle a claim only to reopen it when Medicare asserts a statutory right of recovery or, possibly, files a suit to perfect recovery and seek double damages. The laws in place to protect Medicare are burdensome, adherence is expensive, and non-compliance is not a viable option. There is no defense for not obeying the law. This is a complex subject. The more you familiarize yourself with the MSP and MMSEA laws, the better you will be equipped to understand what you must do to be compliant. Your association with an organization, such as MARC, will allow you to keep current on

What You Must Do for MMSEA Compliance

the developing procedures associated with these laws, as well as provide a platform for lobbying efforts. A qualified TPA can play a central role in helping you meet the challenges of the new MMSEA legislation. As part of your preparations, make sure your vendor or consultant has access to current Social Security Administration data and that updates are immediately uploaded to the claims system. Remember, while there are many vendors marketing their services, you should take a close look at what they can offer and what they will cost. Analyze the costs of insourcing and outsourcing, as well as consulting fees. Factor in elements such as the time required for training internal staff and other expenses. Then look for vendors that offer their SCHIP expertise as a part of the services they already provide. Be wary of MSA vendors that offer “free training”—some may be promoting this as a strategy to market other services. As a final point, note that this article has touched on only the major points of the MSP and MMSEA. It is a general overview to help you understand the issues. It is up to each organization and every executive responsible for claims to conduct further research and ensure that your company is in full compliance with the law. While the next few months will be demanding for the P&C industry, with knowledge and the right partners we will all meet the challenges. cA

There is much for RREs to do. Although the registration period has been extended to Sept. 30, 2009, the sooner an RRE registers, the better. 1) Start by going to the CMS Web site (www.cms.hhs.gov/ MandatoryInsRep) and reviewing the data. 2) Call into the CMS Town Conference calls on the MMSEA that are held monthly. They normally last two hours and allow questions to be asked by a limited number of attendees. 3) Download the 180-page CMS MMSEA User Guide (published on Mar. 16, 2009). 4) Download the three-page CMS Alert memo released on Mar. 20, 2009, and the subsequent Alert released on May 11, 2009. The first establishes financial thresholds for reporting workers’ compensation and non-workers’ compensation claims. The second pushes the reporting implementation back to Jan. 1, 2010, with the first 90 days being a test period and actual reporting starting on Apr. 1, 2010. 5) Determine if you are an RRE under the MMSEA. If so, review pages 18-26 in the CMS User Guide. This outlines the registration process for RREs. Register at www.Section111.cms.hhs.gov. Registration began on May 1, 2009, so you need to address this process without appreciable delay. Make sure you know who will act as your authorized representative, account designee, and account manager. 6) If you have a TPA handling your claims, make sure their claims system is capturing all of the data elements required in the MMSEA reporting. 7) If you are self-insured and self-administered for claims, your IT department must review the data format in the User Guide and make sure compliance is reached by Jan. 1, 2010, when RRE test reporting will commence. 8) Join the Medicare Recovery Advocacy Coalition (MARC). This is a group of employers, insurance carriers, TPAs, and others who have banded together to attempt to influence the federal government in removing barriers inherent in the MSP and MMSEA. MARC has been

John D’Alusio is the executive vice president of claims at Avizent, one of the fastest-growing national risk management providers.

instrumental in convincing CMS to establish reporting thresholds for the MMSEA and extending the reporting testing period from three to six months. To join, visit their Web site at www.marccoalition.com and go to Membership Information.

CLAIMS ADVISOR | SUMMER 2009

Estimates Unveiled: 50

SUMMER 2009

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Quick Look C

Vast differences in reconstruction estimates can be overcome with good estimating methods.

While finding a fixed price may not be possible, establishing a quality range is.

Focus on general budgeting, percentages of general trade details, and item-specific evaluations to gain greater level of detail in the estimate.

Part Two

Using General Cost Models for Identifying and Understanding Areas of Difference Between Estimates By Bradley D. Sharp, BA, AIC

Identifying areas of difference among estimates is a crucial step in determining if similar and proper methods have been used. In order to evaluate the areas of difference, an organized method of analysis is necessary to establish a reasonable range of costs for the repair. Begin with Authority and Knowledge Proper repair cost analysis begins with careful inventory and scope of building damage. The process involves determining the percentages of the total square footage that require exterior shell repair, replacement of interior finishes, replacement or repair of MEP (mechanical, electrical,

and plumbing), and mitigation or demolition.This can be performed before a line item scope and estimate of repairs is complete and can provide a guideline around which an organized scope and division of work is built. An alternative approach is to evaluate the line item scope inventoried from the building to derive the preliminary general repair costs. This information assists in evaluating the line item repair estimate for accuracy or omissions. Each step of preparing an estimate is dependent upon using proper observations, evaluations and assumptions. Determining the right repair quantity and cost for building damage is crucial in evaluat-

ing both the estimate you have prepared as well as the estimate you are presented. We all have been presented an estimate that is significantly different than our evaluation of the damages. Our credibility and negotiation strength depends on a thorough evaluation of an appropriate cost of repairs. It is also important to focus on determining a proper range of costs. Identical work can have differing price tags for such reasons as the economy, approach, labor and profit necessities. It can be counterproductive for either party to take the position that their exact dollar figure is the right one. If there is a large variance percentage, it is appropriate to ask questions and evaluate the difference. This discussion is not about computer estimating

platforms that generate a cost for each process in the estimate. Rather, it is a view of the process of developing a construction budget with which to compare other estimates. Assumptions are necessary with this process and must be carefully based on experience and analysis. This process will provide three levels of evaluation. There are no considerations in these examples for location factor modifications of the cost. The intent is to show the method so the logic can be applied. Understanding the Process â&#x20AC;&#x201C; General Evaluation The first look at a loss can be overwhelming. Whether a house fire or a large commercial building, it is helpful to look at a large loss as simply a series of smaller, related losses.

CLAIMS ADVISOR | SUMMER 2009

The difference between a residential and commercial loss is the materials and methods used in the construction of the building. The similarity is a methodical approach in identifying the items requiring repair in each room and the building shell. The first step is to see the forest first, then the trees. Develop a footprint of the building with dimensions. Determining the total square footage will provide a framework for delineating those areas that require differing degrees of repair. There are four general degrees of repair, and often a specific area of the building may require all four. These general degrees of repair are: 1. Mitigation or demolition 2. Replacement of interior finishes 3. Replacement or repair of MEP 4. Structural or building shell repairs. Using the square footage of the building and the degree of repair allows determining the percent of the whole that each of these areas requires. This particular process will account for costs of mitigation that are encountered in a water or fire loss. General assumptions are used, and a wide range of circumstances

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must be considered in accounting for this portion of the loss. [See Table 1] The first step in the evaluation of the loss involves mitigation. For this illustration we have assumed mitigation and demolition of 40% for the replacement of interior finishes, including some walls, doors and final finishes. We have assumed that 50% of the building will require light mitigation to prepare the structure for the final repairs. The replacement of interiors is broken into two areas: One, 40%, is where there has been demolition of all finishes; and the other, 50%, requiring painting, ceilings and carpet. The exterior shell also requires repair that constitutes 10% of the floor area. This estimate takes into account both the total square footage of the building and the percent of damage to determine how many square feet require each repair process. Each of the processes is then assigned an assumed repair cost. This is a general budgeting process similar to one conducted in pre-construction planning and budgeting. These assumptions are to be evaluated with the other methods of budget costing and the final line item estimate. This process will

