claims journal magazine - fall 2012

SPRING 2012 | VOL. 1, NO. 2FALL 2012 | VOL. 1, NO. 4

2 Claims Journal | Fall 2012

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WEATFOR16166.indd 1 9/28/12 11:19 AM

PROFESSIONAL ENGINEERS

800-527-0168HaagEngineering.com

800-527-0168Visit HaagEngineering.com to find out more or call

Forensic Engineers& Consultants Since 1924

EDUCATION from the EXPERTS

CONSTRUCTION CONSULTING

• Haag Certified Roof Inspector Training• Books & Tools• Online Training• CE Seminars Offered Nationwide

• Failure and Damage Analysis• Civil • Architectural• Mechanical • Electrical• Structural • Metallurgical• Research/Testing

• Construction Consulting Services• Restoration Consulting• Clerk of the Works• Litigation Support

GEOTECHNICAL CONSULTING

• Geophysical Surveys • Floor Level Surveys

• Remediation Recommendations for Foundation Stabilization & Repair

• Drilling Services• Laboratory Testing

• Repair Monitoring

Wood Roofs

Damage Assessment

Field GuideWood Roofs

Damage Assessment

Field Guide

HAAGCH16180.indd 1 10/3/12 9:27 AM


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www.claimsjournal.com/subscribeClaims Journal, the National Property Casualty Claims Magazine is published quarterly by Wells Publishing, Inc. 3570 Camino del Rio North, Suite 200, San Diego, CA 92108. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. Subscription Rates: Free to qualified readers. Disclaimer: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2012 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Claims Journal is a publication of Wells Publishing, Inc.Postmaster: Send change of address form to Claims Journal, Adam Dunford, 3570 Camino del Rio North, Suite 200, San Diego, CA 92108.Article Reprints: For article reprints: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or [email protected]. Visit insurancejournal.com reprints for more information.

OPENING NOTE

Andrea [email protected]

Predictive analytics have the greatest impact on fighting fraud.

E D I T O R I A L

Editor-in-ChiefAndrea Ortega-Wells | [email protected] EditorDenise Johnson | [email protected] President ContentAndrew Simpson | [email protected] Journal East EditorYoung Ha | [email protected] Journal Southeast EditorMichael Adams | [email protected] Journal South Central Editor/Midwest EditorStephanie K. Jones | [email protected] Journal West EditorDon Jergler | [email protected] Journal International EditorCharles E. Boyle | [email protected] Associate EditorAmy O’Connor | [email protected] Burke Coleman, Steven PlittContributing Writers Mike Fulton, Dennis Haas, David Sampson, Christopher Shulman, Jeffrey Taylor, Lori Widmer

S A L E SV.P. Sales & Marketing Julie Tinney (800) 897-9965 [email protected] Journal/Southeast Howard Simkin (800) 897-9965 [email protected] Dena Kaplan (800) 897-9965 [email protected] Central Mindy Trammell (800) 897-9965 [email protected] Lauren Knapp (800) 897-9965 x161 [email protected] Dave Molchan (800) 897-9965 x145 [email protected] Markets Sales Manager Kristine Honey | [email protected] Advertising (800) 897-9965 [email protected]

M A R K E T I N G / N E W M E D I AMarketing Administrator Gayle Wells | [email protected] Coordinator Erin Burns | [email protected](619) 584-1100 x120New Media ProducerBobbie Dodge | [email protected]/EditorMatt Tolk | [email protected]

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I J A C A D E M Y O F I N S U R A N C EDirector of Education Christopher J. Boggs | [email protected] Training CoordinatorBarbara Whiffen | [email protected]

A D M I N I S T R A T I O NChairman Mark Wells Chief Executive OfficerMitch DunfordAccounting Manager Megan Sinclair | [email protected]

The Fight Against Fraud

Insurance fraud is not going away, but the industry may be getting smarter about predicting the future. Many fraud fighting initiatives, including pre-dictive analytics and anti-fraud teams, are having an impact.

“The insurance fraud problem is estimated to exceed US$40 billion globally and is showing no signs of abatement,” says Russ Schreiber, insurance practice leader for FICO, a predictive analytics and decision management technology provider. Forty-five percent of insurers estimate that insurance fraud costs represent 5 to 10 percent of their claims volume, while 32 percent say the ratio could be as high as 20 percent, according to a new survey of U.S. insurers by FICO and the Property Casualty Insurers Association of America (PCI). While it has been estimated that insurance fraud accounts for up to 10 per-cent of property/casualty insurance losses, the survey reveals that some in the industry believe fraud could be more prevalent. More than half (54 percent) of insurers responding to the survey expect to see the cost of fraud in personal lines to increase in 2012; less than 3 percent expect a decline. The survey also found 67 percent of insurers expect to see an increase in personal property fraud, 65 percent expect an increase in workers’ comp fraud, and 60 percent expect a rise in personal auto fraud. The majority of insurers (61 percent) attributed the increases to sustained economic hardship by policy-holders. Only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs. Yet 60 percent expect a rise in workers’ comp fraud rings, and 61 percent expect a rise in auto fraud rings. When insurers were asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents.

