The Art of Adjusting® Podcast

Episode #63: Claims Made vs. Occurrence: Unpacking Insurance Policies

• William Auten & Chantal Roberts • Season 3 • Episode 63

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This week’s podcast dives into the world of claims made versus occurrence policies, shedding light on their significant differences and implications for those in the insurance industry. Our guest expert, Fred Fisher, shares valuable insights gained from decades in the field, offering critical information for both current and aspiring adjusters.

• Defining claims made and occurrence policies
• Exploring the impact of claim reporting requirements
• Discussing the importance of timely reporting
• Analyzing real-world claim scenarios and case studies
• Highlighting current trends and changes in insurance practices
• Understanding the ethical complexities of claims adjusting

For those wishing to gain further insights, check out Fred Fisher's new book Claims-Made Insurance. His deep knowledge offers essential understanding for anyone in the insurance business.

Be sure to check out his upcoming webinar as well.

This audio has been edited and engineered by Nicholas Kearns, 585-545-9976, njkearns11@gmail.com

For more insights, you might consider a career in liability adjusting or if you're searching for reliable adjusting services, visit Auten Claims Management.

To explore more about Chantal Roberts and her contributions to the industry, visit CMR Consulting.

Promotions:

  • Once Upon a Claim: Explore the magical world of claims adjusting through fairy tales. Get your copy now.
  • The Art of Adjusting®: Master the art of claims adjusting with practical insights and expert advice. Purchase here.




Speaker 1:

Hello, I'm Bill Auten of Auten Claims Management.

Speaker 2:

I'm Chantel Roberts of CMR Consulting and welcome to the Art of Adjusting podcast.

Speaker 1:

Today we're going to talk about life as an insurance adjuster from the perspective of property, auto liability or workers' compensation adjusters. Our goal is to bring interesting topics in the world of claims adjusting to people who are working as an adjuster now and to people who are considering a career as a claims adjuster. Hey Chantel, how are you today?

Speaker 2:

I'm doing well, thanks, how are you?

Speaker 1:

I'm good, you know, the dregs of winter are really getting to me. It's 16 degrees today and I've about had it. I'm ready for spring.

Speaker 2:

No kidding, it is freezing in Kansas City, and our guest, though, fred Fisher, lives in California, so I know.

Speaker 1:

I was going to ask how you're doing.

Speaker 2:

Fred at fire, wise You're okay.

Speaker 3:

Uh, fortunately, yes, yes, the air quality did get turned bad for there for a while. But number one, we live near the ocean, so we get the ocean breezes. And number two, we live near the airport, and apparently that's one of the few things our government does right, because the airport never gets hit with earthquakes, tornadoes, hurricanes, waters and fires. Well, there you go, good plan.

Speaker 2:

Well, fred, we were talking before we got on and Fred and I have known each other gosh a long time via LinkedIn and everything. But we met through AIMCO, which is a, I guess, fraternal group of expert witnesses and insurance consultants and that sort of thing. But Fred is the president of Fisher Consulting Group Inc. And he is a member of the editorial board for Agents of America, was a faculty member of the Claims College, is an instructor for the Academy of Insurance, where I've done a few works as well, and is the founding member and past president of Professional Liability Underwriting Society. He's worked in specialty lines for almost 50 years, fred, welcome.

Speaker 3:

Well, thank you both of you. I'm really pleased and honored to be part of this popular forum of yours, and so this is a first, and I'm very happy to be here, thank you. Yeah, great, well, very happy to be here, thank you.

Speaker 1:

Yeah, Great. Well, congratulations on your book here. Claims Made Insurance the Policy that Changed the Industry. This sounds really interesting A deep dive review and history. So before we start, let's define what is a claims made policy.

Speaker 3:

Well, it's exactly like it sounds. It's a policy that became necessary for a lot of reasons, but in essence what it is is a policy that is triggered when someone first makes a claim against the policyholder, which puts all the power, of course, in the hands of the claimant, not the policyholder. And that differs from your typical occurrence-based liability policy, where the occurrence must take place, the accident must take place during the policy term. And it kind of makes sense because often when you run a red light and have an accident, somebody's immediately injured. They may not know the extent of it, that may take time to develop, but they are immediately injured.

Speaker 3:

But when a professional makes an error aside from medical malpractice-related matters when a professional makes an error, whether it's an insurance agent or an accountant or a lawyer or you know, et cetera, the person who is going to be injured may not be injured immediately.

Speaker 3:

The mistake has taken place but nothing yet has happened, where anybody knows that somebody may be injured, and sometimes that may take a long time.

Speaker 3:

For instance, you know, if you have just hired a maternity to do your estate planning, put together your living trust or to do your will, nobody's going to know that he screwed up on the generation skin tax until you're dead, and that could be today.

Speaker 3:

God forbid, that could be in 25, 30 years yeah, interesting. And so that has a long tail technically. And so from the current standpoint which is how lawyer policies and what have you used to be written on you'd have to keep every document and every policy for a very long time, and also from an actuarial perspective, that's not a good thing, because that means they can't really close the books. Although the typical IBNR is five years, in reality it's actually longer when you're dealing with professional services, which are excluded in most GL policies now anyways. So there was every reason to come up with this concept, and that's the major difference is that one requires the accident to take place during the policy term. The other requires that the claim by a third party be made against you during the policy term, and then it gets much more complicated from there.

Speaker 2:

I know, isn't insurance fun? I mean, it's never not complicated, I think. But by the way, I have my autographed copy right here with me just to like rub it into everybody, so haha, by the way, the autograph was licensed.

Speaker 3:

The book is free.

Speaker 2:

Well, there you go. I know that I always get confused about the differences between a claims made and an occurrence made. Is there just an easy way for adjusters to kind of remember which one is which?

