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Risking Utmost Good Faith, Fraudulent Cop on the Payroll, UBI Conference

Posted By Thom Young, March 10, 2015
Updated: March 11, 2015

The Risks of Utmost Good Faith

Uberrimae fidei is the Latin version of the extra requirement for a legal insurance contract between an insurer and an insured. This condition requires that the insured must disclose to the insurer anything adverse or inordinate about the risks to be insured. After a loss, the insurer can challenge in court whether the customer was playing fairly in what was disclosed. This condition differs from that in other legal sales agreements where that old Latin term caveat emptor applies. Once sales agreements are signed, sealed, and delivered, the buyer is assumed to have done due diligence and expected to suffer the consequences of the vendor’s silence on matters undiscovered. When I teach insurance law, I tend to ramble on about this obscure difference in the way insurance contracts are dealt with versus the routine manner in which other contracts are made. The idea of a legal standard of excellence that ensures that both parties to an agreement are dealing with each other fairly is one of those thing that makes our business special!

Everyone talks about price, but few understand the promise of insurance. Both those buying and those selling insurance hold no real high ground here. At the outset, we do our best to run all insurance applicants through the filter to determine that they have a better-than-even chance of not having a loss, while purchasers do their best to limit their information in the hope that they obtain a better price for the coverage. In providing answers only to the questions asked, purchasers expect to get what they paid for, but the reality is they will get what they paid for only if they deal in good faith and disclose everything the insurer needs to understand the risk fully. Explaining this principle to non-insurance people often is confusing and becomes even more so when the information not provided becomes available in the claims-investigation process.

We sell only a promise to pay. To ensure that promise is kept, we must make our clients aware of the consequences of not providing us with all the information. The insurers we represent need to know their part in this promise too because the expectation that they are to deal in good faith is provided in the contract as well. Claims professionals are expected to deal with insureds in a fair and comprehensive manner in order to get them all that they are due under the contract. Perception of unfair treatment is the number one reason for the public’s view of insurers as being incompetent. These criticisms are often due to a misunderstanding of the process which produces unreasonable expectations. As brokers, we are often culpable as we did not properly explain the process at the outset of arranging the policy, but, even when we do it right, opinions differ on what replacement means, and we all know that owners almost always perceive ideal conditions and value. Still, it is not all that uncommon to find a claim in process where the insurer’s claims examiner seems to be dealing unfairly or, if not “unfair,” then with a certain arrogance that isn’t reserved just for the broker who is trying to find information but also imparted directly to the client. When such a situation occurs, what can you do?

Essentially, the only thing you can do is approach the claims examiner on behalf of your client to see if you can negotiate a logical conclusion to the impasse. Often, the claims examiner is unaware of the issues. An offer has been made to settle the claim with the genuine belief that it is fair and reasonable and meets the conditions of coverage. The insured has not relayed objections to the adjuster in fear of further impasse on the areas in which they agree. As the advocate for the insured and the company, a broker has to listen to both sides of an argument carefully and try to find some common ground. Whichever side is being unreasonable needs to hear a logical explanation as to why, and the broker needs to remember that the bearer of bad news is rarely received with enthusiasm. Taking the company’s correct position back to the client is sometimes difficult, but, if it is a correct one, then it is the task you must complete. Taking the insured’s correct position back to the company can be even more difficult, since you risk fracturing the business relationship with the company. Pointing out the error in the ways of a sometimes senior person representing an incorrect position rarely goes well for the broker, but it is your job.

I remember once having a discussion with a very arrogant claims examiner who had taken a ridiculously wrong position on a claim for my client. I was being diplomatic and direct when this person became entrenched in a final position and very arrogantly stated an unwillingness to consider alternatives and that the client didn’t have any options in the matter. I said of course the client had options and I would have to explain them to the client. When the adjuster asked what options, I replied, “They have the legal option to sue you, and would you please provide for my client a proof of loss form immediately so they can.” A period of dead silence on the other end of the phone was quickly followed up with the threat that we wouldn’t be dealing with that company for very much longer if the adjuster had anything to do with it.

Here’s where you realize that you’ve just stepped in something warm and odorous.