Predictive modeling is helping to identify possible fraud at the very early stages of a claim, says Steve Armstrong, chief pricing actuary for Chartis Consumer Insurance. “Claims data is extraordinarily rich with information that predictive modelers could just go nuts over,” Armstrong says. So far, there’s been significant improvement on how to detect fraud early at the point of claims with predictive analytics, he says. “Some people have even started to crack a nut at looking at the potential for fraud on new business by just looking at underwriting characteristics that might lead to a potential fraud down the road.” Insurers have also found the use of anti-fraud teams for

specific books of business (37 percent), link analysis for de-tecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful fraud-fighting approaches, the survey said..

Whatever the approach, early detection is critical in the fight against fraud for insurers. CJ

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C0NTENTS

On The CoverProduct Recalls

12

CLAIMS DEPARTMENTS 4 Opening Note

7 Web Exchange 9 Business Moves 10 People 30 Calendar of Events

FALL 2012 | VOL. 1, NO. 4

CLAIMS REVIEW

Homeowners’ Claim Costs Fueled by Rise

in Severity, Frequency 8

2011 Fatal Work Injury Stats Down: Report 8

Study Finds Drivers Unaware of Texting Habits 8

How to Investigate Heating Equipment

Fire Losses 12

Fraud Focus: What’s New in Staged Auto

Accident Scams 14

SPECIAL REPORT

2012 Engineering, Investigative

& Forensic Guide 16

The Defects in Product Recalls 20

Enhancing Efficiency & Quality

in Claims Estimating 23

Navigating the Rental Car Insurance Highway 24

IDEA EXCHANGE

Burke’s Law: Exploring the Auto Use Exclusion 26

Essentials: Insured Status on Auto Coverage 27

Alternative Dispute Resolutions Guide

for Adjusters 29

Final Offer: Sampson on the Partisan Divide 31

24

26

29

20

Fall 2012 | Claims Journal 7

In a Reader’s View

Fire Fee Ignites Anger Among California Residents More than 800,000 rural Cali-fornia residents who own prop-erty in wildfire country received bills for a new annual fire-pro-tection fee, rekindling outrage that will likely lead to a lawsuit to overturn the surcharge. The fee, passed by Democrats in the Legislature and signed by the governor last year, is intended to raise an estimated $84 million in its first year for

fire-prevention efforts. The annual charge can run as high as $150 for property owners with a single occupied dwelling. The fee was imposed on those who own property within the 31 million rural acres covered by the California Depart-ment of Forestry and Fire Protection, a responsibility area that includes about one-third of the state. A recent University of California, Merced, study said cli-mate change, development and changes to the landscape may double the fire risk to rural homes in the next 40 years. The Associated Press story generated several comments from readers, including the one below:

D Nicholson says: The vast majority of those living within the rural com-munities in question already pay fire prevention taxes and routinely clear their properties to create defensible space. The greater problem are the huge number of uninhabited lots which are neglected by their owners. … They should be required to clear those properties of debris or face fines for not doing so. CJ

Video Highlights

The Role of Arcing in Fireshttp://www.insurancejournal.tv/videos/7012/

Forensic electrical engineer and president of Anderson Engineer-ing Erik Anderson discusses fire cases he sees frequently and explains arcing during Andler & Associates’s annual live burn training seminar.

Good Defense but Higher Severity in Med-Mal Caseshttp://www.insurancejournal.tv/videos/7128/

While the frequency of claims filed against medical professionals that are being litigated has gener-ally declined in the past decade, payouts for successful medical professional liability claims have

increased. One of the main drivers of the trend toward higher claims payouts is increased selectivity of cases by the plain-tiffs’ bar, according to Laurel Byerly, senior vice president for Western Litigation. The company is a third-party administra-tor that manages medical malpractice claims and litigation for self-insured entities.

Podcasts Highlights

Hurricane Andrew Revisited 20 Years Laterhttp://www.insurancejournal.tv/videos/7731/

Gary Kerney, assistant vice president of Verisk’s Property Claim Services, discusses Hur-ricane Andrew 20 years later and how adjuster practices, catas-trophe modeling and building

codes all changed after the storm.

How to Investigate Lightning Damage to AC Unitshttp://www.insurancejournal.tv/videos/7666/

Jeff Peters, professional engi-neer and vice president at Rim-kus Consulting Group, provides tips on investigating lightning damage claims involving air conditioning units. He explains

the types of strikes, how to determine whether a claim is due to a surge versus lightning, and how to handle the new refrigerant requirements.

DEPARTMENTS

WEB EXCHANGE

ClaimsJournal.com Web Poll Should Insurers cover the risks associated with fracking?

Undecided: 16.5% (54 votes)Total Votes: 557 votes

No, the risks related to fracking remain unknown.

Yes, according to current research, the risks associated fracking are minimal.

56.9%

26.6%

186 votes

87 votes


CLAIMS REVIEW | NEWS & TRENDS

Homeowners’ Claim Costs Fueled by Rise in Severity, Frequency

The cost of homeowners insurance claims has been rising rapidly because

of the combined effects of rising claim severity and increases in claim frequency, an Insurance Research Council (IRC) study of homeowners insurance claim trends found. From 1997 to 2011, the average claim payment per insured home (houses, apartments and condos) countrywide rose 173 percent, from $229 to $626. In 2011, homeowners insurance claim costs per insured home increased 27 percent. Over the entire study period, the annual-ized rate of increase was 7.4 percent. In the study, “Trends in Homeowners Insurance Claims,” the IRC examined trends for claims that were not related to catastrophic events and those that were related to catastrophic events.

Trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects. For both groups, countrywide claim severity increased almost 200 percent and ended the 15-year period in 2011 with similar values — $8,077 for non-cat-related claims and $7,553 for cat-related claims. Significantly, however, the trend in catastrophe-related claim severity was much more volatile from year-to-year, with dramatic increases and decreases during the study period. Trends in homeowners insurance claim frequency (the number of paid claims per 100 insured homes) were very different for the two groups of claims in the 15-year study period. Claims frequency unrelated to cat events fell substantially from 1997 to

2005 for a variety of factors. Since 2005, however, non-cat-related claim frequen-cy has increased at an annualized rate of 2.9 percent. Cat-related claim frequency, while much more volatile, remained fairly flat through much of the period. CJ

2011 Fatal Work Injury Statistics Down: ReportAn estimated 4,609 fatal work injuries

were recorded in the United States in 2011, down from the 4,690 fatal work injuries in 2010, according to results from the Census of Fatal Occupational Injuries (CFOI) program conducted by the U.S. Bureau of Labor Statistics. The rate of fatal work injury for U.S. workers in 2011 was 3.5 per 100,000 full-

time equivalent workers, compared to a final rate of 3.6 per 100,000 for 2010. In the past three years, increases in the counts based on additional informa-tion have averaged 166 fatalities per year, or about 3 percent of the revised total. Final 2011 data from the CFOI program will be released in Spring 2013. Fatal work injuries in the private

construction sector declined to 721 in 2011 from 774 in 2010, the fifth consecu-tive year of lower fatality counts. Fatal construction injuries are down nearly 42 percent since 2006. Fatal work injuries in private truck transportation rose 14 percent in 2011 — the second consecutive year that counts have risen after a series low in 2009. CJ

Study Finds Drivers Unaware of Their Texting Habits

Texting while driving is considered a serious public safety concern, but a

new University of Michigan study sug-gests that drivers might not be aware of their actions.

U-M researchers found that texting while driving is predicted by a person’s level of “habit” — more so than how much someone texts. When people check their cell phones without thinking about it, the habit represents a type of automatic behavior, or au-tomaticity, the researchers said. Automaticity, which was the key variable in the

study, is triggered by situational cues and lacks control, awareness, intention and attention. “In other words, some individuals au-tomatically feel compelled to check for,

read and respond to new messages, and may not even realize they have done so while driving until after the fact,” says Joseph Bayer, a doctoral student in the Department of Communication Studies and the study’s lead author. This first-of-its-kind study, which identifies the role of unconscious thought processes in texting and driv-ing, is different from other research that has focused on the effects of this behavior. Thus, the current study inves-tigates the role of habit in texting while driving, with a focus on how (rather than how much) the behavior is carried out. The findings appear in the Journal Computers in Human Behavior. CJ


DEPARTMENTS

BUSINESS MOVES The vulnerability of a building to hur-ricane wind increases rapidly in the initial construction phases and then levels off after windows and doors are closed. The vulnerability of a building to earth-quake ground shaking increases dramati-cally once the foundation and substructure

EagleView Technologies Wash.-based EagleView Technologies now offers wall measurement reports for residential properties. The measurements are derived from high-resolution photographs using pat-ented technology. The report provides a 3D wall area diagram, total square footage of the wall areas, number and total square feet of windows and doors, and north, south, east and west elevation diagrams. Wall reports can be ordered separately or bundled with EagleView’s roof mea-surement reports.

Sedgwick Claims Management Services Sedgwick Claims Management Services plans to open two new Midwest service centers, located in New Albany, Ohio, and Coralville, Iowa. The Coralville location is contingent on the approval of available job training and economic development incentives by the Iowa Economic Development Authority and the city of Coralville. Sedgwick anticipates hiring approxi-mately 200 people at each location in the next 24 months. Nearly 60 employees in each location are expected to be hired before the offices become operational in January 2013. Job opportunities available at the ser-vice centers will include customer service representatives, disability claims special-ists, leave specialists, nurse case managers, and management, technical and support roles. Additional positions will be added at both locations throughout 2013. Recruitment for the new positions will begin immediately, with a target start date in November for training purposes.

AIR Worldwide AIR Worldwide (AIR) expanded its offerings for commercial insurers with a capability for determining losses from natural catastrophes to buildings under construction. CLASIC/2TM Version 14.0 introduces the ability to model builder’s risk policies for the AIR earthquake and hurricane models for the United States.

are complete, and levels off after the addi-tion of the lateral load-resisting system. AIR model users can estimate losses to builder’s risk policies (commercial and resi-dential) that begin coverage after construc-tion has started by entering a “percentage completion” value into the software. CJ

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Areas of investigation include: Consumer Products; Lithium Ion Battery Fires; and

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DEPARTMENTS

PEOPLE Claimspro International (CPI), an independent division of SCM Insurance Services (SCM) offering international loss adjusting services to London and the international market, named Julian Millar managing director. Millar, who joins from QBE, will be responsible for driving the expansion of CPI’s operations and business in the United Kingdom and Europe.

