P85 Claims Practice Handling and Settlement Negotiating and Settling Claims Activity: There are three very useful flow charts in Chapter 5 of the CII textbook. They set out the stages involved in first party and third party claims and how these stages connect to each other. These charts will provide you with useful information, so it is important that you familiarise yourself with them. They are figures 5.1, 5.2 and 5.3. You can find them on pages 5/3 to 5/5 of the P85 Claims Practice textbook. If you have any questions about the information in these charts please make sure to raise these with your tutor. 1
Pragmatic Handling It is important for the claims handler to consider the nature, level and size of the claim. This informs the decision on the most appropriate and practical approach to handling it. Consumers and Commercial Claimants The handler will also need to think about the needs and requirements of policyholders. Every claimant is different and they all have their own unique needs, so it can be dangerous to generalise too much. However, one simple comparison we can make is to look at the differences between consumer and commercial customers. For example, there are likely to be differences in their emotional responses to claims as well as their knowledge and expertise. We must also bear in mind differences in legal and regulatory requirements. This means that the claims service provided to consumer and commercial customers will necessarily be different. 2
1. Look at the Think activity on page 5/6 of the textbook. Use this two note as many differences you can think of between consumer and commercial claims handling. Consumer Customer Commercial Customers 3
International Claims 2. Think about the vast range of commercial and consumer insurance contracts in the UK market. In many cases there can be an international perspective to claims handling. Note, at least 6 types of claim where non-uk laws and regulations may apply. Try to avoid confining your thinking to personal lines products you are already familiar with. 4
The USA The California Fair Claims Settlement Practice Regulations (CFCSPR) is an example and the next two slides give an overview of what these involve. 5
Australia 3. What is the aim of the Australian General Insurance Code of Practice? 4. To what extent is the Australian General Insurance Code of Practice a legal requirement? 5. List 7 requirements that claims handlers must adhere to, according to the Australian General Insurance Code of Practice 6
Fraudulent Claims 4. Make notes about the four types of insurance fraud described by the Association of British Insurers. Underwriting fraud Claims fraud Staged incidents Material misrepresentation or exaggeration of loss or personal injury 5. Note how fraud is defined Dictionary Britton v Royal Insurance Company 1866 R v Barnes 1843 Activity: A lot of research has been conducted into the scale of insurance fraud. Read page 5/10 of the CII P85 textbook to learn about this. 7
Fraud Indicators 6. Claims handlers are constantly on the look-out for potential fraud. There are a number of indicators that they look for. These do not mean that fraud has definitely occurred but give cause for further investigation. There are four main types of indicator. Note specific examples of these indicators below. Indicators from the loss Indicators from the policyholder and/or claimant 8
Indicators from the policy and/or policy records Indicators from documentation to support the claim 9
1. List the signs of potential arson that a claims handler should look out for. 10
2. List the potential signs of fraud in stolen vehicle claims. 11
9. Make brief notes on each of these databases. Claims and Underwriting Exchange (CUE) Motor Insurers Anti-Fraud and Theft Register Fine Art Loss Register National Plant and Equipment Register (FER) Insurance Fraud Register (IFR) Activity: Research the role and activities of these two organisations: Insurance Fraud Bureau (IFB) www.insurancefraudbureau.org/ Insurance Fraud Enforcement Department (IFED) www.cityoflondon.police.uk/city/police/departmentsecd/iifed/ 12
Insurance Fraud Case Law 10. Black King Shipping Co v Massie (The Litsion Pride) 1985 The Litsion Pride was a vessel which was insured against war risks. However, the insurers could charge extra premiums if it sailed to some named destinations including the Gulf. The owners tried to slip in and out of the gulf without the insurers knowing so that they could avoid these additional premiums. Unfortunately the vessel was destroyed in a rocket attack. The insurer argued that this was a breach of utmost good faith. What was the decision of the court? 13
11. Manifest Shipping Co v Uni-Polaris Shipping Co 2001 (The Star Sea) The insured made a claim for a vessel called The Star Sea which had been destroyed in a fire. Investigations into the claim showed that the vessel was not seaworthy when it went to sea. The master of the ship did not know how to operate the fire-fighting equipment which was also defective. This meant that the crew could not put out the fire when it started. The insurers discovered that the owners had lost two previous ships in similar circumstances. It emerged that the owners had received reports detailing the causes of those two losses before the Star Sea incident. However, the owners did not disclose these reports when they made the claim. The insurers argued that they breached the duty of Utmost Good Faith by not disclosing these reports. What did the court decide, and why? 12. KS Merc-Skandia XXXII v Lloyd s Underwriters (2001 The insured were ship repairers who were insured under a liability policy. They received a claim from the owner of a ship they had worked on. The owners claimed that their repair work had been negligent. During the course of the litigation the insured concocted a forged letter in support of the claim. On the face of it, this would seem to enable the insurer to avoid the claim. The court did not allow them to do this. What was the logic behind that decision? 14