I don’t know if I beat the adjuster to the district manager for that company or not, but I do know that I was doing a political two step for several days trying to get the whole story in front of the senior people of the company for a fair and impartial review. Thankfully as well, my partner at the time was as good at getting me out of trouble as I was getting into it. At the end of this story, everybody won. The client won because the company agreed to settle the claim in the correct manner as prescribed by the insurance contract. Our brokerage won because our reputation for standing up for our clients when they were right was made very clear to a company with a real problem in their claims management, and the company won when it dealt with the real problem it had. I think the claims examiner won too as a hard lesson was learned about not writing a cheque that your credibility can’t cash.

Being a broker isn’t easy sometimes, but dealing in the utmost good faith is necessary to meet the terms of an insurance contract and is something all of us should remember and review from time to time!

How Bad Do You Have To Be To Get Fired?

According to the Brampton Guardian, a police officer representing the Region of Peel, Ontario, has been on administrative leave with full salary for almost four years. This fellow was topping up his retirement fund by cooperating with a bunch of crooks who were filing false claims against a number of insurers. To support the claims, he fraudulently completed police accident reports for a nominal $6000 a pop. The fraudulent claims paid totaled just under $1 million. Since first arrested in the spring of 2011, he has been on administrative leave with full pay and benefits, but wait—there’s more! Several weeks ago, this fine fellow was convicted of more than 40 charges of insurance fraud, breach of trust, and obstructing justice. He’s awaiting sentencing, which isn’t scheduled until May 29th. The perversity of this set of circumstances makes one wonder who’s in charge of the asylum?

Under the collective agreement governing police officers in Ontario, this all is perfectly normal. After his sentencing, a hearing will apparently determine if this guy should remain on the force or not. Kind of makes you wonder, doesn’t it? If I were a resident in Peel, I would not be very happy about my tax dollars continuing to pay for this kind of silliness! Nothing has been said about restitution orders or other remuneration. Our industry will no doubt bring civil charges against the guy for the money owed, but it’s hard to collect from a criminal! This guy legally carries a weapon around with him too.

Some might say that the wheels of justice move in strange ways, but no justice is in play here. It will be interesting to see what the sentencing brings. I’ve marked my calendar to follow up on this case and will report to you in due course!

Telematics and UBI Continue To Make the News

Our association is once again promoting the Insurance Telematics Canada 2015 conference, which will be held in Toronto at the Westin Prince Hotel, April 23rd to 24th 2015. If you are interested in attending, check out the registration and information package.

If you register before March 27th, you can save yourself $100.

I’ve been invited to attend but have other commitments for that time frame.

We’ve seen a lot of discussion on telematics in the industry press lately, much of it coming out of the promotions circulating for this event. I remain very cautious on what benefit, if any, telematics will bring our industry. Certainly, better data mining will provide for better risk selection and categorization, but—and that’s a very large but—overall, the activity will not reduce the costs of insurance for the general pool. In my view, it will simply provide some short-term competitive advantages to those able to make first use of the data being generated. At the end of the day, the dollars in claims paid and administration will be very similar. Some consumers might benefit initially, but that benefit will come at the expense of those who will be losers in the selection process. The end result will be an unsettled marketplace with considerable instability for the consumer that will not see anyone the winner. More so, the disruption may well attract regulatory overview and interference to ensure that the public is not disadvantaged in the selection process.

While others may well disagree, I continue to believe that consumers will experience no real benefit from telematics, and the industry will experience only a limited short-term competitive advantage unless an industry activity reduces claims or reduces administration costs. I have to concede that the use of UBI in regards to the underage marketplace can be demonstrated to reduce claims and change dangerous behaviour, so I have no argument about applying it here. However, other than that, much more discussion is necessary.

In Closing

It wouldn’t be a winter issue without discussing the weather somewhere. Spring is clearly around the corner regardless of how much snow and cold the East receives. I am back on the mainland once again and looking forward to more seasonal weather. I hope you are enjoying it as well.

The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below or email Thom Young privately. Thom also encourages suggestions for topics.

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Tags:  auto fraud  telematics  UBI  utmost good faith 

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