GAB Robins, a global risk management services company, appointed Maggie Cowing to head of major and complex loss. She will be responsible for the company’s major loss, construction and engi-neering and home foreign divisions. Cowing, who joins from Cunningham Lindsey, has more than 26 years of adjusting experience, and has expertise in all aspects of major and complex property and business interruption losses across a range of industry sectors.

Glenn Gibson was named CEO of Crawford & Co.’s consulting practice in Canada. He will be responsible for developing the company’s Canadian consulting practice in the areas of technical loss adjusting, arbitrations, strategic planning and enter-prise risk management. Gibson began his insurance career at Fireman’s Fund Insurance Co. and later helped build Adjust-ers Canada into the largest claims administration firm in Canada. He has held a number of executive positions with Crawford since the company pur-chased Adjusters Canada in 1998.

Lt. Gov. Peter Kinder will lead a newly formed state committee reviewing Missouri’s disaster recov-ery efforts and preparedness for future challenges. The Interim Committee on Disaster Pre-paredness was created by Republican House Speaker Steven Tilley. It also includes lawmakers, a Joplin, Mo., city council member, an official from a health care company and a Jasper County official. Kinder, a Republican, says the committee will check whether the resources poured into disaster recovery are getting the expected result.

Pennsylvania-based Erie Insurance named Richard Burt executive vice president of product. He will oversee Erie’s three business lines — per-sonal, commercial and life insurance. Burt has more than 25 years of actuarial and business experience from firms including Deloitte

Consulting; Willis, Coopers & Lybrand; and Aetna Life & Casualty. Burt is a Fellow of the Casualty Actuarial Society. He succeeds Mike Zavasky in this role. Zavasky an-nounced retirement plans last year.

The Republic Group named Timothy R. Wiedmeyer vice president of claims. Wiedmeyer previously served as vice president of claims at West Bend Mutual Insurance Co. He began his 23-year claims career with Heritage Mutual Insurance Co. (now Acuity).

New York-based Insight Specialty Programs (ISP), a developer and marketer of insurance, non-insurance and telematics products and services, appointed Thomas Harms president and Michael DiLoreto chief operating officer. Prior to joining ISP, Harms was senior vice president at Aon Benfield Fac’s program division. Throughout his career, he has served in various positions at Braishfield Associates, Ardent Risk Services, G.L. Hodson & Son and Alexander Re. He began his career at Liberty Mutual. With more than 30 years of experience as a re-tailer, wholesaler, insurance company executive and a reinsurance intermediary, DiLoreto has an exten-sive background in property, casualty, life, health, annuity and structured reinsurance and insurance programs. DiLoreto serves on the board of directors of Southwestern Insurance Information Service (SIIS).

The Bermuda Insurance Institute (BII) ap-pointed Dawnnelle Walker as its first CEO. Walker will assume her role at the BII in Novem-ber 2012. She will report to BII’s Governing Council. BII is a registered charity and educational institu-tion, funded by its insurance industry members. The institute facilitates insurance studies and insurance-related studies, as well as organizes discussion of industry matters and other interaction among industry participants.

Connecticut-based insurer The Hartford pro-moted Robert Bateman to senior vice president and controller of the company. Bateman succeeds Beth Bombara, who was recently promoted to lead the company’s life runoff business. In his new role, Bateman will be responsible for accounting operations and will report to Christo-

Julian Millar

Maggie Cowing

Glenn Gibson

Peter Kinder

Richard Burt


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pher J. Swift, executive vice president and chief financial officer. Bateman previously was senior vice president and chief financial officer for The Hartford’s commercial markets divi-sion. Bateman joined the company in 2004 and has served in a variety of roles within the finance organization, including chief financial officer for claims and property/casualty runoff business.

Montpelier Reinsurance Ltd., the Bermuda-based subsidiary of Montpelier Re Holdings Ltd., named Christopher Downey head of Global Casualty and Specialty Treaty Reinsurance. Downey is responsible for leading the full portfolio of casualty and specialty trea-ty business written through the company. He will report to Christopher Schaper, president of Montpelier Re. Downey has nearly 20 years of under-writing and actuarial experience in the insurance and reinsurance industry, most recently as senior vice president specialty & casualty at Alterra Bermuda. He is a fellow of the Casualty Actuarial Society, a member of the American Academy of Ac-tuaries and a Chartered Financial Analyst.