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give a reasonable range for subcontract bids. The process is completed by using general conditions/overhead and profit guidelines and architectural fees. Understanding the Process – Percentage Evaluation This procedure uses a typical square-foot cost guide such as R. S. Means or National Construction Estimator. In addition to providing persquare-foot construction costs, these guides outline what percentage of the total construction cost is attributable to particular functions such as framing, electrical, and HVAC. These guides provide specific detail for each type of building to be constructed. This method uses the same assumptions and methods used in the previous example but assigns the percentages to particular general trade details. These major divisions of the trade details are: substructure, shell, interiors, and MEP. [See Table 2 online] These categories are subtotaled, and costs of running the job are accounted for in general requirements, overhead, profit of the general contractor and architectural fees. In this percentage evaluation estimating process,

the particular trade functions are shown under the major divisions. The next column would carry the general cost per square foot followed by the percentage that each of the categories account for in the total construction trade cost. Using these categories, a percentage of damage of the total square feet is assigned for each of these categories. The estimator then calculates the dollars each of these repair assumptions would cost per trade category. The far right column would be titled “Damage $ Total” and allows comparison to the trade breakdown of a computer-generated estimate on platforms such as Marshall Swift Boeck, Xactimate, Simsol and others. This method of budgeting provides a means of comparison to a line item estimate. If there is a significant difference, look at the details in the line item estimate for quantities, material price or other variables particular to the line estimate. Items that require modification in the computer estimating platform for difficulty or material quality cost adjustments may cause variation in the trade cost and, therefore, in the final job cost estimate. Understanding the Process – Item-Specific Evaluation This method provides more detail while still using quick and general calculations. [See Table 3 online] Like the previous method of using percentages of the

Editor’s note: Interactive estimation tables used for each of the processes in this article can be found online at www.claimsadvisor.com.

construction divisions, this method provides for more subcontract-specific costs, so both trade breakdowns and subcontract bids can be evaluated. The difference is the ability to place a specific percentage on particular items, such as interior doors, ceiling finish, painting, roofing and the like. More exact trade analysis is provided for purposes of comparison with a computergenerated line item estimate. This method may be helpful in more difficult areas of estimating, such as electrical, plumbing and HVAC. While it does not replace a detailed estimate prepared with knowledge of the materials and various subcomponents required, it does provide a more detailed basis of analysis than a straight cost per square foot that is available from some computer estimating platforms. The “Item-Specific Evaluation” process uses

the same format as that of the “Percentage Evaluation” process. The difference is assigning a percent of damage rather than assigning a damage percentage to the general trade category. This table calculates the building’s square footage involved in each repair that is multiplied by the specific cost per floor square foot. The right column will provide budget figures to evaluate the trade breakdown of a computer-generated estimate as well as bids received for the actual construction. If it is determined these preliminary budget estimates are similar to the detailed line item estimate, they can be a valuable tool in evaluation of the claim through the entire construction process. The purpose of these tools is to provide cost ranges based on the assumptions and inputs used to prepare the estimate. They are not intended to replace accurate and detailed line item estimates, but

to be used as a guide to evaluate the total and individual trade estimate categories. Contractor Fees and General Requirements All three examples use assumptions for contractor fees. The section outlining contractor fees is a general guideline which encompasses job supervision, job site requirements, insurance, permits and all other fixed and variable overhead costs. There is a provision for the general contractor profit that is generally 10%. These items will vary by job, and economies of scale must be considered on large projects. The topic of general requirements, overhead and profit is easily treated in detail as its own topic. Architectural fees generally fall into approximately a 7% category but are not always appropriate or necessary. The permit requirements of local building officials will

establish the level of detail and drawings necessary. Not every project will require a complete set of drawings that the 7% figure represents. A significantly lower figure may be appropriate; if there are considerable engineering requirements, other adjustments may be required in this category. Maintain Authority and Position It is important to note that these particular costs reflect construction to current building codes. It is improper to assign additional costs to these particular items. If there are items in addition to the scope required by building codes, only those items should be given consideration for additional cost. Having a guideline to evaluate and reconcile differences between estimates is critical to negotiating differences of opinion. While there is no replacement for being adequately educated to write authoritative estimates, these methods will provide a range of costs that can be expected in any accurate estimate. As changes in the scope develop, parallel adaptations will be required in your cost models to maintain accurate cost budgets. If you are presented with an estimate that is significantly higher or lower than what you have estimated, these methods provide a means to identify and qualify a difference so you can negotiate the proper settlement. cA Bradley D. Sharp, BA, AIC, specializes in complex and litigated commercial property claims for GuideOne Insurance headquartered in Des Moines, Iowa. He can be reached at (877) 448-4331 ext. 5127.

CLAIMS ADVISOR | SUMMER 2009

Risk a Ve Claims professionals can help risk control counterparts just by telling a few stories.

By Ken Nogan, MS, CSP

by Ken Nogan, MS, CSP

SUMMER 2009

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A number of sources, from the National Safety Council (NSC) to AARP, have revealed that Americans 65 and older no longer spend their days golfing or sunning on beaches. Instead, older Americans are working. In fact, since 1977, the number of American workers over age 65 has increased more than 100%, according to the U.S. Bureau of Labor Statistics (BLS). While the increase in older workers might suggest a corresponding decrease in workplace productivity and increase in accident claims, the BLS reports the opposite has proven to be true. Older workers actually improve upon workplace safety and benefit the companies that

employ them. They have less absenteeism, greater job satisfaction and fewer onthe-job accidents because they tend to be more careful and more focused on the tasks at hand. They offer something their younger counterparts can’t—experience—bringing a strong work ethic and character to the job. However, the aging of our workforce has brought about one dilemma: When older workers do get injured, they tend to have a higher severity of injuries and more prolonged recovery periods. Claims professionals are uniquely situated to offer perspective across industries on age-related worker injuries. Opening

erse up the communication lines by starting a little chatter between the claims and risk divisions can help risk managers target highcost, high-incident risk areas. Claims officers can start the conversation with the most relevant occurrences and highlight the specifics of the claims, giving details to an otherwise generic problem. Slip and Fall Accidents One of the most common accident types for workers over age 55 is falling. The BLS reports that more than 7 million fall-related injuries are treated in U.S. hospitals each year, with the average workers’ compensation claim costing

approximately $14,000. Moreover, it can take an older worker two to three times longer to recover from this kind of injury than a younger counterpart, compounding the cost. Match this with the fact that slip and fall accidents are quite common in the front of a retail store—a major point of re-entry into the workforce for seniors— and you have a condition ripe for repeated, serious claim events. When claims professionals address the risk end of the insurance equation, the focus should be on the details. The nitty-gritty, down-and-dirty specifics can help risk control officers build a range of

Quick Look C

Studies show that since 1977, the number of American workers over age 65 has increased more than 100%.

Higher severity and prolonged recovery characterize older-worker injuries.