13. Orakpo v Barclays Insurance Services 1995 Orakpo insured a house used fir rented accommodation and that was made up of 13 bedsits. Following a storm the policyholder made a claim for 26,500. This included a large claim for loss of rent. This part of the claim was exaggerated as there were only three tenants at the material time. a. What was the decision of the Court of Appeal, and why? b. What have consumer surveys revealed about the general attitude of people in respect of exaggerating claims made against insurers? 15
14. Galloway v GRE 1999 The claimant suffered a genuine loss of 16,133 as a result of a burglary. However, he added a 2000 claim for a computer to this this part of the claim was fraudulent. The policy did not contain a forfeiture clause for fraudulent claims. a. What was the outcome of the criminal case b. What was the decision of the Court of Appeal in the civil case? c. What were the important comments made by the judge in the Court of Appeal 15. Make brief notes on these two cases Joseph Fielding (Blackpool) Ltd v Aviva Insurance Ltd 2010 Nsusbugu v Commercial Union 1998 16
16. AXA General Insurance Ltd v Gottlieb & Gottlieb 2005 This was an important Court of Appeal case, where the insured made four household building insurance claims in the space of a year. 1 st Claim Dry rot damage resulting from escape of water 2 nd Claim Escape of water from the main bathroom 3 rd Claim Storm damage to the building 4 th Claim Escape of water in the second bathroom Fraudulent documents submitted in support of claim Fraudulent documents submitted in support of claim Genuine claim Genuine claim Insurer made Interim payments Some of these were made after the fraud had taken place Payments made Payments made Payments made AXA had made payments on all four claims before the fraud was discovered. They issued proceedings to recover the money they had paid on all four claims on the grounds that the first two claims were fraudulent. The Gottlieb s argued that interim payments made before they started the fraud were for genuine elements of the claim and that the insurers should not be entitled to reclaim this money from them. a. What did the Court of Appeal decide? b. What was the reasoning behind of the Court of Appeal Decision? 17
17. Make brief notes on the following cases. Sharon s Bakery Ltd v AXA Insurance UK Plc (2011) Aviva Insurance Ltd v Brown (2011) Nield v Loveday (2011) 18. Summers v Fairclough Homes 2012 This is a really important case that relates to fraud on a liability claim, so policy conditions do not come into play here. Summers was an employee of Fairclough homes who genuinely sustained injuries during the course of his employment in 2003. At a trial in 2007, the court gave judgement to Summers but with liability to be assessed. However, Fairclough were suspicious about the claim and placed Summers under surveillance. The investigators produced video footage showing that Summers had grossly exaggerated his injuries. When this was put to Summers he tried to compromise on his claim through negotiation and Part 36 offers. Fairclough rejected these approaches and this had the effect of forcing Summers to a trial. At the trial Fairclough argued that the entire claim should be struck out because of fraudulent exaggeration and that this was an abuse of the process of the court. This case is of particular importance because it was eventually appealed to the Supreme Court. What was the decision of the Supreme Court? What did the Supreme Court say about the potential power of the court in cases of this nature? 18
Subrogation Activity: See question 5.2 in the CII P85 textbook (page 5/18) Note your answer here. 19. Make brief notes on the case of Scottish Union and National Insurance v Davies 1970? 19
20. Generally, what is the position in respect of gifts and subrogation? 21. In common law, when does an insurer s subrogation rights arise in respect of a claim they are dealing with? How is this usually modified by a policy condition? 22. A subrogation action must be brought in the name of the insured. What is the exception to this? 23. Fred is involved in a motor accident with Barney. Barney was negligent and there is a right of claim against him. Fred s car was a write off. Its pre-accident market value was 10,000. The insurer s paid Fred 9750 after deducting the 250 excess. A salvage buyer has offered to buy the remains of Fred s car for 750. Fred also has a claim for his injuries and subsequent loss of earnings which amount to 10,000. a. What will the insurers need to do when pursuing their subrogation claim, to ensure that Fred is not prejudiced by their actions? b. How much money will the insurer receive, and who from? c. How much money will Fred receive and who from? d. If Fred was found to be 50% contributorily negligent, how much would he receive for his uninsured losses and who would pay it? How much would the insurers get back, and who from? e. Let s assume that the accident happened abroad and an award of damages was made in a foreign country. As a result of fluctuations in the exchange rate there is a profit of 2000. Who would get this money and why? 20
24. There are some situations when the amount recovered from a third party is less than the amount that is jointly being claimed by the insured and insurer. In those situations, who gets first call on the money? 25. What is contractual waiver in the context of subrogation? 26. Make brief notes on the case of Mark Rowlands Ltd v Berni Inns Ltd 1986 21