Jeffrey F. Harrold, chairman and CEO of Auto-Owners Insurance Company, re-ceived the Griffith Insurance Education Foundation’s 2012 Lifetime Achievement Award. The award recognizes industry leaders for their commitment to education, and for their support of the missions of The Griffith Foundation and the National As-sociation of Mutual Insurance Companies (NAMIC). For 21 years, Harrold worked on the property/casualty side of the business before assuming responsibility for life company operations in 1998. Since then, he was named executive vice president and assumed additional responsibility for home office property/casualty underwrit-ing and the marketing division, before he was named president of Auto-Owners Insurance Group then CEO. CJ


By Dennis K. Haas

Dave was making his way through his house trying to find out why his smoke detectors were sound-

ing … then he saw it. Scorched paint and burned places covered the wall above the fireplace, and small flames were visible in several places. While waiting for firefighters to arrive, he won-dered what could have gone wrong. Although this is a fictional account, de-spite hiring licensed general contractors, homeowners involved in a heating equip-ment fire loss may learn too late that installation or maintenance should have involved a certified or trained installer. The National Fire Protection Associa-tion (NFPA) reported that in 2010 more than 57,000 heating equipment fires occurred in the United States. Almost 500 people were killed in these fires, and direct property losses amounted to more than $1.1 billion. From 2005 to

2009, more than one-third (37 percent) of heating-related fires involved a fireplace, chimney or chimney connector. Twenty percent of these fires were the result of mechanical failure, malfunction or improper installation. Determining the origin of these fires is not difficult; however, identifying a specific cause of the fire can be a chal-lenging effort. The National Fire Protec-tion Association’s “NFPA-211 Standard for

chimneys, fireplaces, vents and solid-fuel burning appliances” provides more in-formation regarding proper installation and use than most of us care to know. Ad-

ditionally, in commercial applications, local building and fire codes may require more stringent regulations be followed. Each solid-fuel burning appliance manu-facturer also publishes proper instal-lation and use information with each specific unit. And if that isn’t confusing enough, the information is different for many models. So what should one look

for when investigating a loss involving a solid-fuel burning appliance? First, involve an origin and cause investigator to document and verify the fire’s origin. Then, familiarize yourself with the specific make and model of the appliance in question, as well as who in-stalled it. Many units are not installed or inspected by certified or trained install-ers familiar with the specific require-ments of the unit, but are installed by general contractors. Installation require-ments vary by appliance, all of which involve mini-mum clear-ances from combustible materials. Even “zero clearance” appliances have some clearance require-ments that must be met.

How to Investigate Heating Equipment Fire Losses

CLAIMS REVIEW | HOME

37% of heating- related fires involve a fireplace, chimney or chimney connector.


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These requirements are applicable to the appliance, flue piping and the chimney. Following are some general require-ments, but there are more to consider. Fireplace appliances must be installed inside an opening that meets the mini-mum requirements. The appliance must be installed flush with surrounding framing and must not be recessed into the opening. It must also allow for proper clearances between the rear of the unit and the back of the enclosure. The opening must pro-vide for minimum distances from the door opening to side wall, and from top of the appliance to the mantel. Fire stops should be provided within the chimney void area that also includes approved spacers at any point where the piping penetrates the fire stopping mate-rial. These voids must be free of any mate-rial, including insulation. Flue piping size and type requirements vary by the manufacturer’s recommenda-tions, appliance type and construction. Chimney height requirements apply depending upon roof type and height, and local ordinances may require a spark ar-rester. Minimum space requirements also apply from chimney above the roof line to other portions of the dwelling. Zero clear-ance fireplaces may require an anchor plate be installed on top of the unit. When required, the anchor plate must be matched to the specific unit. Intake air requirements apply to many models. In some instances, insulation may be used as a “clearance reduction system,” but then it, too, must meet minimum requirements. NFPA-211 recommends that fireplaces and chimneys be inspected once a year. As-

certain if an inspection has been conduct-ed and by whom. Often, aging appliances may have deterioration of the flue piping that allows hot gases to enter the void space and contact combustible materials. These problems should be identified dur-ing an inspection by a qualified technician. The temperatures produced by these appliances can and do serve as a competent ignition source for nearby combustibles.

For losses involving solid-fuel appliances, involve a qualified expert. He can ensure that the mountain of requirements are thoroughly researched so that subrogation is not lost in those instances where product failure or third-party liability is possible. CJ

Haas is a senior investigator and field supervisor for UNIFIED Investigations & Sciences Inc. in San Antonio, Texas.


Swoop and squat, drive-down and panic stop are examples of staged auto accidents, according to Frank

Scafidi, director of public affairs for the National Insurance Crime Bureau (NICB). Scafidi recently sat down with Claims Journal to describe the most common types of staged auto accident schemes. Here, he outlines why it’s important for adjusters to verify key aspects of an investigation involving a potentially fraudulent accident scam.

Claims Journal: What are staged auto accident schemes?Scafidi: They are a significant cost-driver in a lot of areas, and particularly in states that have no-fault insurance sys-tems. What they generally do is involve one or more people, one or more vehicles that the bad guys operate … where the innocent driver, because of the way the accident is carried out, usually will hit somebody in the rear or will be hit by one of the bad guys so that a responding law enforcement officer will find that innocent victim at fault.