Speaker 3:

I think that it's not that difficult, because I think the NEIC put out a model guideline on this that most states have adopted, in that the applications, as well as the policy form, has to put in bold face print that this is a claims made policy. It's on page one and then maybe on the.

Speaker 2:

Now you're just making me look like I'm not so smart.

Speaker 1:

I'm trying to like it says it right there, right on the way to go.

Speaker 3:

Fred, well you know, aren't claims people the first people to say read the policy.

Speaker 2:

Okay.

Speaker 3:

Geez. And then of course there's going to be other important things on that declaration page you're not going to see in a recurrence form. For instance, they may have a thing that says prior act date. They may have another thing saying continuity or pending entire date. You don't see those dates on occurrence policy forms and of course you don't see the warnings either. So when you see that, that also is a cue that something else is going on here and that's important because the approach is going to be totally different.

Speaker 1:

So we see claims like construction-related claims that have something that the contractor may have done five or 10 years ago, but it didn't come to light until recently. Is this a common policy for contractors as well, or is it not so much as more professional liability?

Speaker 3:

Well, that's an interesting question. Number one contractor policies are traditionally written out in the current spaces, which isn't a bad idea, especially when you consider that the statute of limitations in most states is 10 years for construction defects. But there are claims made policies in the construction industry, especially if it's a contractor that's involved in design and build, because then he's acting as a design designer. Hopefully he's got an architect on staff instead of doing it yourself. But the design portion is insurable and that's going to be written on a claims made basis.

Speaker 3:

And the underwriting of that you have to be careful with, because usually if you're a design field contractor, what portion of your estimate is for design work? Because you don't want to be rated on the construction cost or the construction revenue you're getting. That could be a million dollars a year, whereas the design portion of your billings may only be three to 5%. So you want to be rated on $30,000 to $50,000, not the million dollars in construction. So that's one difference. And then they have these RAP policies that everybody buys, but there's a professional version of that and it's called a contractor's professional pollution liability policy and they also have one for developers, and those are all written on a claims-based basis. Interesting.

Speaker 1:

I'm thinking of. The one that pops into my head is that bridge that collapsed in Florida. I think it was a few years back and I don't remember how many years that thing had been in place. I don't think it was too long, but even if it was more than a year, you would have been out of that policy period where you might not have a. Well, I guess it depends on whether the negligence was in the construction two years or 10 years ago, or if it's the occurrence that happened on the day it collapsed.

Speaker 3:

That gives us another problem how is the occurrence language defined? Is it triggered by when somebody is injured or is it triggered by when the mistake was made Right and nobody yet has been injured Right? And I think you're seeing a move on that to trigger the occurrence-based policy when the injury takes place, as opposed to when you goofed or when you screwed up or when you didn't put the right bolts in because you wanted to save money on not using the proper voltage, so to speak, and people cut costs sometimes like that. So is that the error? Is that the occurrence, or is it when somebody's actually injured? And it makes sense to have the policies triggered more by the date of injury more than anything else.

Speaker 3:

As far as the occurrence-based policies go, as far as the claim-made policy, they're going to be triggered by when the claim takes place. Now, if I'm an engineer and I know that that bridge collapsed and I was the engineer on that or the design person on that, I already know that there's a probability of me being dragged into it and that triggers another obligation of. Maybe you want to report it as a potential claim right now. Yes, and my attitude on that is, if you even have to ask yourself, should I report this. You've already answered the question.

Speaker 2:

Yes, absolutely, we were talking about that a completely separate conversation. I don't think you were involved in that, but we were talking about that on LinkedIn and we were specifically talking about producers. And do producers have the duty to file that claim? And I said, well, brokers maybe not. But you know, if you're an agent, you are a representative of the insurer, the carrier, so notice to you is notice to the carrier, and then claims gets tripped with all of the you know unfair trade practices and we've got to answer within so many days and we've got to investigate with so many days, and so you could be waiving something, stopping something, who knows what, but just report it basically is that's the deal. Oh, absolutely.

Speaker 3:

When I owned my wholesale brokerage, I used to get calls all the time from the policy, from the broker, and saying I just got off the phone with the insured and something's going on. He wants to know is, and I'd even cut them off yes, report it now, take a look at the policy. I'd even tell them where it is, because there's a difference between reporting a claim and reporting an incident that could become one. Often there's four or five requirements you have to satisfy to report a potential claim.

Speaker 1:

And what are those four or five?

Speaker 3:

requirements who, what, when and where and how much. Okay, what kind of error? Who's going to make the claim? How much is it going to cost? And it doesn't matter whether you even agree that you did anything wrong. They're going to allege that you did. What difference does it make whether it's right or wrong? And so you have to be careful about following the policy requirements and, more importantly, look out for what, Because this was built into a policy. I won't mention the name of the insurer, but it was not an endorsement and it said after they listed out the four or five requirements that must be met in order to trigger the incident reporting provision, which I call the safety net. It had the following language the company and the sole discretion will determine whether or not you've met the conditions required above. Boy, talk about one-sided, yeah it's up to us.

Speaker 1:

So are you saying that there's a requirement, then to report an incident even if there's no claim made?

Speaker 3:

Yes, because if you know of fact or circumstances that have taken place where you might get dragged into a claim number one, you're going to have to disclose that on any renewal application or for new business, and if you don't, that's misrepresentation. And the safety net is reported if you have coverage reported under the incident reporting provision, because if you can meet the four requirements the policy is triggered even though no claim has been made against you yet. More importantly, look at the definition of claim in the policy. Sometimes being served with a subpoena to produce your file can trigger your policy. That is a claim under some policies.

Speaker 2:

Yeah, and Bill, I know I would often well, not often, but I would get a claim every once in a while that the agent was saying you know, report only. And they didn't. The insured really didn't want us to do any kind of investigation, but it would be something like, oh, it's a death. And I'm like you know what? I do need to go in and take a look at that intersection while there's still glass on the intersection, you know, while there's still skid marks, not two years from now or whatever.