Claims tell the story of injury trends and can inform risk control program builders.

practices and recommend workspace modifications. 1. Review of Incidents— Investigate and document the details of each incident. Over time, look for accident trends and recurring causes related to floor surfaces, time of day, locations and weather conditions. Your risk control counterpart can assist clients in creating an action plan to address these risks. 2. Walking Surfaces—Inspect walking surfaces for condition and maintenance issues. Report unstable or unsecured surfaces, such as loose tiles, torn mats or rugs that do not lay flat.

Check for details on inadequate clearances for doors, walkways and aisles. Each claim has its own risk information that is valuable to the risk manager. 3. Stairs—Check for handrails and the height of risers, which should be between seven and 11 inches high. Note if tread nosing is highlighted with a contrasting color (yellow) to accent steps. 4. Lighting—Look for lighting or glare problems in and between work areas. 5. Spill Cleanup—Ask about the application of floor treatments and the posting of caution-

CLAIMS ADVISOR | SUMMER 2009

ary signage after a spill or cleaning, while floor surfaces dry. Shoe Selection—Are requirements for employee footwear, such as shoes with particular tread patterns, communicated and enforced? Your claims investigation could reveal a chronic problem that your risk counterpart should tackle. Test Floor Surfaces—A tribometer measures the slipperiness of floor surfaces by measuring the coefficient of the floor surface under dry and wet conditions. Audits—A claims investigation might allow the opportunity to conduct periodic audits to monitor areas where slips and falls are judged more likely. Follow up and conduct routine assessments of walking surface conditions. Medical and Wellness—Workers’ vision, stability, medications and other medical conditions can impact fall potential. Review files of claimants’ physical conditions.

Ergonomics Evaluation With the widespread implementation of ergonomically designed work equipment, you’d think we’d never see another repetitive motion or backache claim again. Wrong. Injuries to the musculoskeletal system continue. Work performed using the shoulders, wrists and back generally shows the highest musculoskeletal claim severity for older workers. By far, the most expensive claims from workers over 65 are rotator cuff

SUMMER 2009

sprains, which can cost up to $28,360 according to a study by the National Council on Compensation Insurance. At this cost, claims professionals have a vested interest in working side by side with risk control personnel on ergonomics to prevent shoulder injuries common to older workers. If claimants present with minor shoulder injuries, for example, this might offer the perfect opportunity for the claims professional to ask for an ergonomic evaluation. Whether it is in regards to weight limitations or range of motion, good ergonomic risk management efforts are key to preventing a larger claim from occurring. Otherwise, if the claimant goes through rehabilitation and back onto the jobsite, there is not only the risk of re-injury; it could eventually lead to more serious, more expensive damage. Another common claim, back injury, can be mitigated by identifying tasks with heavy lifting, trunk rotation or forward bending beyond 30 degrees in an unsupported manner. Once they’ve identified the risk, material-handling aides can often minimize lower-back strain potential, or the task can be redesigned with ergonomics in mind. When it comes to ergonomics, task rotation has long been recognized as a best practice. Particularly effective in industries with repetitive tasks, such as packaging or manufacturing, task rotation can ease the strain of repeated motions and static standing time. Some steps to consider are: 1. Limit the amount of time employees are exposed to the physical

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stressors particular to each task. 2. Bring muscle/movement variation to the tasks within the rotation program to provide position and movement variation. 3. Vary tasks by degree of intensity. Some tasks require greater strength or force to complete than others, and variation between higher and lower intensity can help alleviate worker strain. 4. Involve older workers early in the implementation process to earn their buy-in, respond to their feedback, and raise their awareness of the safety benefits of the program. Safer Driving The National Institute for Occupational Safety and Health (NIOSH) reports that roadway crashes are the leading cause of occupational fatalities for older workers in the U.S. Between 1992 and 2002, nearly 3,200 workers age 55 years and older died in motor vehicle crashes on public highways, accounting for 22% of all occupational fatalities among this group. In the general population, fatal crash involvement rates decrease with age, but NIOSH reports that death rates for workrelated roadway crashes increase steadily beginning at around age 55. The typical drivingrelated claim for workers older than 55 is the result of changes due to normal aging, such as diminished vision (e.g., reduced night vision and intolerance of glare), slower reaction times, decline in cognitive functioning, and decreasing muscle strength and

range of motion. Claims professionals should be on the lookout for trends that swerve from the typical path. While many risk managers are aware of historical patterns, the claims advisor is best positioned to identify emerging trends and to aid risk counterparts on nipping new risk exposures in the bud. Additionally, the claims department has the opportunity to measure trends within specific companies, whether the trend is up or down, and notify risk control counterparts of potential problems—or, happily, of risk mitigation program successes—as the pattern is just appearing. Return to Work Not only do older workers sustain more serious injuries, claims statistics show that they require a significantly longer healing time than their younger counterparts. One of the biggest risks to claims severity after a claim occurs is the inability to get

an employee back to work. The claims advisor plays a critical role in return-towork recommendations and risk mitigation. Meeting the treating physicians’ return-to-work requirements and addressing workers’ comfort and confidence are keys to this issue. Consider the following: • •

•

Light- or modifiedduty jobs across the company for injured workers—Claims professionals can help companies set up light-duty positions that minimize ergonomic risks, fallrelated concerns, etc., to injured workers, allowing them to return confidently to their employment. Ergonomic intervention can play a key role here. Safe transition back to work once medically appropriate—It’s advisable to work closely with health, medical and wellness providers

•

to ensure a collective return-to-work focus. Educating injured workers and being solicitous in choosing the transitional duty position can go a long way toward addressing workers’ early concerns as they return to the work environment. Assistance from managed care or risk control professionals— Claims professionals can communicate their concerns or observations to the underwriter or risk control representative assigned to the account so early intervention can reduce the potential for future claims from other employees. Preventing future claims—Even though a claim has already occurred, claims professionals can still be proactive in mitigating the claim and helping the company prevent future claims. They can

do this by maintaining a strong awareness of the types of claims workers over 55 are most susceptible to and ensuring the return-towork positions do not create further risk to the returning employees. Addressing the Needs of Valued Workers The National Safety Council reports show that older workers are a true benefit to the companies that employ them. They tend to be leaders by example—committed to the job, punctual, experienced, hard-working and satisfied. At the same time, an older worker is one whose hearing, vision, cardiovascular fitness, strength, balance and flexibility are waning. They need the tools of the job to be lighter, the workspace to be brighter, and the floors, chairs and desks to be more stable. Fortunately, these particular needs can be addressed through a multi-

disciplined approach to risk control that implements specific risk control measures. Innovative ideas for addressing safety for older workers are emerging nearly every day, such as the nightvision systems available in some cars. Preventative slip and fall measures, ergonomic evaluations, ongoing driver and safety training, and a focus on returning to work are all tools that can improve a work environment so that it is safer for older workers. Claims professionals can use the information gleaned from specific cases to let their risk counterparts know if risk mitigation programs are working or are even being implemented. Risk managers know what they’ve recommended. It’s up to the claims advisor to tell the rest of the story. cA Ken Nogan, MS, CSP is a risk control consultant for PMA Companies. He can be reached at Ken_Nogan@ pmagroup.com.