CJ: What are the most common types of auto accident schemes?Scafidi: One is called the “swoop and squat.” There are different variations, but essentially that scheme is where you have two or three vehicles that are oper-ated by criminals, by co-conspirators. They will identify a target, and they’ll maneuver their vehicles in such a way that one vehicle will pass the target victim, the innocent victim, and then get back in front of that car, and then they’ll continue on for a ways, and then another vehicle will come up alongside the target vehicle to block that person’s potential escape from an impending accident. Then the first vehicle will just stop suddenly, causing the victim’s vehicle to run into the back of the bad guy’s car. Meanwhile, the other players in the side car, the blocking car or other trail cars,

might then just disappear. So [what] you’ve got left at the scene are the innocent victim and the person that they ran into. When the cops show up, of course, it’s a pretty clear cut case of following too closely. In many cases, you’ll find witnesses

that are all part of the criminal con-spiracy. … So,when a claim comes in, it’s very difficult to disprove. When you hit somebody in the rear, you’re typically at fault. When you’ve got witnesses to back up the bad guy’s story — that’s a pretty

incredible set of facts to overcome. Then, there’s a “sideswipe,” a “drive-down.” Another one is a “panic stop.” A panic stop is essentially the same … it’s where an individual driving the car, the bad guy [is] with two or three other people in the car. Then they just move it along at a slow rate of speed and they find somebody that looks like a good target. They’ll maneuver in front of that car, hit the brakes quickly, and then cause the innocent person to run into their rear. Again, now you’ve just got one vehicle that’s operated by the bad guys, but you may have two or more passen-gers in there … They’re going to get out, and they’re going to complain of injuries. When someone asks them, “Why did you stop?” Well, it could’ve been that

What’s New in Staged Auto Accident Scams

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Sometimes staged accidents are the first step in a multi-fraudulent situation.


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somebody stepped off the curb or there was some reason for them to stop that’s going to sound legitimate. So, it’s not the person that stopped that’s going to be at fault. It’s the one that hit them in the rear. In the sideswipe, typically the bad guy will position his vehicle in an outer lane, and then as soon as the victim’s vehicle comes into that outer turning lane, the criminal will sideswipe it. This is usually done where you’ve got dual turning lanes. There’s just a way to maneuver the vehicle to make it look like the bad guy was in-nocent and the victim vehicle performed some sort of a traffic maneuver and hit the bad guy, to make it seem like the innocent party is at fault.

CJ: Are there any other new trends in staged auto accidents?Scafidi: Not really. There are some variants of all these things, but the key ingredients to these phony accident schemes is to have an innocent vehicle that is maneuvered in such a way that driver either hits a car or is hit by one of the bad guys. The actual crash might be more intense

than anyone was planning. There’s one fa-mous case from New York years ago where a woman was killed when she was part of staged accident scam. So, there are risks to drivers and pedestrians, in many cases. It’s important for adjusters, claims han-dlers and investigators to understand that when you get what looks like a clear-cut case of, “Gee, well our insured was at fault here making a left turn,” there could be other elements. If you’ve got some indicators of these things — several people in the car that was hit are claiming injuries — these are things that send up the red flags for us. We have to be aware that what appears to be a clear-cut accident could very well have been a staged or setup accident.

CJ: Are there a few common factors involved in staged accidents?Scafidi: Perhaps, when you run your claims history on some of these things and you see the same vehicle is involved in other claims, even in other parts of the state or the country, that’s a clue. I would defer to the SIU and the claims

experts and professionals. When you see something like this, give it a little extra review. It never hurts to refer something to us if you think it’s questionable. As an investigator, if you see something or you’re referred a claim and it doesn’t add up, then do a little more digging. Everyone is under time constraints, and you’ve got to process claims quickly. It just pays to take a little extra time and verify some of the names that might be on that claim, the injuries, the places that these people are seeking medical assistance or where they’re referred for medical treatment. Sometimes staged accidents are really the first step in a multi-fraudulent situ-ation, where you’ve got people referring injured parties to certain clinics, to certain doctors, for treatments that are never even performed or are unnecessary. When you start probing around and you see a lot of these referrals to specific clinics in certain areas … you get into, really, the granular detail of what goes on behind a claim. When you see that activity, that’s another indication that there could be something there that’s very wrong. CJ

16 Claims Journal | Fall 2012 Fall 2012 | Claims Journal 17

IDEA EXCHANGE | ENGINEERING, INVESTIGATIVE, & FORENSIC GUIDE

ENGINEERING, INVESTIGATIVE, & FORENSIC GUIDE 2012Claims Journal is pleased to publish the 2012 Guide to Engineering, Investigation, and Forensics. This exclusive directory resource has been

designed to help claims professionals find partners and services to enhance their ability to respond to disasters and better assist their clients. We look forward to expanding and enhancing this directory in the future and welcome your feedback on how we might improve it. Please send comments or suggestions to [email protected].

Haag Engineering4949 W. Royal Ln. Irving, TX 75063

[email protected](214) 614-6500

Haag is a globally diverse consulting firm encompassing forensic engineering, construction consulting, geotechnical consulting, 3D laser scanning/BIM modeling and research/testing. Haag engineers have a wide range of expertise in all disciplines - civil, structural, architectural, mechanical, electrical, and metallurgical. We also of-fer outstanding educational programs, tools and publications. Haag is celebrating 88 years of serving not only the insurance industry, but manufacturers, attorneys, government entities, municipalities and corporations with our professional expertise.

