The vast majority of claim files never make their way to an attorney, much less the courthouse. However, for those few claim files that do become evidence at trial, it is important that the claims representative handle every claim file as if it were to become Exhibit “A” at a trial and he/she were on the witness stand explaining the contents of that file. Many claim representatives believe that their claim file will never see the light of day, except perhaps to a supervisor or reinsurance representative. More often than not, attorneys representing policyholders and claimants seek to obtain insurance company claim files through discovery.
The purpose of this article is to inform you as to what elements of a claim file may be admissible in evidence; how to protect confidential portions of the file from disclosure and ways in which to avoid embarrassment to yourself and your company in the event a claim file is made public.
ELEMENTS OF A CLAIM FILE
Typically, claim files include the following elements:
- Policy information;
- Claim notes;
- Communications with the insured/claimant;
- Property damage estimates;
- Photographs and other documentary evidence; and
- Reserve information.
A personal injury claim file will also include:
- Medical bills;
- Medical reports; and
- Medical evaluations.
The following are some comments concerning each of these elements of the claim file:
Typically, claim notes are kept in a diary format, either by the use of handwritten notes or electronic word processing. The purpose of claim notes is to remind the claim representative as to the activities in the file, as well as to provide supervisors and claims examiners a picture of what has happened in connection with the handling of the claim. The claim notes should be kept in chronological order. It is extremely important that no derogatory terms be contained within the claim notes. Instead of calling the policyholder a “liar,” the claim note should state that the information provided by the policyholder appears to be inconsistent with previous statements, other known information, etc. Instead of calling the claimant a “money hungry jerk,” the notation should state that the claimant appears to be uncooperative and his claim appears to be exaggerated. It is my suggestion that the claims representative never use any racial descriptions of a claimant or insured, unless it is clear that his/her race has some relevance to the claim. There are very few occasions when this would be the case. If the insured/claimant cannot speak English, simply make a note of that in the claim notes, instead of stating that the insured is “Mexican,” Hispanic” or “Latin.”
Always avoid making a notation as to coverage, especially at the beginning stages of the claim. What may appear to be obviously covered may end up being excluded from coverage. Simply note information that may relate to coverage. For example, state that the occurrence appeared to have taken place during the policy period and, upon initial evaluation, the loss appears to have been caused by a covered peril. However, go on to state that no final coverage decision will be made until after the investigation of the claim is complete. A blanket statement in claim notes that the claims representative has determined that there is coverage can be the kiss of death, if later on, it is determined that coverage is not afforded.
Always use qualifying terms. For example, if the claim involves a theft from a dwelling, refer to it as the “claimed burglary” or “reported burglary.” Instead of making blanket statements that coverage is verified, the claim file should state “based upon information currently available, it appears that the reported loss occurred within the policy period and the occurrence claimed is a covered peril. However, no final decision as to coverage will be made until all of the information relating to the claim has been obtained.”
Typically, the loss notice comes from the agent. The form of the loss notice should follow the same rules that relate to the diary. For example, instead of having a blank for “type of loss,” the form should state “the type of loss claimed.” Instead of “date of loss,” it should state “date of claimed loss.” In other words, everything in the loss notice should have qualifying terminology so that an insured/claimant could not argue that the insurance company made a determination that the policyholder sustained a “loss” and then later changed its mind.
Photographs and other Documentary Evidence:
In Texas, photographs are always admissible. There is no such thing as a privileged photograph. Since photographs are extremely helpful at trial, I always encourage claims representatives to take lots of photographs. However, where claims representatives have difficulty is when they mount the photographs with a description. Descriptions are important in that they allow the claims representative to refresh his/her recollection concerning the purpose of the photograph, the angle, etc. It is extremely important that these descriptions be accurate and not contain any opinion or derogatory comments. Also, all photographs taken should be developed/printed and included within the claim file. It raises questions at trial if a claims representative has to admit that he/she discarded or erased some photographs.
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always encourage claims representatives to take recorded statements of third-party witnesses and potential claimants. In Texas, recorded witness statements are almost always admissible as a matter of course. Even a witness statement of the insured in a third-party personal injury claim will also probably be deemed admissible if taken by the claims representative. If the recorded statement is taken by the retained attorney, there is a better chance of it being protected from discovery. Therefore, I would encourage a claims representative to have an unrecorded conversation with a potential witness and then have the recorded statement deal only with those items that are relevant. How to take an effective recorded statement is the subject of another paper that I will be happy to give, if you invite me back again.