CLAIMS ADVISOR | SUMMER 2009

By PJ Zadok

A first glance at an Henri Rousseau or a Pablo Picasso painting and one might exclaim, “What? That’s worth money?” Of course, that’s to an untrained eye. An art aficionado would surely see the value, but would it be the same monetary value as the insurer sees? Art loss claims are as clear-cut as Claude Monet’s Impression of Sunrise. Values, authenticity, and cause of loss all have to be established, and often it takes some digging and some doubting. In 1998, we found ourselves engaged in a case straight out of a “Columbo” episode. Our firm’s services were retained by an insurance company to evaluate a claim involving approximately 20 oil paintings that were reported stolen from a restaurant. The owner of the restaurant was a doctor by profession; we’ll call him Dr. X. Throughout the course of the investigation, we never had an occasion to meet Dr. X face-to-face. The most significant thing that we knew about him was that he was asking for $180,000. Our examination of the stolen artwork generated a far different figure. Our tools were straightforward: an inventory list and a series of photographs. Based on our informational and visual assessment of the works, we arrived at a solid, ap-

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Shade of Gr

How one art consu in the murky wo

Quick Look C

Art claims often carry a hefty price tag, but establishing authenticity isn’t always easy.

The claims investigator must consider the possibility of error and fraud.

Knowing art is the key to spotting fraud.

proximate value of $40,000. Indeed, there was a discrepancy between the doctor’s number and our number, but words such as “fraud” didn’t exactly cross our minds. No, fraud didn’t cross our minds until two years later in 2000 when another claim came in from a different insurance carrier. Evidently, a set of water-damaged paintings was in need of our evaluation, and we were to meet the insured at his home. Nice home, standard meeting. We had no reason whatsoever to question the motives of the insured. That is, until he submitted the same exact inventory list from the 1998 claim. We were once again in the presence of Dr. X, only this time it was clear that he was more than a doctor—he was in the art fraud business. Instantly, our company contacted the initial carrier from 1998 and reported the incident to their special investigation unit. Dr. X was thoughtful in his efforts, switching carriers from one claim to the next, but he didn’t foresee the coincidence of our services being utilized by both insurance companies.

es rey

Powers of Deduction If we were Detective Columbo when it came to Dr. X, then we were Sherlock Holmes when it came to the Lady Arizona incident. We had to do a little sleuthing and employ the process of elimination to assess the loss in this case. A theft occurred at a lady’s home in Arizona. The stolen item was a painting, which the victim claimed was done by Rembrandt. She was looking for a $3 million insurance payment. Enter our com-

ultant finds clarity orld of art claims.

CLAIMS ADVISOR | SUMMER 2009

pany with the mission of determining whether or not she was entitled to it. According to the woman’s account, the stolen Rembrandt had been rolled up in a tube beneath her bed. The depiction in the painting was a landscape. Fair enough. At the outset, we spoke to her two sons. One son was a lawyer; the other was a doctor. We had reason, therefore, to believe that they were both credible (Dr. X’s conduct notwithstanding). The sons surprised me by contradicting their mother’s claim. At the outer limits of their knowledge, they just had no way of verifying that the painting was by Rembrandt. They didn’t volunteer the opinion that it wasn’t, but they were certain that they couldn’t be sure. As for the woman? She was certain.

Now we had a predicament. Here we had not only a claim involving a legendary artist, but a familial counter to that claim—from the claimant’s own children! Yet the woman was undaunted in her persistence. She knew it was a Rembrandt, and she wanted that $3 million. Unlike Dr. X, Lady Arizona offered no documentation whatsoever about the painting. We were coasting on air and talk. No photographs. No postloss appraisals. No proper provenance. So what did that leave us with? Well, dear Watson, the process of elimination. A good detective should be able to assess what is absent as well as what is present. So we began to research all the landscapes Rembrandt had ever

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SUMMER 2009

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done. One might stop here and imagine that there were 1,000 such landscapes scattered all about the globe, but we were fortunate on this point. In his lifetime, Rembrandt had painted only seven landscapes. Five of the seven were located in prominent museums. We communicated with the museums to ensure that those five had never been lost, stolen, or meddled with. They were fine, so that left only two. Common sense led me to believe that there was no way on earth that this woman could have attained one of Rembrandt’s seven existing landscapes, let alone one of the two which were not in museums. However, common sense is not the tool of the investigator. All roads must stop at the facts. And in this case, as it turned out, the facts were as follows: The two remaining landscapes, wherever they were, were painted on panel, which means that they could not be rolled up in a tube. The facts had effectively dismantled this claimant’s story. Was Lady Arizona a fraudster? That we can never know. Maybe she believed she’d had a Rembrandt. Maybe the seller was the fraud. As Gene Charles, a Paris art dealer of renown, once said, “You can sell anything to the public at large. They know nothing about art. All you have to do is ask a fabulous price.” Despite the overwhelming factual evidence, Lady Arizona did manage to ensure some modest compensation because even non-Rembrandt pieces from the lost work’s century are deemed to be of some value.

Missing the Mark Less fortunate was another case subject, the antique merchant. He, you see, had lost an item called a silver cash pot. According to him, the cash pot was valued at $11,000. Why so much? “It was made by Tiffany,” said the merchant. He was referring to Louis Comfort Tiffany, the merchandise of whom could indeed command a pretty penny. What gave us pause was that the merchant said that the item bore the initials “CLT.” CLT, of course, does not stand for Louis Comfort Tiffany. Sympathetic readers may posit that the antique dealer had made an honest mistake. Perhaps, or maybe whoever sold the pot to the dealer had been a fraudster. All reasonable possibilities. However, we are compelled to counter that Tiffany is a giant in the dealer’s world. So had the dealer been good at his job, he would not have been duped so easily. Therefore, we were either dealing with a poor antique dealer or a sloppy fraudster. In either case, the claim could not be authenticated, and payment was not made. In every art claim, there’s a need for investigative diligence. The high-value art world, as well as its fraudulent counterpart, is one of rapid transfer of property and often loosely documented authenticity. Accordingly, the art claims investigator is required to be a creature of minutiae—to look in the smallest cracks and corners, the places where others might never think to glance. cA PJ Zadok is the director of Fine Arts Claims Consultants, Inc. and can reached at info@finearts.bz

The Challenge of Subrogation NASP helps keep the education and communication flowing. Subrogation plays a critical role in the success of today’s insurance companies, and there is one organization dedicated to subrogation—the National Association of Subrogation Professionals (NASP). NASP’s number one priority centers on providing educational opportunities for subrogation professionals, whether they are insurance claims professionals, attorneys or service providers. NASP’s annual conference is the premier subrogation learning event in the United States and, along with their other education events, provides a much needed communication forum. “NASP events afford me the opportunity to work with other executives and spend specific time concentrating on subrogation,” says Robert Bowers, executive, Claims Staff Operation for Westfield Insurance. “Through the discussions and takeaways from the NASP executive forum, we at Westfield can better understand industry trends and practices. This knowledge assists us in ensuring that our management, claims professionals, and subrogation staff work in concert, and that produces 62

