Case Studies-Claims Handling


Claims Handling Case Study #1

The Scenario

The insured had a general liability policy. He was sued for trademark infringement, misappropriation of trade secrets, and unfair competition. The agent forwarded the suit to one carrier, who denied the claim. At the time of the loss, a second policy was in force, but the agent did not send the claim to them thinking there would also be no coverage under that policy. The insured was required to incur substantial defense costs that ultimately resulted in bankruptcy. When the agent finally sent the claim to the second carrier, they agreed to defend the insured. The first carrier then also agreed to provide a defense. The client sued the agent.

The Issues

  • Failure to promptly file a claim with the insurance company
  • Lack of knowledge of how coverage applies under a general liability policy

The Outcome

This was a very serious claim that caused the insured grave financial difficulty. A further complication was that the second carrier accused the agent of placing coverage after learning of the case against the insured and without divulging that fact to the carrier.
$ 500,000 paid to the insured
$1,175,000 paid to the carrier (amount paid by carrier to insured)
$ 398,190.47 in defense costs

Prevention Tips

The agent’s failure to report the claim promptly resulted in this situation.

  • Examine all policies to determine if coverage may be provided for a claim
  • Report all claims to all possible carriers immediately upon receipt
  • If the insured asks that a claim not be reported, get written authorization from the insured advising them that not reporting the claim in a timely manner may result in a subsequent denial of the claim by the carrier.

 

Claims Handling Case Study #2

The Scenario

The insured had two policies that applied to loss of covered livestock. Following a loss, the agent reported the claim to both carriers. A veterinary report was obtained on a limited number of the dead animals and the first carrier indicated that this was sufficient to establish the cause of death. The agent assumed this would also be adequate for the other carrier. When the second carrier paid the claim, they penalized the insured for failing to provide adequate proof of loss.

The Issues

  • Failure to properly determine loss reporting requirements under a policy
  • Failure to advise the insured of necessary conditions for loss payment

The Outcome

Since the agent failed to contact the carrier to determine if further action was necessary, he erred in advising the client.
$2,500 paid to the insured in excess of the agent’s retention

Prevention Tips

The agent should have contacted the other carrier to determine the required number of exams in order to avoid a penalty.

  • Examine all policies to determine if there are any special conditions the insured must comply with
  • Check with insurance carriers to ensure compliance with policy requirements
  • Do not affirm or deny coverage to a policyholder—submit all claims

 

Claims Handling Case Study #3

The Scenario

The insured had a dwelling fire policy. Following a loss, the insured said the agent told him the claim would be paid by the carrier. The agent was sued when the insured became unhappy with the amount offered by the carrier.

The Issues

The agent denied that he had ever told the insured that the claim would be paid. The major issue was whether or not a conversation had taken place between the agent and the insured.

The Outcome

This case really involved a dispute between the insured and the carrier over the amount of the loss. It was not a matter that should have involved the agent at all, and the E&O carrier was able to obtain a dismissal.
Agent dismissed, nothing paid

Prevention Tips

There was nothing that the agent did or did not do to become involved in this case. Ultimately, the agent was vindicated and dismissed from the case, but could not avoid involvement.

  • Do not indicate to an insured whether or not coverage will apply under a policy.
  • Do not advise an insured of the amount that might be paid for a loss
  • Document all conversations with the insured and the carrier when handling a claim