Speaker 2:

And I think it kind of bleeds into our next question that I have, because I, when I was reading the book you know we were talking you had this section about you know, incident reporting or claim reporting and that they're not synonymous and they're not the same thing. And you know, don't settle this on your own, you know, turn it into the professionals, which would be the claims people. And so I was like, yeah, that is, that is perfect. This is good, because naturally, everything that the insured does does kind of impact what the adjuster does. How did you arrive at that list? Was it something that you've always known or is it something that you've learned over the period of your career?

Speaker 3:

Well, the first 20 years of my career I was an independent claim adjuster and all we were handling were professional liability claims. So that started on March 15, 1975. So beware the eyes of March, for sure I mean next month I will, it'll be 50 years, oh my. But you know, we were claim adjusters and dealing with claims made policies in the early days, and who had ever heard of that right? But we looked at three different dates and they are actually when we did our preliminary report, what we call the full-captioned report. We had the three dates there. The first date was the date of the alleged error.

Speaker 3:

I don't care whether or not the insured thinks he did commit an error or not. Somebody's alleging they did. So what's the date of that error? The second date is what we call the date of occurrence, not to be confused with the date of accident.

Speaker 3:

To us the occurrence was what sparked the making of this claim or potential claim. What's sparking it? Was it when the insured got noticed that his lawsuit has disappeared because the attorney blew the statute of limitations? Is it the date that he finds out a claim is being denied because the insurance broker didn't write the policy correctly or even order the policy on time. So that's different from the date of the accident. It's what event is sparking the making of the claim. And then the third date was the date of first notice to the insured or the date the insured should have known. And those three dates can all be the same day as rare as that might be can happen all the same day or obviously they can be different dates or some of them may have the same. But that all goes into determining what the insured knew when they knew it and how that impacts the policy or when he signed the application.

Speaker 2:

Sorry, I was just going to say because that could of course trip a different policy.

Speaker 3:

Sure, you know, depending on when the date is, it's just like you know, one of your employees comes to you and says oh my God, we screwed up. Or oh my gosh, chantel, I screwed up. Well, oh my God, we screwed up. Or oh my gosh, chantel, I screwed up. Well, okay, now you may have knowledge of facts or circumstance, or is it the day the insured calls you and says you screwed up and I'm going to sue you? You know, is the phone call a notice of a claim, a potential claim?

Speaker 3:

And you've got to remember, back in what I call the Wild West days of claims-made policies, they didn't even define the word claim. They left it up to the courts to say oh, it comes from the Latin word clamor, and so it's a date you received a demand for money or services. And that was the legal definition of claim in many states, which created a lot of other problems. Yeah, and then insurance companies started defining claim, claim means, and there was no consistency to it, including somebody sneaking in the date, somebody subpoenas your file. So that created other problems. And by 1990, it was such a mess that there was even a lawsuit where three different policies covered the same loss. One was an occurrence and two were claims made, but the claim. One defined claim is a claim that could have been brought. Another one stated claim oh, the date the lawsuit was filed, the other one the date the lawsuit was served. Well, that could go over to two different policy terms.

Speaker 2:

That would be such a headache, oh yeah, and that's when I wrote my first article.

Speaker 3:

Yeah, and it was strictly focused on claims made, triggers, and what the motive for that article in 1990 was was the fact that you have, all of a sudden, insurers were defining the word claim and there was no consistency and was creating a nightmare from a claim handling perspective. And so I wrote that article and Ermi published it in their risk reporter, I think, at the time. And then, the next thing you know, they told me oh, we're writing a manual on professional ability, we'd like you to be an advisor, and eventually I became the senior technical advisor of it and that got me into PLUS.

Speaker 2:

And then the rest of that's all history I will say this, adjusters, if you don't know what ermie is, I r m I uh insurance risk management international risk management institute.

Speaker 2:

Yeah, go there, check it out. I mean they, they have a plethora of information, absolutely a great source for adjusters, agents, agents alike. I'm you know, I'm not saying that it's not good for agents, but I use it all the time. They've got a great like glossary actually, and I, yes, and checklists, oh yeah, checklist, yeah, and, and and it's not to say that just because this checklist is for agents or producers, that an adjuster can't use it or whatever. I still refer a lot of my students to Ermey for the glossary because they've got really good definitions and I don't have to make them up.

Speaker 3:

And not to toot my own horn, but here we are, 35 years later, and I'm still technically the senior technical advisor on their professional liability manuals.

Speaker 2:

You can toot your own horn. I don't care. This is what this is all about.

Speaker 3:

There are a lot of people that would disagree with that. I know anything about anything, so trust me on that.

Speaker 2:

Well, they are not on my podcast and so they are wrong.

Speaker 3:

There you go Well, thank you, thank you.

Speaker 2:

That's all I'm going to say About that.

Speaker 1:

So I have a question about situations where you may have and I don't know if this is ever a problem, but do you ever have a priority of coverage issue between a GL policy and an occurrence policy and a claims made policy. Would there be a scenario where somebody might have double coverage for a particular claim, given the circumstances, because it sounds like that could get really confusing.

Speaker 3:

It's possible for that to happen, believe it or not. There are still a couple of insurers that are writing professional liability on an occurrence basis. It's rare, but I've seen it in mostly the allied medical field. You know therapists and stuff like that. It's very rare but that can happen. And then in the construction industry you could very well have an overlap as well again, and so you might have multiple policies triggered and then you get into the.

Speaker 3:

You know how do you deal with that? On a prorata basis or what, because a lot of policies are going to have excess escape clauses, but if they all have excess escape clauses, then they then it's all aggregated and prorated so that that turns into a logistical nightmare. And the one of the things that I always try to do as a insurance broker is if I could get complicated coverages all written by the same company. Now it's only now. You're not putting the insured in the middle of a fight between insurers. You're putting the insured in the middle of a fight between internal how they're going to allocate the loss, and that doesn't put the insured in the middle. That's the insurance company's problem.

