Navigating Insurance Claims: Understanding the Business of Insurance

The first step to maximizing success on commercial insurance claims is understanding the product (the insurance policy) and the business of insurance.

Law360 recently highlighted a legal ruling (won by good friends and former colleagues Kevin Dreher and Caroline Upton) that reinforces these critical points and provides food for thought about the best practices for navigating insurance claims. 

The ruling, linked HERE, compels an in-house attorney at insurance giant Travelers to sit for a deposition about the attorney's role in Travelers' handling of a high-dollar insurance claim. Travelers sought to prevent the deposition by arguing that the attorney's work was protected by legal privileges. The Special Master disagreed. Let's discuss why.

Critical Point #1: An insurance policy is a legal product (i.e., a contract). The policy represents a promise by an insurer to pay for specified losses in exchange for payment of a premium. This matters because business, individual, and non-profit policyholders rarely do the same diligence in buying their policies and making claims as they would before entering into any other contract. A policyholder's lack of diligence can have significant, if not disastrous consequences.

Critical Point #2: The "adjusting" of an insurance claim amounts to the insurer performing a legal analysis of whether the facts of the loss fit within the policy. As the Special Master found here (and as courts nationwide have repeatedly confirmed), insurance companies are in the business of performing legal analysis because they evaluate (and pay) claims as part of their core business function. Critical Points 3-5 explain why this matters.

Critical Point #3: Insurers often have non-attorneys performing the initial investigation and handling of a claim. How can that be? Isn’t the adjustment of an insurance claim a legal analysis? Good question. Ask your insurer. Or your local board of legal ethics.

The bottom line, however, is that your average claims adjuster is collecting and applying facts to the policy (a contract) without checking case law, statutes, or other sources that a lawyer would look to when analyzing that same document. The result? Initial adjusters make a lot of mistakes. Never accept those mistakes at face value.

 Critical Point #4: Clients often ask: "When should I involve an attorney in my insurance claim?" It is common for insurers to involve an in-house attorney from very early on where a claim is likely to exceed a certain dollar threshold or where the adjuster recommends denying coverage in any significant respect. Here, Travelers had its in-house attorney directing the claim adjustment for years. Policyholders should approach insurance claims with the expectation that the insurer already has a lawyer involved and act accordingly.

Critical Point #5: Insurers in coverage litigation attempt to shroud their basic claim adjustment behind legal privileges by involving lawyers. Courts have repeatedly rejected these efforts. Insurers are in the business of analyzing legal products - and often use lawyers to do it. It does not matter if the lawyer thinks he or she is giving legal advice or anticipates that his or her advice is going to lead to coverage litigation. This is what insurers do. Understanding that as a policyholder is critical to getting the information necessary to prosecute a wrongfully denied claim.

In sum, policyholders need to (1) treat their insurance policies like any other legal product; and (2) treat a coverage denial like any other business partner breaking a contract. Understanding these basic truths can put policyholders miles ahead of the norm when it comes to buying coverage, resolving insurance claims, and maximizing recoveries.

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