Donan Engineering Co., Inc.11321 Plantside Drive Louisville, KY 40299


Donan Engineering is a multi-disciplined forensic consulting firm with professional engineers, fire investigators, and a component testing laboratory.

Amset Technical Consulting1864 S. Elmhurst Road Mount Prospect, IL 60056


Amset provides technical consulting to insurance professionals and attorneys in the investigation, analysis, and resolution of insurance claims involving electronics, equipment, and electro-mechanical machinery. Since 1996 Amset has earned an excellent reputation in the field of property and casualty claims for electrical & mechani-cal failure analysis, fire/explosion origin & cause investigations, vehicle fire investigations, cost analysis, electronics restoration, data recovery, laboratory examinations, and evidence storage.

American Structurepoint, Inc.7260 Shadeland Station Indianapolis, IN 46256

www.structurepoint.com/[email protected](855) 822-1966

Since opening our doors in 1966, public- and private-sector clients have trusted American Structurepoint as their single-source contact for first notice of loss through incident resolution. We’ll handle your property or liability claim investigation 24/7, so you can rest easy. We specialize in: Fire Investigation; Forensic Engineering; Informa-tion Technology; Environmental; Expert Witness; Catastrophe Response; Construction Management.

EFI Global, Inc.8811 FM 1960 Bypass Rd West, Suite 400 Humble, TX 77338


EFI Global offers the widest range of engineering, fire investigation, failure analysis, environmental, accident reconstruction, laboratory testing, and real property services available to public and private entities. Our multidisciplinary team of engineers, fire investiga-tors, and scientists is selected for their technical proficiency and in-depth industry knowledge to aid clients in resolving technical problems. With more than 400 professionals in 27 service centers nationwide, EFI Global has the resources to respond quickly to your unique needs – anytime, anywhere.

Douglas G. Peterson & Associate, IncP.O. Box 777 Greenfield, MA 01302

[email protected](413) 774-3781 x302

A national, multi-disciplinary damage engineering firm, whose specialty for over 40 years is providing objective answers to engineering cause, cost, and downtime questions.

HSA Engineers & Scientists3075 Breckinridge Blvd, Suite 470Duluth, GA 30096


Forensic Engineering firm located throughout the southeast. Providing Fire & Explosion Investigations; Marine Fire & Electrical Investigations; Lightning Investigations; Product Failure Analysis; Product Liability; Expert Case Review; Expert Witness Testimony; Subrogation and Liability Determinations; Trial Preparation; Expert Review of Reports & Depositions. Offices located in Georgia, Florida, Tennessee, Alabama, South Carolina, North Carolina & Texas. 24 hour response time and 5 day turnaround on forensic reports. Let our staff of Fire Investigators and Engineers solve your problems.

RGL Forensics100 Bush Street, 20th FloorSan Francisco, CA 94104


RGL Forensics is an international firm of accounting, valuation and corporate finance professionals who are specially trained in dis-covering and defining financial value. The firm establishes relevant facts and reliable figures for insurance, corporate, legal, and public sector clients and has done so for more than 30 years. For more in-formation, please visit www.rgl.com or email Steven A. Rosenthal, CFE, at [email protected].

Hughes Associates, Inc.3610 Commerce Drive, Suite 817Baltimore, MD 21227

[email protected](410) 737-8677 x217

Hughes Associates, Inc. has 30+ years of experience delivering fire related forensic services as part of a full service fire science and engineering firm with offices across the US and internationally. Hughes experts are technical leaders, consisting of Professional Engineers, scientists, and investigators with proven experience to respond to fires, explosions, or fire protection system failures. We provide a broad range of capabilities in one firm, high level expertise from scene investigation to trial testimony, testing and research, modeling, and code consulting.

Rimkus Consulting Group, Inc.8 Greenway Plaza, Suite 500Houston, TX 77046


Rimkus Consulting Group, Inc. serves clients with more than 300 professional engineers, scientists, financial experts, fire investiga-tors and technical specialists located in offices all over the U.S. plus London. Their knowledge, experience and expertise are the reasons why Rimkus is among the largest and most highly regarded forensic consulting firms in the world. Dedicated to fast, informa-tive response and unparalleled quality of final product, our experts provide reports and courtroom testimony aimed at clear under-standing by a non-technical audience.

Nelson Architectural Engineers, Inc.2740 Dallas Parkway, Suite 220 Plano, TX 75093


Nelson Architectural Engineers, Inc., serving nationwide from strategically located offices in Texas, Florida, Georgia, Maryland, Maine, Colorado, California and Hawaii, is a progressive multi-discipline firm specializing in forensics and consulting. We are investigators who assess damage from perils such as hurricanes, explosions, fires, structural failures, and design and construction defects -- typically within an insurance or legal setting. NAE excels in Forensic Engineering (Civil, Structural, Mechanical, Electrical), Forensic Architecture, LEED® Consulting, HVAC, Roofing, and Cost Estimating.