Other tangible/documentary evidence should be maintained in the claim file. The claims representative should avoid making notations or markings on that evidence. Instead, it may be necessary to describe the item, and I would suggest that a separate piece of paper be attached to the item, describing what it is. For example, a sales receipt that was submitted in support of a first-party property insurance claim that appears to be fabricated because it does not reflect sales tax, the receipt should be mounted on a separate piece of paper (like a photograph) and then a description of the document should be made on the mounting sheet.
Statements as to Reserves:
Insurance company accounting requires that each claim file contain a reserve evaluation. Reserve statements are the prime target of attorneys representing claimants and insureds. They love to use reserve statements to leave the impression with a jury that the insurance company secretly determined there was coverage, while at the same time, denying benefits to the policyholder. It is my suggestion that a reserve statement contain a statement that is similar to the following:
Regulations propounded by the Texas Department of Insurance require that insurance companies place reserve amounts on every claim, regardless of whether it is valid or whether it constitutes a covered loss. The placing of a reserve on this claim is done in order that ABC Insurance Company complies with the requirements of the Texas Department of Insurance. The amount of this reserve is simply an estimate of what ABC Insurance Company believes the claim can be settled for, if it is determined that the occurrence constitutes a covered loss and that the damages claimed are legitimate.
By placing a reserve, ABC Insurance Company is not implying, much less stating, that this claim constitutes a covered loss, that the occurrence is legitimate or that the damages claimed have been incurred.
ABC Insurance Company reserves the right, if it so chooses, to revise the reserve as information is gathered concerning this claim.
Hopefully, a statement such as the one set forth above will negate any attempt by the attorney representing the claimant or the insured from using the reserve statement improperly.
Statements as to Anticipated Litigation:
Under Texas procedure, certain communications become privileged once litigation is reasonably anticipated. Therefore, it is extremely important that the claim file reflect any facts or statements that would trigger a belief that litigation is reasonably anticipated. These facts should be clearly noted in the claim notes. Ordinarily, claims representatives take threats of litigation with a “grain of salt” and do not notate them. This practice is not recommended.
Many times, policyholders/claimants, out of frustration, will make a statement such as “I guess I am just going to have to sue you,” “I’ll see you in court” or “I’m going to hire a lawyer on this.” These sorts of statements can form the basis of a determination as to when litigation was reasonably anticipated. When such a statement is made, the claims representative should make a note of that statement in the claim notes and then state “based upon this statement, I believe that litigation will ensue shortly”.
Never make deletions, additions or other modifications to claim file after suit is filed. Sometimes, when claims end up in litigation, claims representatives go back through a claim file and start deleting, adding to, or otherwise modifying the claim file, especially in the area of the claim notes. Most often, the claims representative hopes that his/her modification will never be detected. However, if the claim notes are in handwriting, there are experts who can detect the modifications. If the claim notes are electronic, computer experts can many times detect modifications.
It is much easier to deal with an unfortunate entry in the claim notes when the attorney representing the insurance company or defendant knows about the problem entry. If the attorney representing the policyholder/claimant can ever establish that a claim file has been altered, the damage is, almost always, irreparable. The entire credibility of the insurance company is destroyed and sometimes the insurance company and the claims representative will be subjected to criminal and civil sanctions.
If a modification is to be made, it is always best to make a new entry that states:
In reviewing my diary notes, I observed that I made a mathematical mistake on February 1, 2003. I noted that the medical expenses incurred by the claimant were $10,000.00. In fact, the actual amount of medical expenses incurred by the claimant, as of that date, was $1,000.00.
A well-kept, well-organized, properly documented “claim file” can be extremely beneficial in the event that a claim finds its way to the courthouse. On the other hand, a claim file can be the worst enemy of the insurance company and the claims representative, if it is improperly kept.
I hope that this paper has been informative and helpful. If you ever have any questions concerning how to document your claim file, please do not hesitate in contacting us and we will be happy to help.