Contribution 22
Rateable Proportions 23
27. ABC Insurance Company are the fire insurers of Krischnig Industries. The company also have fire insurance with XYZ Insurance Company. Both policies insure their Warehouse in Basingstoke for a sum insured of 1m. The value at risk also happens to be 1m so there is no question of under insurance. Following a serious fire there is a claim for 100,000. How much will each insurer pay, assuming that neither policy has an excess. 24
28. ABC Insurance Company are the fire insurers of Krischnig Industries. The company also have fire insurance with XYZ Insurance Company. Both policies insure their Factory in Salisbury. ABC s policy has a sum insured of 2m. XYZ s policy has a sum insured of 1m. The value at risk is only 1, 5 m. Following a serious fire there is a claim for 240,000. How much will each insurer pay, assuming that neither policy has an excess. 29. Norman lost a watch valued at 750 whilst he was on holiday in Kos. He has a travel policy with a single article limit of 500 and an excess of 50. He also has personal belongs away from home cover added to his household insurance. This has a single article limit of 1000 and an excess of 100. How much will each insurer pay Norman? 30. Krischnig Industries have two public liability policies. The first is with ABC insurance and has a limit of indemnity of 1m. The second policy is with XYZ insurance company and has a Limit of Indemnity of 2m. Simon is injured whilst visiting Krischnig s factory and makes a liability claim. The total value of his claim is agreed at 1.5m. How much of this will each insurer pay? 25
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Salvage and Abandonment 27
31. In the case of non-marine insurance, what has the FOS said about salvage that has been recovered after a loss has been paid? Who must it be offered to first? Reinsurance Recoveries 33. Make brief notes on the following Facultative reinsurance Treaty reinsurance Proportional reinsurance Non-Proportional reinsurance 28
34. Make brief notes on these two cases. ICA v SCOR 1985 Hill and Others v Mercantile & General Re 1995 29
35. How are reinsurance claims handled? 30
Assignment 5: Past Exam Questions 1. John Smith has a personal insurance policy with XYZ Insurance. During the policy period he submits two genuine claims which are paid by XYZ Insurance. The third claim is discovered by XYZ Insurance to be partly fraudulent. Explain, with reference to, case law the legal position relating to all three claims. (12) 2. (a) Explain briefly the doctrine of subrogation. (6) (b) Give an example of a claim situation in which subrogation may arise. (2) 3. Jack s garage is damaged by flooding. He claims 20,000 for the cost of repair. He has two property policies covering the garage, one with XYZ with a sum insured of 60,000 and one with ACME with a sum insured of 20,000. Neither policy is subject to average. (a) Explain briefly the method that would be used to calculate how much each insurer will pay towards Jack s claim. (4) (b) Calculate, showing all your workings and including the formula, the amount each insurer would pay. (8) 4. Outline six possible indicators of fraud in an arson case involving commercial property. (6) 5. Roger sustains a back injury in an accident at work and brings a claim against his employers, who have employers liability insurance with TIN Insurance plc (TIN). The liability investigation is complete and TIN has admitted full liability. The claims handler at TIN suspects that whilst Roger did sustain a minor injury, he is exaggerating his symptoms. (a) Outline the evidence that TIN will now obtain in the investigation of the claim. (3) (b) Explain, with reference to case law, whether TIN would be able to have the claim dismissed due to the exaggeration of the injury. (9) 6. Cathy s parked car is badly damaged when a lorry crashes into it. Explain the legal principle by which Cathy s motor insurers can seek to recover their payments from the lorry s insurers. (6) 31
7. Bob s office premises, valued at 200,000, are badly damaged in a fire. He submits a claim to his insurers XYZ plc and their loss adjusters agree that it will cost 50,000 to have the property restored. XYZ plc settle the claim for 25,000. Explain, giving reasons, why Bob accepted the 25,000 settlement. (9) 8. Identify the key legal issue in the leading case of AXA General Insurance Ltd v Gottlieb & Gottlieb (2005). (7) 9. You are a claims handler working for XYZ Insurance Ltd. XYZ Insurance Ltd decide to enter a new market overseas and you will be handling the claims arising from that business. (a) Explain briefly why it is important for you to understand the regulatory environment in that location. (3) (b) Identify an example of an overseas regulatory regime and summarise its key requirements. (3) 10. (a) List six potential indicators of a fraudulent claim. (6) (b) Identify two examples of an industry source against which suspected cases of fraud may be checked. (4) 11. Explain why a claims handler should be aware of the terms of any reinsurance 12. Bob makes a claim on his home contents insurance with XYZ plc for his personal tablet computer, which was stolen from a train whilst he was returning from holiday. The claims adjuster at XYZ plc identifies that Bob also has a travel insurance policy with a different insurer. State the five conditions which need to be fulfilled in order for XYZ plc to seek a contribution from the other insurer explaining the relevance of each to this claim. (10) 32