Speaker 2:

Yeah, because so often and I mean I've been guilty of this too where you get two policies and you're like I'm not primary, I'm excess, and then the other people are like I'm not primary, I'm excess, and the insured is really caught in the middle.

Speaker 3:

And who's going to answer the complaint?

Speaker 2:

Right, and so I know that there's also the issue about the tails on this, especially if, because you said, some people are still doing the occurrence and switching over, like if you switch an insurance company, that could be potentially dangerous and something that an adjuster and, of course, an agent too, but potentially an adjuster needs to watch out for is are we sure that we got this thing covered?

Speaker 3:

If you go to, you can say usually you can safely move from an occurrence policy to a claims made. The problem is you can't go back. It's very hard to move from a claims made policy back to an occurrence form. And you know people, this is where the laundry list of claim, potential claim reporting happen. Let's just report every transaction we did this year. Well, that's when they came up. Well, that's not going to work very well. And so the insurance industry reacted by saying, okay, if you want to report a potential claim, you're going to have to be more specific. And so that's when they came up with the four and five requirements. And what have you? And then, of course, here's that one extreme item where the company, in its sole discretion, will determine whether or not you've satisfied the requirements. It's like, yeah, really, I took an insurance company apart on that as an expert.

Speaker 1:

Are there any disputes over like in a GL policy? We have an occurrence. The event has to meet the definition of an occurrence. Are there similar issues with the claims made policy and do they fight over whether or not it's an occurrence?

Speaker 3:

Well, they're not going to use the word occurrence. The real question is what's the definition of claim, and has that been triggered? And then, of course and this is the thing people really better take seriously the obligation to report that claim as soon as practicable to the insurance company or whoever is specified in the policy. You'd be surprised how many claims have been denied because they submitted a new claim with their renewal application, expecting the underwriter to notify the claim department. Good luck with that. The companies are denying those claims and they're winning, and so take it seriously. So, number one, what's the definition of claim? Is what's taking place meeting that definition? Number two what's your requirement to report it? And chances are it says language to the effect you must report all claims as soon as practicable, but no event later than 10 or 30 or 60 days after the policy expires. But as soon as practical means without any unreasonable delay. That's how it's been interpreted and what happened in one case, hypothetically speaking, let's say the policy incepted on January 1st.

Speaker 3:

In February, they get a claim. They immediately send it to their corporate counsel. He doesn't send it into the insurance company until October Still within the policy term, though and the company denied coverage of the one because there was no reasonable reason for that not to have been reported immediately, right? So the bottom line is I don't care if it says as soon as practicable. That means you get a claim in, report it immediately in accordance with how the policy specifies to report it. They may even have a third party claim administrator you got to report it to. So if you report it into the insurance company, nobody there is going to know where to send it.

Speaker 2:

Yeah, because I do know that we as claims adjusters we're looking at when we're sending or potentially sending a reservation of rights letter or a waiver whatever, because New York is weird and we sit there and we look at what is practical because the policy will say, you know, turn in a claim, notify us of a loss as soon as practical or as soon as possible or whatever, and it's usually a jury kind of deal Like what would a reasonable person think is practical or reasonable or quickly or whatever that word happens to be? Is it the same in this particular instance? And I'm thinking it is based on your comment earlier.

Speaker 3:

Well, of course it pretty much said what it is. As soon as practical means, without any unreasonable delay, which as far as I'm concerned that means to me immediately. Yeah, but Don't ask, go do it immediately.

Speaker 1:

What is a reasonable delay, though? I don't know, is it a week? That's why what is a reasonable delay, though I don't know, is it a week, is it a month? But you said that some policies will actually say specifically within 30 days or 60 days, or something like that.

Speaker 3:

There are some. Yes, there are what I consider to be time bombs that as soon as you know about a claim, you may have as little as 10 to 15 days to report it, or you must make sure that you report it with enough time to even respond to the complaint. I mean that would make it easier. Sometimes that's out of your control. Yeah, I got served today, you know, and, and so you've got. The clock is ticking to follow the answer, and some states it's 30 days and some it's 20. And so you really got to move fast, get it out of there and report it. I think most policies now give you even a claim, an email address where you've been reported.

Speaker 3:

Oh, yeah, yeah and so just do it, take it seriously.

Speaker 1:

So with GL policies here in New York we've got a prejudice requirement to if you're going to deny a claim for late notice, you have to show that the insurance company was prejudiced. Is that the case with these claims made policies as well? Well it depends.

Speaker 3:

There's a split of authority on this because there's two types of claims made policies. There's a claims made policy and then there's a claims made and reported during the policy term policy. And as far as claims made and reported goes, the notice prejudice rule is dead. And as far as claims made and reported, goes.

Speaker 2:

The notice prejudice rule is dead. See, this is why I like Fred. He is so smart that you're just like wait what Wait you are. So you're like way up here, you know you're talking to adjusters.

Speaker 1:

So help me understand yeah, help me understand the two types of policies.

Speaker 3:

First, In the claims made world. It all started out with we cover claims that are first made against the insured so long as no insured was aware of any fact or circumstance that could give rise to a claim when they signed the application. Ultimately, policyholders were not reporting their claims promptly, even though in the conditions section the earliest policy I have in my personal library is from 1972. And in that policy there was a condition that all claims must be reported during the policy term and assumed as practicable. But it was not in the insuring agreement, that was in the condition section. And this is where the notice prejudice rule rose. Well, any condition if you breach a condition, you have to prove prejudice. Insurance company has to show prejudice. So a lot of people weren't reporting their claims. They figured I'll handle it myself, they're going to raise my rates, I didn't do anything wrong whatever. And then they go to trial and they get hit with a massive verdict oh, turn it in now. And of course now they've already changed insurance companies. So now they're going back three or four years.