SUMMER 2009

mutual benefit throughout the whole claims and subrogation process.” Most insurance carriers recognize the financial impact of subrogation recoveries on overall financial performance as a key strategic initiative; however, until recently, there was never a benchmarking study dedicated just to the field of subrogation. NASP has commissioned studies in auto, property and workers’ compensation, and they recently created a benchmarking committee to develop survey questions for an upcoming Healthcare Subrogation Benchmarking Study. There are new people coming into claims operations every day—that’s just the nature of business. However, developing expertise in the area of subrogation is of particular concern. “The licensing of our people in multiple states, as well as the understanding of various jurisdictions and the legal issues involved, means that you have to be an expert at this to really be a true subrogation professional. It can’t be a sideline job. It needs to be something that you’re focused on,” says John Fouert, vice

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president of Claims for State Farm Insurance Companies. “In the last few years, companies have been very successful at creating more professionalism around subrogation—equal pay and strong subrogation n. management have led to The act of putting, by people seeing it as another a transfer, a person in worthy opportunity within the place of another— assuming the legal rights the organization.” of a person for whom From an internal expenses or a debt has standpoint, NASP events been paid. Typically, allow discussions on how an insurance company to get internal departments which pays its insured and personnel aligned to client for injuries and the degree necessary for losses then pursues the collections to take place party which the injured efficiently. Externally, they person contends caused look at what’s happening the damages to him/her. with legislation and regulations—the things that might be threatening a company’s ability Legislation Has Critical Effect to collect and return on Consumer Rates deductibles back to With critical legislation on the the insured. horizon, not only subrogation While not the professionals should be informed. Legislation, such most easily underas New York state bill No. stood area of insurS04080A that has the ance, subrogation is a potential to cease subrogation efforts in that state, impacts critical part of provideveryone. If companies cannot ing the best rates poscollect subrogation dollars, deductibles won’t be returned, sible for policyholders, and it will impact rates and and NASP is doing its premiums because part of part to provide educathe money collected goes into operating the business. tion and communicaIt’s no good for the insurance tion opportunities for company. It’s no good for the all involved. Check out consumer. www.subrogation.org to learn more.

The Katie School of Insurance and Financial Services www.katieschool.org • Nationally ranked insurance program • Nearly 300 insurance majors and minors • Over 90 companies recruiting students • Excellent faculty/smaller class sizes • Scholarships/Honors program • Preparation for professional designation exams • Internships/domestic and international • Active industry involvement • Gamma Iota Sigma insurance fraternity • Highly successful career placements • Articulation agreement with Bermuda College

The Katie School attracts the best and the brightest students who are pursuing careers in the insurance and financial services industry.

To learn more about what the Katie School has to offer, contact: Deborah A. Babcock, Associate Director (309) 438-3368 Debbie.Babcock@ilstu.edu

cool linx 10 Minute Mail

www.10minutemail.com A very unique idea. This Web site provides a disposable e-mail address that you can use for only 10 minutes. You can receive e-mail messages and reply to them without having to reveal your permanent e-mail address to others. Just click “Give me 10 more minutes” to extend the time period. Can you say “anonymous”?

Scrim

http://scr.im In the never-ending effort to avoid spam, scrim provides you with the ability to hide your e-mail address in discussion forums, classified ads and other public Web sites. Just post your scrim address instead of your e-mail address. Users click on your scrim address to view your e-mail address. As easy as pie.

Media Converter

www.mediaconverter.org Media Converter provides free online conversion of audio and video from uploaded files or from Web sites such as Facebook, YouTube and others. In just a few minutes, you can select, convert and download the desired file format. The free version will convert up to five files per day which are as much as 100MB in size.

CometDocs

www.cometdocs.com Have you ever been sent a file that you can’t open because you don’t have the appropriate software? Using CometDocs online software, you can upload and convert PDF, text,

~ pulse ~

Yes, Likely People Getting Desperate & We’re Questioning More 44.4%

image and other file formats to other formats within just a few minutes. Over 50 different conversion types are available for use, and the download link is e-mailed to you.

Kuku Klok

www.kukuklok.com Forgot your alarm clock? No problem. Just log onto kukuklok.com and set the “Swiss Made” alarm clock, choosing from five wake-up sound bites. Once loaded, this online alarm will work even if your Internet connection goes down. It’s a simple concept and works flawlessly.

KeepMeOut

www.keepmeout.com If you tweet more than once an hour, peruse eBay incessantly or live on Facebook, this Web site may be for you. KeepMeOut was built for webaholics who can admit that they need help. Online addicts create shortcuts to the offending Web sites via KeepMeOut. A warning is displayed if you try to visit the targeted Web site too often.

NewsMap

www.newsmap.jp Very cool beta site. Using the Google news aggregator as a resource, Newsmap visually arranges subject matter based on its popularity among news outlets. Article headlines are displayed in color-coded boxes to differentiate between world, national, business, technology, sports, entertainment and health news topics. You can also filter the results to view only selected topics, countries and time periods. You could spend all day reading news from this Web site.

are reports of suspicious claims on the rise? If so, why?

Yes, People are Getting Desperate 35.2%

No, I Haven’t Seen Significant Change 12.5%

Yes, Possibly Because We’re Questioning More 4.2%

Yes, For Other Reasons 3.2%

I’ve Seen a Decrease .5%

A recent study showed that questionable insurance claims are on the rise. But why? Increased weather activity? More claimants engaging in fraud? Or could it be a combination of the two? In this quarter’s Pulse Poll, more than one third of respondents believe that people are getting desperate. However, nearly half believe the rise in possible fraudulent claims is due to a combination of elements. So are we in the perfect storm? Read on to learn more.

Take this quarter’s Pulse Poll online at www.claimsadvisor.com SUMMER 2009

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the commish

Spotlight on Insurance Commissioners

State Insurance Regulation: An Island of Calm in a Turbulent Financial Sea Dr. Therese M. (Terri) Vaughan, chief executive officer of the National Association of Insurance Commissioners (NAIC) Given the current financial turmoil, policymakers are asking important questions. How did we get here? How do we prevent a recurrence of the nation’s current financial problems? What kind of regulatory regime is most likely to prevent systemic risk failures in the future? One mistake we should not make is tinkering with the strengths of our current state-based system of insurance regulation. An important lesson from the current financial turmoil is that regulatory policy can be flawed and regulators can make mistakes. We have seen a parade of regulators and policymakers acknowledging errors that were made: for example, the failure to regulate credit default swaps, the failure to recognize the liquidity risks posed by structured investment vehicles (SIVs), problems with the Security and Exchange Commission’s system of voluntary supervision of investment bank holding companies, gaps in the oversight of AIG by the Office of Thrift Supervision and a general tendency to over-rely on the firms’ own management of risks. Former Federal Reserve Chairman Alan Greenspan, pointing to his own reliance on “the self-interest of lending institutions to protect shareholders’ equity,” admitted to being in “a state of shocked disbelief.” Scholars use special terms to describe regulatory errors and their causes: • Regulatory Forbearance—the failure to take prompt and stringent action in the face of a potentially troubled firm, widely recognized as one cause of the savings and loan crisis of the 1980s. • Regulatory Capture—a term used to describe the tendency of regulators to take the mindset of interest groups, such as the industry they regulate. But the bottom line is that regulators are human and they make errors in judgment, whether it is because they are outgunned by the resources and

