Here is Part II of my Ten Commandments of insurance claims which should be followed by all claims people working to fulfill the promises made by an insurer in an insurance policy. They are intended to provide direction to every person involved in claims handling, for the benefit of insurers, and the public.
Claims Commandment VI – Thou Shall Document the Claims File
Most insurance regulators require that every insurer maintain claim files which could be subject to examination by the regulator; meaning claim files should contain all documents, notes and work papers, and copies of all correspondence which reasonably pertain to each claim and in such detail that pertinent events and dates can be reconstructed. This is done so that the insurer’s actions pertaining to the claim can be determined.Essentially, everything the claims person does should be recorded in the claims file, whether it is a photograph, video, letter, e-mail, or notes of telephone conversations, whether in digital or other format. All of it must be accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, dates of loss, dates of payment of the claim and acceptance, date of denial or date closed without payment.
This data must be available for all open and closed files for the current year, and for at least the 4 preceding years, preferably longer. Also, the files should be kept with on-site and off-site back-ups. This is done so that all documents are available to the regulator or the insurer’s supervisory personnel, or in discovery if litigation occurs.
Claims Commandment VII – Thou Shall Never Lie to an Insured
“The check is in the mail.” How many times have you heard this line? Insurance is considered a business of the utmost good faith. As the old maxim says “honesty is the best policy.” There is no excuse for an insurance claims professional to lie to an insured. Not only is lying to an insured a failure to act in good faith, it is an action fraught with danger, including potential punitive damages. Keeping up a consistent lie is almost impossible anyway, because all definite statements can be corroborated or proven false by further investigation.
California Insurance Code Section 790.03(h)(1) provides: Knowingly committing or performing with such frequency any of the following unfair claims settlement practices:
1. Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.
Similarly, the California Code of Regulations, 10CFR 2695.4 provides:
(b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.
This should be self-evident. It is a statement of prudent and common claims handling. Although this Regulation seems to apply only to surety bonds, it also applies to any type of insurance.
Claims Commandment VIII - Thou Shall Not Suffer Fraud to Succeed
Insurance fraud in the U.S. is epidemic, robbing more money from the insurance consumer each year with resulting premium increases. Yet no one really knows the full extent of insurance fraud because most insurance fraud schemes succeed without the insurer ever suspecting that it has been defrauded. For insurance fraud to be prosecuted the insurer must do the work to complete a thorough investigation that can be presented to a prosecutor. In order for the case to proceed, police, federal investigators, prosecutors and even Fraud Division investigators may not act until an insurer presents the case to them in detail.
Even if a criminal fraudster is criminally convicted, he/she faces an average sentence of only five years probation and 60 days in jail.
Claim Commandment IX - Thou Shall Document the Claim File
This is so important, that it bears further elaboration. In addition to the guidelines indicated in Claims Commandment VI, adjusters, claims handlers and any other claims personnel who maintain “working” or “field” files, should be aware that those additional files are part of the file and records required to be kept by the Regulations and are subject to examination by the Commissioner. All file destruction practices should be reviewed to ascertain that no file will be destroyed less than 5 years after it is opened, nor less than 4 years after it is closed. Insurers should never destroy a file if litigation has started or is anticipated until after the litigation is resolved. A diary system for the destruction of old files should be established by the insurer and its claims personnel with a requirement to keep the files at least 2 years longer than the California Department of Insurance requires as an extra precaution. The insurer should provide a date stamp so that the date of each action will be recorded in the file with all “paperless” incoming mail and documents imbedded with the image of a date showing when the document was received and in such a manner that an employee cannot modify or change the dates of any entry. A mail log should also be maintained to establish dates of mailing of each document. All e-mail communications must be saved for up to 5 years in a searchable database or in connection with the electronic claims file.
Claims Commandment X - Thou Shall Not Pretend to be a Lawyer
Some experienced and professional claims people know the law in their area of expertise better than most lawyers. But whether the claims person knows the law of insurance contracts or tort law well, a claims adjuster is not a lawyer, and should not do anything that even hints that he/she is acting as a lawyer. Adjusters should be adjusters, and leave lawyering to lawyers.
Part I of Ten Commandments of Insurance Claims can be found here.
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and is the author of Insurance Claims: A Comprehensive Guide, Mold: A Comprehensive Claims Guide, and Construction Defects: Litigation and Claims.
Barry Zalma can be reached at any time at 310-390-4455 or by e-mail at email@example.com.