Speaker 1:

Oh yeah.

Speaker 3:

Remember that policy I had with you here. The insurance company would try and deny claims, only to find out they had to show they were prejudiced that different which was defined as being a different result would likely have occurred. Well, that's tough to prove, don't take that one easy. It was difficult to prove. So as to stop this abuse, they moved the reporting requirement into the insuring agreement so that the insuring agreement basically said this policy covers claims which are first made against the insurer during the policy term and reported to the company during the policy term or during any automatic extended reporting provision. Dot, dot, dot. We'll come back to that in a second. But that's what they did and that's when the court started enforcing that, that you have to report it during the policy term or during any automatic extended reporting provision and the notice prejudice rule does not apply.

Speaker 3:

Now let's come back to the requirement in accordance with any automatic extended reporting provision. So now you're not even off page one of the policy, right? And now you're going into page 15 to find this thing called an automatic extended reporting provision and it starts out by saying if the company or the insured should cancel or non-renew, then the insured shall have an extra 30 or 60 days after the policy expires to report a claim. There is another version of that too. If this happens, the insured shall have an extra 30 or 60 days to report a claim, so long as the claim is first made 60 days prior to policy expiration. So that narrows that window. Okay, but let's go. But now, like I said, you're going from page one of the policy. Now you're going into page 40 or whatever to find the automatic extended reporting provision and it says words to the effect if the company or the insured should non-renew or cancel or non-renew, stop right there. What if they renew?

Speaker 2:

Well then, wouldn't it be the same? I mean, like you would revert back to the insuring agreement.

Speaker 3:

No, the automatic extended reporting provision doesn't apply. The automatic extended reporting provision is conditioned on if the company or the insured should cancel or non-renew. Then you have extra time to report a claim in at the last minute, Right? What if they?

Speaker 2:

renew. So then it exactly you go back to the insuring agreement.

Speaker 3:

There is no additional time. You've got to. You served in the parking lot on a Friday night and your policy is expiring on Sunday and you're going to have to rush back in and fax it into the insurance company.

Speaker 2:

Yep, good luck with that. That's what you got to do, though, I mean, but I do yeah.

Speaker 3:

So here's the craziness about that. Why are you giving a deadbeat who's who's you're canceling or not, or moving to another carrier more time to report a claim than you're giving a loyal policyholder?

Speaker 2:

I don't know, because it's the courts and they want to like help the insured as much as possible. However, I do want to point out something that Fred has talked about, and this is something that Bill and I mentioned to adjusters. So, adjusters, when you're looking at this policy, you know that everything is not going to be in sequential order and everything. So that's why the very brilliant Bill Wilson always says read the policy all of it, every single page, rftp. And that's what you have to do, because sometimes that extra stuff that's going to give you coverage or take away coverage is on page 53. And this is what I talk to my classes about again.

Speaker 2:

Is that a lot of attorneys, when they're trying to sue the insurance company, they'll read that very first little insuring agreement. Let's say it's property damage or whatever, and all it says is we cover direct physical loss or damage to property period. I mean, it's like literally one sentence. But they don't go on and read the rest of the policy where it says oh yeah, we don't cover that, that, that, that and that which may be on page 15 or whatever.

Speaker 3:

It went better than that. This is my pet peeve of the century. There are now lawyers who have and I call them out on it. I do call them out. They've published articles where they're saying it would behoove insurance companies to hire knowledgeable coverage attorneys to help them draft language so as to be able to prevent having to pay claims you normally would pay. And a good example of that is the Pharmacia decision, which I'm still reeling over. I have never heard anything like it. Pharmacia Corp you familiar with them, Big, huge pharmaceutical company.

Speaker 2:

No, but go ahead and tell us.

Speaker 3:

Well, they're huge, and so you can imagine the towers of insurance that they have of excess in the stratosphere, right. And then, of course, they want to enter into a $207 million settlement. So that means they got to go back to all their insurance companies and make sure they're all on board with this, because you can't make an offer of settlement without having the insurance companies agreements to do that. So they got it. There's only one little problem the sixth layer of excess, and this was no fly-by-night insurance company. This was a subsidiary of Hartford Twin City Fire. It's in the decision, so I'm not saying anything. That's not true. They had one sentence with two conditions. The first condition in that sentence was that all underlying insurers had to have exhausted their limits. I would expect that. I have no problem with that. It was what followed after the word and All underlying insurers not the insured, mind you all underlying insurers had to have admitted liability.

Speaker 2:

Oh, the insurers never admit liability. Thank you very much.

Speaker 3:

They even argued. Well, they paid their limits and the judge, the courts this is the Third Circuit, new Jersey. This is explicit language. You aren't going to enforce it. And so this was the sixth layer. It turned out that that was at the $160 million layer. It's a $207 million settlement. All the other excess carriers above them were gone too, because the condition that all underlying insurers pay their limits and all underlying limits be maintained. Well, that wasn't the case, so pharmacy had to cover $47 million out of pocket.

Speaker 2:

But wouldn't it drop down, because that's usually what your umbrella does.

Speaker 3:

It's not an umbrella, it's an excess policy.

Speaker 2:

Okay.

Speaker 3:

And then, of course, umbrella policies also usually require underlying limits being maintained, but nonetheless, because there isn't a true umbrella anymore. And now you've got following form, excess policies, except where our policy policy differs, and you're going to review seven layers below yeah, I mean, let's let's talk about that.

Speaker 2:

I know we're talking about claims made and occurrence policies, but I mean, you know, let's talk about this too, because this is a huge thing, with the umbrella policies, for example, that'll say, oh, it has to be a following. I, for one, get my umbrella from my homeowners and my auto because, again, like we talked about, I don't want anybody pointing fingers and like, well, it's all one company, I don't care that. You said following form, you two should have worked the same out. I'm not going to-.