expertise of the firms they regulate, subject to political influence, or simply fallible. Any structure intended to prevent the next systemic meltdown must be built with this truth in mind. Otherwise, we run the risk of creating an even bigger problem the next time. The insurance industry has been a relative island of calm in an otherwise turbulent financial sea. It has its own stresses, to be sure, but we have not seen the kind of failures that have been present in the banking sector. Nor did we see them during the savings and loan crisis of the 1980s. As Congress considers regulatory reform, it is worth considering how the structure of our insurance regulatory system might help to counteract the fallibility of regulators, regulatory forbearance and regulatory capture. Sir Callum McCarthy, the former chair of the U.K. Financial Services Authority, has suggested that one of the problems is that regulators “do not challenge each other’s decisions often or fiercely enough.” In U.S. insurance regulation, we challenge each other on a daily basis. We have built extensive systems to share information, coordinate, and engage in peer review. This healthy tension among the states creates a system of checks and balances with multiple sets of eyes on a problem. Like all regulators, we make mistakes. However, our structure makes it more likely we will catch mistakes early, and it counteracts problems of regulatory capture and regulatory forbearance. That is an important reason for our success in protecting consumers over the years. Some have suggested that we need to create a federal insurance regulator because of the importance of this industry. My conclusion is just the opposite. Given the importance of insurance in the economic security of Americans, it is too important to leave the job to a single, most certainly fallible, federal regulatory system. We need the checks and balances and multiple eyes—the healthy tension that exists in our successful statebased system of insurance regulation. For more information, visit www.naic.org

CLAIMS ADVISOR | SUMMER 2009

interview

What makes you tick? Claims adjusters have one of the most interesting and demanding jobs in the insurance industry. Here you get to tell us about the job and how you make it part of your life. What prompted you to become an insurance adjuster?

Things happen for a reason. I was an advertising major in college and my first job was behind a drawing table in a dark basement. I hated it! I am a people person. I had a contact at Colonial Penn for a job in customer service in 1982. I loved it and have not wanted to leave the insurance business since. My training has gotten me to where I am today and I believe I can handle almost anything at this point...and believe me, I’ve handled some interesting situations. What type of adjuster are you? (e.g. inside or outside, auto, property, workers’ compensation, etc.)

I am an inside claims adjuster, supervisor, manager. I work in small 11 person office and wear every hat possible. How long have you been in the business?

For 27 years. That sounds like a lifetime. It is. Can you explain a recent problem with a difficult customer and what strategies you used to win the day?

I had an insured that was far behind in her payments. She was sending checks often, but could not understand why she was not up to date and that the payments were going to back payments. It took me 46 minutes to explain that to her and go over the past years’ payments with her. How do you deal with the stress of the job?

I take a deep breath and try to be calm. I have an open door policy and tell my employees if they get into a tough situation to tell me—l cannot help them after the fact. They do come to me so that we can discuss how to handle things. What type training do you feel would help you perform more efficiently?

of roadblocks to convert to our computer system, but we survived. I was able to keep everyone calm, not overwhelmed, and assured them when the end was soon to come...all with success. Describe what you would like your company to provide you (technology, training, workload, etc.) in order to do your job in a more effective manner.

In the spring, I will take a few management seminars for small offices. That, along with any employee relations class, would be helpful. Do you see your company adding more technology tools to help with the decision making process?

We are currently in the midst of getting a new phone system and a new computer system/program to make our jobs here a little easier. How has the nature of your work changed in the last 5-10 years and how do you foresee it changing in the future?

I have taken on an extreme amount of increased responsibility, both employee and office handling.

Where do you see the future pool of new adjusters coming from?

Young, aggressive college students, those thinking of doing something different and possibly outside of their degree focus. What type of succession planning is your organization doing to ensure continuity as more of the “boomer” generation retires?

My office is staffed with young employees and some middleaged. We continue to cross train in order to ensure that everyone is aware of each other’s responsibilities. What is your typical routine on Friday afternoon?

Jeans, coffee, and dive into a productive day to end the week. What is your favorite or funniest claims story?

I’d like more hours in the day so that I could do it all!

I have an insured who calls herself a reverend and swears that she has aliens in her home. She claims they caused a fire on one occasion and a water leak on another. She sees things and hears voices and then tells the story as a matter of fact. She does not want to hear different. We all crack up and it really makes the job a little lighter.

Can you give a recent example of where you saw outstanding leadership in your company?

—Elizabeth R., Staff Claims Manager/Supervisor

I need some time management. Handling a little bit of everything takes me away from my main job. If you could change one thing about your job, what would it be?

We just went through a merger and I feel the entire staff stepped up to the plate. It was not an easy task. Can you provide an example of a huge process change to how you did your job? And how you handled it?

I worked on a daily basis with merging two companies together, from beginning to end. There were a lot

SUMMER 2009

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Are you interesting? Then tell us all about you.

Visit www.claimsadvisor.com/contactcA/Interview and share your info with your fellow adjusters. Be sure to fill out the complete form to be considered.

write

by Gary Blake, Ph.D.

ROI Through Claims Writing Training If you’re looking for the ROI in claims writing training to show up on a balance sheet, forget about it. The ROI of claims training is often not quantifiable, but it’s there. To give you some perspective, let’s suppose you decide to put 15 adjusters through a rigorous claims writing seminar or webinar with a per-person cost of $200. What will you gain for the money? Let me describe what you get by looking at the return in terms of short-, medium- and long-term benefits. I’ll let you do the arithmetic to figure out what your own shop’s investment would yield. Short Term. The dozens of letters adjusters write begin to improve. There are fewer mistakes, fewer punctuation errors, fewer format problems, fewer redundancies and fewer oldfashioned phrases. Form letters start to be revised, taking up the conversational, “Plain English” spirit of the training. Lengthy sentences get broken up, and so do lengthy paragraphs. Also, since the claims people have learned more about organizing their letters, there’s less wasted time in producing each one. The letters get to the point faster and have a gentler tone. Claims handling becomes smoother. Fewer policyholders get angry and call their attorneys. Your people are prouder of their letters and are not secretly making fun of their stodginess or quaint language. Morale improves. Your claims people appreciate that you have taken the time and money to give them valuable training. This leads to greater company loyalty and less turnover. Medium Term. Writing training may pay for itself many times over if adjusters learn to spot weaknesses in claims letters and file notes. For example: • One bad faith lawsuit led to a whole file being discoverable. In that file were examples of nasty, negative, accusatory language. If even one adjuster on your team has had no instruction on the ways to avoid negativity, subjective comments, and anger in correspondence, your whole department is at risk. • A municipal retirement fund found itself in trouble when, because of a vague and muddy retirement payout estimate, a retiree sued for what he expected to receive in benefits. The court agreed that the prose was hopelessly vague and awarded a very handsome retirement package to the plaintiff. • In Kentucky, a bad faith lawsuit featured an opposing attorney putting embarrassing prose on an overhead projector and ridiculing the poor writing as well as the tone. That case resulted in the company paying out $950,000!

