-Timothy L. Coomer, Ph.D., CEO, SIGMA Actuarial Consulting Group, Inc.
When Tim Coomer asked me to write an article for the SIGMA blog, the first thing that came to mind was the old Monte Python Flying Circus line, “And now for something completely different.” Although I was a double major in college (engineering and mathematics), I am not an actuary, statistician or, like my son, a data scientist. I’m an insurance geek.
Specifically, I’m essentially a guy who reads and interprets insurance policies for a living. That’s the expertise Tim asked me share, given blog readership demographics. There is an indivisible connection between insurance contract language and analytics. One begets the other in a chicken vs. egg causality dilemma.
SIGMA’s home page says, “At SIGMA Actuarial Consulting Group, we believe in empowering our clients with the analytics that improves decision making and lowers the total cost of risk.” I have held the same philosophy when it comes to the ability to read and interpret insurance contracts. This is a skill that decidedly lowers the total cost of risk by making it more likely that such risk is properly insured and covered at claim time. It is a skill that empowers actuaries, underwriters, claims professionals, agents, brokers, risk managers, consultants, expert witnesses, attorneys, regulators, and the list goes on.
For the past 30 years, I have assisted independent insurance agents in getting claims paid that were arguably improperly denied. In May of last year, I took that knowledge and experience and published a book entitled “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” It’s based on a proven four-step process I’ve successfully used to get over 90% of initially denied claims paid.
There are two ways to address the risk that a claim might be denied. One is via advocacy, by convincing the adjuster that a loss is indeed covered. This involves applying various insurance contract interpretation principles, from reasonable expectations to the more esoteric noscitur a sociis doctrine, and this is the subject of much of the book…claim resolution without litigation or even mediation.
However, there is a much better approach that is the subject of this blog post and that is avoidance or prevention. Gen. Jimmy Doolittle once said, “The problem with Americans is that we’re fixers rather than preventers.” My book focuses on “fixing” a problem that often could have been prevented in the first place.
In my book, I discuss at least seven reasons why the best way to resolve a claim dispute is to prevent it from ever happening. Specifically, three sources of coverage gaps that lead to disputes are:
• Failure to identify exposures (aka exposure analysis and risk assessment)
• Failure to insure or otherwise risk manage known exposures
• Failure to quality control (QC) policy deliverables
It’s this last step in the process that is often overlooked by agents and others. Assuming that insurance through a retail agent is the risk management technique chosen to address a particular loss exposure, when the account is placed with an insurer, the agent will request certain policy forms or coverages. When the final insurance product is delivered, the agent should QC it by confirming that all requested forms/coverages are provided AND identifying what additional forms have been included that were NOT requested.
You’ve heard the expression, “Be careful what you ask for.” In this case, it’s more appropriate to caution, “Be careful what you DON’T ask for.” Carriers always attach forms that were not requested by the agent. In many cases, such forms are not “good” for the insured. Some of them may be mandatory due to underwriting or rating rules, but in many cases this is negotiable. Other adverse forms may have been attached to limit perceived risk assumption by the insurer. Such restrictive or exclusionary forms may be negotiated for removal or replacement by less onerous forms.
Just recently I was contacted by a policyholder attorney who had attended a seminar I did on this subject. An insured had a carbon monoxide poisoning claim denied based on an ISO CG 21 49 – Total Pollution Exclusion Endorsement. (Note: Any time you see an unrequested ISO CGL endorsement whose form number begins “CG 21,” it’s an exclusionary form.) ISO has two less onerous pollution exclusion endorsements, one of which (the CG 21 65) would have covered this claim. The question was whether the agent was negligent in failing to request the insurer to replace the CG 21 49 with the CG 21 65.
In another case, a Minnesota agent’s waterfront customer owned a number of portable docks that were stored in the winter. He had been told by the insurer’s claims department that they were excluded under the commercial property form’s Property Not Covered section which included “Bulkheads, pilings, piers, wharves or docks.” His interpretation was that this list referred only to permanent real property, not portable business personal property. He might very well be right, but why wait until claim time to determine this, especially when you know the carrier is going to deny the claim? The easier way is to prevent a dispute from ever arising by insuring the docks using the ISO CP 14 10 – Additional Property Coverage, removing any doubt as to whether the Property Not Covered section of the policy form applies.
The greatest risk facing most businesses is that they will have an uninsured loss. This risk can often be mitigated by identifying exposures, properly insuring the insurable ones, and then QCing the policy deliverables to make sure that requested forms ore included and that undesirable unrequested forms are removed, replaced, or communicated to the customer so an alternative risk management technique can be implemented.
BUT, if this isn’t successful, how do you resolve a denied claim when there is a legitimate difference of opinion about coverage? Well, you’ll have to read the book to answer that question….
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