Speaker 3:

Yeah, except for our coverage differs. I love that, but the real, you know. Whether you want to argue that this is really another example of a supply side wanting to avoid any having accountability versus the consumer side, you know we can have that conversation, but one thing's for sure You're never going to get away with it. That's because the suppliers are also consumers. Yeah, just ask pharmacy how they feel about selling out $47 million. And it wasn't the first time.

Speaker 3:

There was an earlier decision with the same insurance company, with the same language, in 2012 in New York. That was also upheld, and I don't remember anybody writing up. I don't remember getting it in any of my feeds. Latest and greatest, here are the cases you need to know about things. I never. I didn't see anything about that case in 2012. I saw it, you know, when the pharmacy decision came down, and I'm still just in a state of shock. And then that's when this law firm came out and did another. I must have seven summaries done by different law firms of the pharmacy case and this one. It was no different than anybody else. They accurately described what happened, accurately reported on their decision, et cetera, and it was the last sentence that caught my eye, and that's when they said it would behoove insurance companies to hire knowledgeable coverage attorneys to help draft language so they can avoid paying claims they normally would pay.

Speaker 2:

Yeah, that's horrible, because the whole purpose of insurance is to pay those covered claims. I mean that's the reason why we exist. I mean that's oh, not anymore my dear well, you know me, I'm the purpose of how the corporation is to earn profits for its shareholders and create well and it's wrong, and I'm gonna go down fighting and, and, by god, if they would just make me emperor of the universe, I could fix all these problems, you know which?

Speaker 3:

is. I believe we should put women in charge of solving problems and being and doing the right thing. Then then, then maybe, but still that's the purpose of insurance is to put the policyholder back in the position they were in before the loss.

Speaker 2:

Absolutely.

Speaker 3:

And you're seeing less and less of that. Yes, and more importantly I don't know about you, Chantal, but this is what got me out of claims was the fact that the bean counters don't realize that the claim department's the profit center of the company. They look at it as a cost center, and so we have to cut costs. We have to cut costs. Well, you don't hire, you don't pay, a partner in a law firm defending your policyholders on complex matters. $170 an hour, yes, but some companies are doing that.

Speaker 2:

And and and let's talk about this because I remember and I'm probably going to put you on the spot because everybody knows we we give y'all questions beforehand so that you know what we're going to kind of like talk about and all this kind of stuff but I remember this conversation that you and I had, where you had done an audit and I think it was out in Washington DC and you had said look, if you give me like basically $500,000 or whatever, I can save you a million or whatever. And you had said to me Chantal, you know I was wrong and I'm on Tinder hooks. I'm like, oh my God, fred, no. And you said, no, I ended up saving them 5 million. And I'm like, boom, it was fantastic. And I quote that with the wrong numbers and everything. And I'm like this is what they need to know about and this is why you actually need to hire more adjusters. It's counterintuitive to these MBAs that are up in the ivory tower, blah, blah. I'm going to get off my soapbox now, but there you go.

Speaker 3:

No, we share the box, my dear. I know what it was. They were paying a million dollars a year for their claims TPA, but the claims were out of control. They had too many files per person and they could only have time for the fire. I had appeared in front of the board of directors of the Southern California Rapid Transit District and tell them you need to spend $2 million a year so they can double the staff and reduce the caseloads down. And I said you will save at least three to one, maybe four, and I was wrong. It was 10 to one, 10 to one. There you go the claim from 8,000 claim files. They brought it. They changed. They hired a new admin TPA brought in a cat team, got a lot of files settled. They dropped the open caseload down from 8,000 to under four. I didn't. I thought the caseload should stay between four and 5,000 open files. They got it down to under four.

Speaker 2:

The defense costs dropped so much and the referrals out to defense counsel dropped so much that some of the more politically connected law firms were whining to the mayor that they weren't getting enough referrals because they had a 100% closing rate. For every new claim came in, they settled one. It was unbelievable how successful that was Exactly and I mention this all the time to our or whenever I talk about it in LinkedIn, I'm like listen, ceos of insurance companies, your MBAs you've never seen a claim before in your whole life, unless your Lamborghini has gotten scratched or something like that. Stop it. Listen to what I am saying now. If you get more adjusters in there, your LAE loss adjustment expenses are going to drop because we are able to answer those phone calls, answer those emails, talk to those insureds and claimants who are anxious and that's the whole reason why they go to court because nobody's talking to them, because we're busy putting out fires.

Speaker 1:

When you are short-staffed with adjusters, what happens is you multiply the number of adjusters you have by two or three, but you replace all of them with attorneys, and it gets pretty expensive.

Speaker 3:

Of course it does. We were handling professional liability claims against lawyers, real estate agents, insurance brokers, medical although I didn't handle those myself because that's too real and miscellaneous, crazy stuff. We would have that claim as factually developed as we could, usually within 90 days. You can't get answers to interrogatories in 90 days and, besides which, their lawyers are preserving a record. We're trying to get the facts and there's a big difference.

Speaker 3:

But here's the benefit to rapid claim development, in addition to being able to settle them quicker and save money in the long run. And that is the actuaries get more accurate reserves early so they don't have to wait four to five years to determine whether a book of business is going to be profitable. Oh gee, we're losing our shirt with withdraw from the market. No, they can look at a book of business every six months and see the trends and say we need to make adjustments in pricing, we need to make adjustments in claims or the policy form or what have you. And now a program can last, and I'll tell you who proved that was Victor Schinnerer. They've got the longest running profitable book of business in real estate, professional liability and architects and engineers with anyone, and it's been with mostly with CNA for a long time. Nobody's made money in real estate. You know they have the worst claim frequency of anybody. But Schinnerer's found a way to do it and they don't play the soft card market game.