Another aspect of the relationship between an adjuster’s writing skills and worries over litigation is the trend toward e-mails and log notes being brought into court by an opposing attorney. Great form letters won’t help you if you shoot off a crash-and-burn e-mail intimating that the claimant is less than honorable. Tone is a writing issue that goes far beyond the niceties of sentence structure. Adjusters must take responsibility for their words or wind up eating them in a court of law. Training can return its investment if your adjusters learn how courts have handled situations involving inadvertent racism, sexism, ageism, and the act of coming to a conclusion too early in the claims handling process. For every “enclosed please find,” “under separate cover,” “above-captioned file” and “pursuant to,” there is a customer who is laughing, shaking his head, and equating this userunfriendly language with your company’s image and customer service. Bad writing is embarrassing, and, although its effects may not show up on the ledger, it may repel customers. On the other hand, an adjuster with training in persuasive writing will not only avoid embarrassment but will “sell” settlements faster and better because of an awareness of how persuasion works. It’s hard to put a value on improved corporate image, but the elimination of even one embarrassing writing situation can pay for the training of all 15 participants. Long Term. ROI includes retaining adjusters. As new hires join your staff, the letters they start to write will be better because the form letters they use as a model will have improved—leading to a new generation of benefits derived from that one training investment in the past. Within two years of the training, those 15 claims professionals will have written, conservatively, 500 letters each. Each letter, let’s say, is 50% better written than before the training. Suddenly, that $3,000 investment has paid an undeniable dividend with every letter—and will continue paying that dividend over the career of each participant. Just as the need to improve people’s driving skills will never go away, the need for insurance professionals to write clearly and concisely will never subside—despite form letters. If you are to be successful, there’s no substitute for confronting how you write and making sure that the premises you have for the way you write are logical, well founded, and up-to-date. Planting the seeds of effective writing in your staff can and should yield a blossoming of productivity and profitability that will dwarf the original investment and pay a dividend with every new e-mail, letter, and report.

Gary Blake, Ph.D., is director of The Communication Workshop. He is an author and presents seminars on effective business writing for claims professionals. Blake may be contacted by e-mail at garyblake@aol.com or visit www.writingworkshop.com.

CLAIMS ADVISOR | SUMMER 2009

Event

2009 7/24-26

Kentucky Claims Association

Kentucky Claims Association 2009 Conference, Karen Cantrell, kcantrell@ers.net, 270-782-7678 x1136, Holiday Inn-Lexington North, Lexington, KY, www. kyclaimsassociation.com 8/2-4

PA Association of Mutual Insurance Companies

PAMIC 102nd Annual Convention, Registrar, info@pamic.org, 717303-0197, Bedford Springs Resort, Bedford, PA, www.pamic.org 8/3-7

Crawford Educational Services

Basic Property Loss Adjustment, Registrar, ceregistrar@ us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www.crawfordandcompany.com 8/4-6

National Association of Mutual Insurance Companies (NAMIC)

NAMIC Property Loss Adjustment Fundamentals School, Registrar, registrar@namic.org, 800336-2642, Minneapolis Airport Marriott, Minneapolis, MN, www. namic.org 8/9-14

Colorado Auto Theft Investigators & International Assoc of Auto Theft Investigators Western Regional Chapter IAATI Annual Training Seminar, Detective Jim Kautz, seminar@ iaati.org, 303-658-4229, The Westin Westminister, Westminister, CO, www.iaati.org 8/13

PLRB/LIRB

PLRB Web Services Overview, Hugh Strawn, hstrawn@plrb. org, 630-724-2230, Malvern, PA, http://www.plrb.org/education/ webtraining/index.cfm

SUMMER 2009

8/23-26

Illinois Association of Mutual Insurance Companies (IAMIC)

Annual IAMIC Convention, Registrar, leadership@iamic.org, 800-694-2642, Embassy Suites, East Peoria, IL, www.iamic.org 8/24-27

Association of Certified Fraud Examiners

CFE Exam Review Course, Registrar, events@acfe.com, 800245-3321, Omni Chicago Hotel, Chicago, IL, www.acfe.com 8/24-28

Michigan State University - School of Labor & Industrial Relations

Certified Workersâ&#x20AC;&#x2122; Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-218-8550, Park Place Hotel, Traverse City, MI 8/28

CPCU - Colorado Chapter

1st Annual CPCU-Loman Golf Tournament, Thomas C Glasson, cpculomangolf2009@att.net, 214-758-3250, Fox Hollow Golf Course, Lakewood, CO, www. cpcusociety.org 8/29-9/1

Chartered Property Casualty Underwriters CPCU Society 2009 Annual Meeting & Seminars, Registrar, 800-932-2728, Sheraton Denver Downtown Hotel, Denver, CO, www.cpcusociety.org 9/9-10

PLRB/LIRB

PLRB/LIRB Central Regional Adjusters Conference, Registrar, Westin Lombard, Lombard, IL, www.plrb-lirbregionals.com 9/10-11

Claims Conference of Northern California

16th Annual Claims Conference of Northern California, Dawn Dawson, dawn_dawson@csaa. com, Hyatt Regency Downtown, Sacramento, CA, www. claimsconference.org

www.claimsadvisor.com

9/16-18

9/21-25

15th Annual West Region Construction Defect Conference, Mark Anthony, Mark.Anthony@ MCConsultants.com, 760930-9966, Hilton San Diego Bayfront, San Diego, CA, www. mcconsultants.com

Certified Workersâ&#x20AC;&#x2122; Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-218-8550, Center for Executive Development, Lansing, MI, www.lir.msu.edu

MC Consultants Inc

9/16-19

Society of Accredited Marine Surveyors (SAMS)

2009 Annual SAMS Conference & Educational Training Symposia, Mary Stahler, samshq@ marinesurvey.org, 800-344-9077, Doubletree Hotel - Houston Downtown, Houston, TX, www. marinesurvey.org 9/17

PLRB/LIRB

Michigan State University - School of Labor & Industrial Relations

9/21-25

International Association of Industrial Accident Boards & Commissions (IAIABC)

2009 IAIABC Annual Convention, Jennifer Wolf, jwolf@iaiabc.org, 608-663-6355, Radisson Plaza, Minneapolis, MN, www.iaiabc.org 9/21-24

National Association of Insurance Commissioners

PLRB Coverage Research, Hugh Strawn, hstrawn@plrb.org, 630-724-2230, Malvern, PA, http://www.plrb.org/education/ webtraining/index.cfm

NAIC Fall Meeting, NAIC Meetings Department , meetingsmail@naic.org, 816-7838100, Gaylord National Hotel and Convention Center, Washington, DC, www.naic.org

9/20-23

9/22-25

International Association of Special Investigation Units (IASIU)

24th Annual Seminar & Expo on Insurance Fraud, Registrar, info@iasiu.org, 410-931-3332, JW Marriott Resort & Spa, Palm Desert, CA, https://www.iasiu.org 9/20-23

Society of Insurance Research (SIR)

39th Annual SIR Conference & Exhibit Fair, Diana Lee, diana. lee@pciaa.net, 847-297-7800, Rosen Plaza Hotel, Orlando, FL, www.sirnet.org 9/21-10/2

Crawford Educational Services

Intermediate Property, Registrar, ceregistrar@us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www. crawfordandcompany.com

NAIIA Eastern Region

NAIIA Eastern Region Meeting, Tom Erhardt, terhardt@eacadjust. com, 516-746-1777 x13, The Sagamore on Lake George, Bolton Landing, NY 9/24

PLRB/LIRB

PLRB Catastrophe Services, Hugh Strawn, hstrawn@plrb. org, 630-724-2230, Malvern, PA, http://www.plrb.org/education/ webtraining/index.cfm 9/24-26

Reinsurance Association of America Re Claims, Registrar, 800-2590199, The New York Helmsley Hotel, New York, NY, www. reinsurance.org 10/2-4

National Truck & Heavy Equipment Claims Council (NTHECC)

NTHECC Fall Meeting, Tom Fergus, 603-569-8910, Marriott Colorado Springs, Colorado Springs, CO, www.nthecc.org

source

Advertising Directory

ADVERTISER

PHONE

WEB SITE

E-MAIL

PAGE

1-800-BOARDUP, Inc.

800.585.9293

www.1-800boardup.com

mdh@1-800boardup.com

AICPCU

800.644.2101

www.aicpcu.org

customersupport@cpcuiia.org

ALE Solutions, Inc.

866.885.9785

www.alesolutions.com

rowena.zimmers@alesolutions.com

Arter Insurance Adjusters, Ltd

330.332.9082

Assured Relocation

888.670.9700

www.assuredrelocation.com

Claims Advisor Advertise

866.276.7970

www.claimsadvisor.com/advertise

Claims Advisor Subscriptions

866.276.7970

www.claimsadvisor.com/subscribe

Claims Advisor Online

866.276.7970

www.claimsadvisor.com

Claims Pages

800.290.1347

www.claimspages.com

info@claimspages.com

Donan Engineering Co., Inc.

800.482.5611

www.donan.com

donan@donan.com

EagleView Technologies, Inc.

866.659.8439

www.eagleview.com

info@eagleview.com

EFI Global, Inc.

281.358.4441

www.efiglobal.com

heather_suttle@efiglobal.com

Expert Advantage

866.749.3107

www.expert-advantage.com

expertadvantage@mchsi.com

Katie School of Insurance and Financial Services

309.438.3368

www.katieschool.org

debbie.babcock@ilstu.edu

back cover

arteradjusting@aol.com

IASIU

20 41

advertise@claimsadvisor.com

inside back cover

www.iasiu.org

Insurers World

781.821.0087

www.insurersworld.com

Matson Driscoll & Damico

630.725.9220

www.mdd.net

Munters

1.800.MUNTERS

www.munters.us

National Association of Subrogation Professionals (NASP)

scott.lacourse@insurersworld.com

31 25

mcsinfo@munters.com

www.subrogation.org

Patton & Ryan, LLC

312.261.5160

www.pattonryan.com

Property Loss Research Bureau

630.724.2200

www.plrb.org

RGL - Forensic Accountants & Consultants

888.RGL.4CPA

www.rgl.com

Rimkus Consulting Group, Inc.

800.580.3228

www.rimkus.com

expert@rimkus.com

Temporary Accommodations

800.548.5196 x201

www.temporaryaccommodations.net

jmiegel@temporaryaccommodations.net

Weather Decision Technologies

888.255.7099

www.weatherforensics.com

lynnelawry@weatherforensics.com

Wilber Lane Law Firm

800.397.5418

www.wilberlanelaw.com

aatkins@wilberlanelaw.com

jpatton@pattonryan.com

19 inside front cover

For a media kit, editorial calendar and advertising opportunities, call 866.276.7970 or visit www.claimsadvisor.com/advertise.

• 10/5-9

10/10-11

10/19-23

10/20-21

Advanced Property, Registrar, ceregistrar@us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www. crawfordandcompany.com

USPAP Course for Personal Property Appraisers, Kathi Jablonsky, ISA CAPP, kjablonsky@ personalpropertyappraisals. com, 619-670-4455, Kings Inn - Mission Valley, San Diego, CA, www.sandiegoappraisers.org

Crawford Educational Services

10/6-6

Medical Systems Inc

2009 Worker’s Compensation Conference, Registrar, schedule@ medicalsysytemsusa.com, 800261-3278, Country Springs Hotel & Conference Center, Pewaukee, WI, www.medicalsystemsusa.com

ASA San Diego Chapter

PLRB/LIRB

Basic Property Loss Adjustment, Registrar, ceregistrar@ us.crawco.com, 404-300-1526, 1001 Summit Blvd, Atlanta, GA, www.crawfordandcompany.com

2009 PLRB/LIRB Western Regional Adjusters Conference, Registrar, conference@plrb. org, 630-724-2200, Renaissance Austin Hotel, Austin, TX, www. plrb-lirbregionals.com

10/19-23

10/25-28

Michigan State University - School of Labor & Industrial Relations

10/18-20

Southeastern Claim Executive Association (SCEA)

SCEA Fall 2009 Meeting, Neil Timmons, neill.timmons@ canal-ins.com, 864-2425365, Williamsburg Lodge, Williamsburg, VA, www. southeasternclaimsassoc.com

Crawford Educational Services

Certified Workers’ Compensation Professional (CWCP), Registrar, wcc@lir.msu.edu, 877-218-8550, Westin Princeton at Forrestal Village, Princeton, NJ, www.lir. msu.edu

Property Casualty Insurers Association of America

PCI Annual Meeting, Bernadette Rouse, bernadette.rouse@pciaa. net, 847-553-3633, Walt Disney World Swan & Dolphin, Orlando, FL, www.pciaa.net

CLAIMS ADVISOR | SUMMER 2009

story

Claims Adjusters Have a Million Stories. What’s Yours? Statement of a Dead Man I was taking a statement from an insured regarding a fire in his home. He was telling me that he had been on his way across Nevada when his pickup broke down at night. He stayed with his truck, but it was getting cold so he gathered all the paper trash and wrappers he could find and started a fire on the floor boards. (“Another fire to investigate,” I thought). But the fire built up too quickly, he said, and the smoke was getting very bad, and that was when he died! I clarified that point with him and he confirmed that, yes, he had died, but the paramedics had revived him. He then said that he was confined in a mental hospital but escaped. We wanted to have him examined by a psychiatrist and contacted one in his town, who indicated he would be glad to do the examination for us. He then asked the insured’s name. When I told him, the psychiatrist said, “Oh,

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SUMMER 2009

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him! He’s crazy as a loon!” We did not proceed with the mental examination. —John N., Portland, OR Independent Claims Adjuster/Appraiser He Said, She Said, He Said The insured, a male truck driver, said the claimant, a woman, drove into him. The claimant said he backed into her. Another trucker from the same company as the insured verified the truck driver’s version of events, adding that “Bill” at the construction site witnessed it too. Thinking this was a slam dunk, I drove to the accident scene and located the site supervisor. He said they had two guys named “Bill,” and I didn’t have a last name. An equipment operator was getting off a nearby front-end loader. Thinking he could probably identify “Bill,” the supervisor yelled to him, “Do you remember that accident last week?” The operator yelled back, “You mean the one where the guy backed into the woman?” —John S., Cleveland, OH Independent Claims Manager/Supervisor

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At ALE Solutions, housing a large family isn’t that unusual. (Even when it includes ten St. Bernards.) As you might imagine, when it comes to challenging housing requests, we’ve heard them all. Everyday we work with adjusters to find creative solutions to their toughest housing problems. So, the next time you’re facing an unimaginable situation, think of ALE Solutions, your resident experts in temporary housing.

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SUMMER 2009