Speaker 2:

Right. And I'll tell you another thing that insurance companies need to do and this is also one of my pet peeves is we need to stop having and I think Bill Wilson also talks about this, we need to stop having these quote unquote funny commercials. I, of course, maintain that we can still have funny commercials and teach our insureds at the same time. We were talking before we got recording about my book, about the fairy tales, once Upon a Claim, and I said you know what? I bet I could read the very first poem, the nursery rhyme Three Blind Mice, and give enough information about how to read your policy. It's not going to be perfect, but it's going to give enough information to ask to get the insured going. You know what I don't know? I need to ask someone about this so that they are being taught how to read the policy, learning that there are exclusions, learning that there's conditions and all of that sort of thing. And I can maintain you can do that funny and still keep them better.

Speaker 3:

There's another option to that, though, chantel, and that is teaching the policyholders how to expect more and get more from their broker and their agent. Yes, and be specific about it. I need to know what the options are and why I might need them, and then, if they turn it down, the broker can document that and avoid a NEO claim.

Speaker 3:

Thank you, policyholders also have to, and I'm sure I'm going to catch a lot of heat for this, but I don't care. Policyholders also need to authorize their agent to use an intermediary when necessary, and do that in writing, so that you create sub-agency with the wholesaler. The wholesalers will tell you I have no duty to anybody, I'm just a conduit, yeah, and yet you hold yourself out as experts. You wouldn't believe some of the advertising some of these wholesale brokers put out there and then they get sued for they're dragged into an E&O claim and they say I'm just a conduit, I don't you know, I just get stuff in and get stuff out. You know that's up to the retail broker to do and that's rubbish.

Speaker 3:

There's two reasons to use a wholesale broker and this has been well written about by others besides me, and that is access to markets that you can't get to yourself and expertise. My firm held itself out as professional liability experts. My corporate attorney was going ballistic over that and said don't you realize, if you goof up on one, you're going to get sued. I said, yeah, I'll take that one lawsuit where we dropped the ball versus the 300 lawsuits we didn't have because we did deliver.

Speaker 2:

Right. And there's this whole commercial right now homescom is the best. And there's the corporate lawyer saying you can't say that. You can't say that you're the best. That's what you're talking about.

Speaker 3:

What's best?

Speaker 2:

Yeah, what is best? How are you an expert?

Speaker 3:

Here's something else for you, Chantal, because I know this will hit home hard. We are programmed and brainwashed as consumers for insurance in two areas. Number one price. I just saved $200 on my auto insurance. I just saved $400 on my homeowner's insurance. And the question. And they think that all insurance is a lie. Yes, they're not, no Number one. Number two the broker or your agent says here's your policy, we saved you $200. Don't you feel good? So it's like a placebo, it's like going to the doctor and getting a pill.

Speaker 2:

Yes, Okay, so let's talk about that too is the price and everything. I got my hair done yesterday and I was talking to my hairdresser, or my hair goddess as I like to call her Stunning.

Speaker 3:

I'm at it.

Speaker 2:

Thank you. And she said hey, have you seen that insurance that's offered by Costco for like $68 a month? What do you think about that? And I said well, there is such a thing as getting what you paid for, and while Costco may be able to sell it, I'm not necessarily sure that it is backed by a good carrier. I mean, like, who is the carrier? It's not going to be Costco. By a good carrier, I mean, like, who is the carrier?

Speaker 3:

it's not going to be costco or a good policy for the carrier.

Speaker 2:

That is important as a policy well, that's what I'm saying is is I don't know that this is going to be good, because if it's 68 a month, you could be sure that that would be similar to having like a basic form causes of loss on your house where there's only what nine covered causes of loss and a lot of it's not going to be covered. So, yeah, you're going to get cheap insurance, but what is covered?

Speaker 3:

Exactly right. And then, of course, what are the escape clauses? I mean, I love it when the new product comes out and they say we have an extremely broad definition of wrongful act. Well, that may be true. If someone other than the insured commits that, that thing that's excluded, you're not covered over. You know how do you explain that. But the point is there's so there is, it's not, a broad definition of wrongful act.

Speaker 3:

When you look at what they're taking away elsewhere, it's a shitty policy. So don't try and tell me that I've got a great coverage because I've got a broad definition of wrongful law when the rest of the policy excludes some coverage 14 different types of things that insurance agents normally sell daily. They're not covered for employment practice policies. If they have an absolute exclusion that says we don't cover any claim arising directly or indirectly from any discrimination, harassment or wrongful termination. It doesn't go on to say committed by an insured. It doesn't have a carve back that says this exclusion won't apply if you're selling somebody insurance, so now you're not going to be covered for what somebody else did. And that's not just limited to the PLI. There are 13 other types of policies they sell daily for which they're not covered because of it. And boy, I've been on a war path about absolute exclusion since 2009.

Speaker 2:

Bill, I don't know if you know this, no, no no, no, I was going to tell Bill I haven't talked to Bill in a little while this, where I think it was something to the effect of any kind of of construction done by you or anyone else, was the way the exclusion read. And, and I said that cannot be right because the husband comes up to me, Ms Expert witness on claims handling, blah, blah, blah. How do you interpret this?

Speaker 3:

And I said which you can't do as an expert.

Speaker 2:

Well, I know, and he wants the free advice. You know he's going to get it and I said that cannot be right. But looking at the strict language of the policy, they just sold like an illusory policy right there, because that that is only one type of claim is covered.

Speaker 3:

The policy is not illusory are you serious? I'm like that is just not what the insured wanted, uh so, yeah, I've been on a war path about absolute exclusions, you know, since 2009, as how broadly they're being interpreted. The case that caught my eye was James River versus Ground Down Engineering. Ground Down Engineering did one thing and one thing only 100% core sample of land to determine if there's pollution. That's all they did. They bought an architects and engineers policy that had an absolute exclusion for pollution.

Speaker 3:

Yeah see, I see a lot of those, and the court ruled they're engineers. If they had done something other than that, they'd be covered. So it's not illusory 100%.

Speaker 2:

that's all they did. I see a lot of absolute pollution exclusions and mold. Absolute mold exclusions is what I see absolute mold exclusions is what I see.

Speaker 3:

Well, you see, the problem is is the mold the result of the water damage or has it always been there? And I know a very good remediation contractor who said never use the word mold, because we have all this water damage. We have to get a mitigation firm in immediately to stop it and prevent any further damage and don't use the word mold.

Speaker 2:

Right Bill usually does liability, so, bill, have you seen liability exclusions like this?

Speaker 1:

Yeah, so the pollution exclusion is fairly common and most of the application of that relates to you'll occasionally see it with, like oil deliveries or something like that, but um, it's most often used for lead cases which we don't see anymore because that statute has kind of run its course here. So not anymore. We used to, but not much anymore, you see with asbestos I haven't seen one with asbestos in a long time. Good, it's been a long time since.

Speaker 3:

I've seen that it's a mess out there. I'll tell you, Like I said, lawyers all day long are writing articles on. Let's make the policies more and more restrictive. And what I don't understand is why the NAIC is not taking action on this. This all violates the reason detra, the reason to be the mission statement. I have written the senior executives of the NAIC with some of these decisions and I've been very, very, very respectful. I've never gotten an answer.

Speaker 2:

Really, you know, fred, you need to come over and visit because they're right down the road in Kansas City, missouri. I'm just saying.

Speaker 3:

I'm just saying we got good barbecue too.

Speaker 2:

We got good barbecue, so we're about out of time, but you got that invitation. You come on over, I'll drive you over, is what we'll do. You haven't had my barbecue, this is true. So, fred, are you speaking anywhere else besides this wonderful book, that you can get? What on Amazon, probably in bookstores and Insurance Academy or Insurance Journal?

Speaker 3:

Yeah, you can get it on Amazon.

Speaker 2:

Okay, amazon Great.

Speaker 3:

And I've got another one coming out soon.

Speaker 2:

No way. What is it I love?

Speaker 3:

this one. This is right up your alley Chantel. This is called the Gotchas. That'll Get you.

Speaker 2:

Okay, love it. Tell me about it, I've got 500 or more articles written by.

Speaker 3:

you know, I get these feeds from law firms every day and I keep them categorized. And there's 500, some gotchas that exist in everything from personal line, auto and homeowner condo policies all the way up through all kinds of commercial policies, and so that's what the book is about it's disclosing all the gotchas that are in these policies. That can get you.

Speaker 2:

That's wonderful. Is it going to be-?

Speaker 3:

And I've now. I've trademarked that phrase. It's into the patent office now and we're looking to get the circle R on it, but it looks like we're going to get it because there isn't anything else close on the deep searches we've done and I've already written an article with that phrase. I'm starting to do webinars on that phrase and the book is going to be called the Gotches That'll Get you. It'll be another exciting book on insurance.

Speaker 2:

Well, is it going to be for consumers or for adjusters?

Speaker 3:

Yeah, consumers.

Speaker 2:

Awesome.

Speaker 3:

Very good, but anybody in the profession, of course.

Speaker 2:

Of course, reads it. Yeah, I mean because this I believe, is for consumers, and I learned things.

Speaker 3:

It was intentionally done to not only deal with people that are already in the industry, but consumers, and I focused on the consumer. There's a heck of a lot more law firms and lawyers out there than there are people selling lawyers professional. That's the market, right. So it's going to be the same with the gotchas that will get you. But, to answer your question, this is a first for the Academy of Insurance. Christopher Burand and I are going to be a panel on March 20th and it's called Markets, wildfires and More. Oh, that'll be on March 20th and it's called markets, wildfires and more.

Speaker 2:

Oh, that'll be great, march 20th.

Speaker 3:

And it's March 20th and it's going to be. Patrick Raiden is going to be the moderator and he's going to. You know I have Chris and I on board this thing and so I'm so looking forward to that, because you know I respect the hell out of you, Chantel, Thank you, but I also respect Chris Buran. I quote from him a lot, especially an article he did on the purpose of insurance and I thought he just hit it, nailed it. So I quote him a lot on that. I really like him and he's right up there with you. Thank you, I respect you professionally. Thank you, I respect you professionally and of course, not to degrade Bill here.

Speaker 1:

I've known your name for a long time too, I have.

Speaker 3:

I have seen it.

Speaker 1:

I've seen it on LinkedIn. I see your stuff. I'm a busy guy on LinkedIn lately, yeah you are, and Bill.

Speaker 2:

By the way, for all of our listeners, if y'all aren't following Bill, do, because he's been putting a lot of good, good thinking things out there, so we are out of time. I will put your link for Insurance Academy in the show notes and we will see y'all in about two weeks. I think I don't remember what our next topic is, unfortunately, Bill do you know Off the top of my head. No, Well, me neither, because I was so excited about Fred coming.

Speaker 3:

So there you go. Well, thank you both for hosting me. I've been following you guys for a long, long time and I've certainly seen your LinkedIn posts and the links to the other presentations that you've had. So thank you so much for having me, and I hope you've had some fun.

Speaker 2:

Yes, it's fun for me.

Speaker 1:

Thanks for being here, Fred.

Speaker 2:

Bye-bye.

Speaker 1:

Bye-bye. Thanks for joining us on the Art of Adjusting podcast, where we talk about life as an insurance adjuster. Hit that subscribe button real quick and tell all of your adjuster friends to check this out as well. For independent adjusting services, go to wwwautinclaims, and for anyone interested in working as an independent liability adjuster, go to the contact us tab to join our roster.

Speaker 2:

So this wraps up another Art of Adjusting podcast. If you enjoyed this podcast or this episode, please give us five stars and a review. It does help the algorithm pick us up. In the meantime, you can contact me at theartofadjustingcom for consulting and training purposes.

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Chantal Roberts

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William Auten

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Nicholas Kearns

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