U.S. Forensic3300 West Esplanade Ave, Suite 601 Metairie, Louisiana 70002


U.S. Forensic, L.L.C. is a Southeastern U.S. forensic engineering firm offering expert evaluation, opinions, reporting and courtroom testimony. We currently maintain 14 offices with technical expertise including mechanical engineering, civil engineering, structural engineering, fire cause and origin, electrical engineering, vehicle accident recon-struction and indoor air quality investigations.Office locations include New Orleans, LA, Lafayette, LA, Hatties-burg, MS, Picayune, MS, Memphis, TN, Destin FL, Jacksonville, FL, Orlando, FL, West Palm Beach, FL, Miami, FL, Columbia SC, Charlotte, NC, Austin, TX and Dallas, TX.

Engineering, Investigative and Forensic Guide 2012.indd 1-2 10/2/12 2:19 PM


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New Partnership for Video Alarms Delivers Arrests and Loss Control

The PPVAR (Partnership for Priority Video Alarm Response) is a growing ally for loss control profes-sionals. This partnership brings together all parties

in the battle against property crime including law enforce-ment, alarm companies, insurers and property owners. Some of the largest alarm companies in the business are involved including Protection 1, Diebold and Stanley. Police chiefs are joining PPVAR from large suburbs like Grand Prairie, Texas to the second largest police force in the coun-try, the Los Angeles Sheriffs Dept. Police Chief Magazine, the official publication of the IACP (International Assn. of Police Chiefs) carried a case study earlier this year that documented a 70 percent arrest rate. In fact, making arrests is the whole point of this partnership. Since statistics show that one arrest can eliminate 30 to 50 burglaries, real loss control and cost savings are realized when insurers are pro-cessing 30 fewer claims resulting in 30 fewer appointments for adjusters. Arrests are the ultimate loss control tool for burglaries. Once expensive, video cameras are now just another feature on most new cell phones. The alarm industry is delivering innovation, building upon the video technology revolution that has occurred in the last decade. The innova-tors of the entire “security food chain” are creating video alarms and monitor-ing services that are deliv-ering new levels of security to their customers (your insurance policy holders). This innovation is far more than just a new prod-uct, although there are many new products like I-View and Videofied. National recognized testing labs, like Intertek, are actually adding a “V” for video designation for their ETL certificates to help define video alarm systems. Leading security companies like Protection 1, Stanley, and Diebold have all invested heavily to update their monitoring stations to maximize the value of video alarms and deliver priority alarm response to their customers. Perhaps, most importantly for loss control and under-writers, law enforcement personnel have embraced video alarms and now respond to a video verified alarm as an “in progress” call –giving the call priority response. Traditional alarm systems typically receive a level three or lower as

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of responding officers have increased response times and budgetary realities mean degraded service. The PPVAR is reach-ing out to the insurance industry, and especially to loss control professionals, to join the partnership. The NICB (National Insurance Crime Bureau) has a seat on

the board and is a strong supporter of Priority Response for more arrests. The NICB is supported by over 1,100 property/casualty insurers and the major interface between these companies and law enforcement. We welcome your partici-pation as we move forward to maximize the value of “loss control with a badge.”

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New Partnership for Video Alarms Delivers Arrests and Loss Control

The PPVAR (Partnership for Priority Video Alarm Response) is a growing ally for loss control profes-sionals. This partnership brings together all parties

in the battle against property crime including law enforce-ment, alarm companies, insurers and property owners. Some of the largest alarm companies in the business are involved including Protection 1, Diebold and Stanley. Police chiefs are joining PPVAR from large suburbs like Grand Prairie, Texas to the second largest police force in the coun-try, the Los Angeles Sheriffs Dept. Police Chief Magazine, the official publication of the IACP (International Assn. of Police Chiefs) carried a case study earlier this year that documented a 70 percent arrest rate. In fact, making arrests is the whole point of this partnership. Since statistics show that one arrest can eliminate 30 to 50 burglaries, real loss control and cost savings are realized when insurers are pro-cessing 30 fewer claims resulting in 30 fewer appointments for adjusters. Arrests are the ultimate loss control tool for burglaries. Once expensive, video cameras are now just another feature on most new cell phones. The alarm industry is delivering innovation, building upon the video technology revolution that has occurred in the last decade. The innova-tors of the entire “security food chain” are creating video alarms and monitor-ing services that are deliv-ering new levels of security to their customers (your insurance policy holders). This innovation is far more than just a new prod-uct, although there are many new products like I-View and Videofied. National recognized testing labs, like Intertek, are actually adding a “V” for video designation for their ETL certificates to help define video alarm systems. Leading security companies like Protection 1, Stanley, and Diebold have all invested heavily to update their monitoring stations to maximize the value of video alarms and deliver priority alarm response to their customers. Perhaps, most importantly for loss control and under-writers, law enforcement personnel have embraced video alarms and now respond to a video verified alarm as an “in progress” call –giving the call priority response. Traditional alarm systems typically receive a level three or lower as

most of these dispatches are not actual crimes. In fact, the arrest rates on traditional alarms are less than a tenth of a percent. That does not mean that they are not a deterrent. A siren screaming to the neighborhood that someone just entered the property is a deterrent. The fact is, however, that they seldom deliver arrests and arrests are effective loss control. Declining budgets are having an impact on police response to alarm systems. Some jurisdictions like Detroit, San Jose and Salt Lake City no longer respond to unverified alarms. In many others, reductions in the number

of responding officers have increased response times and budgetary realities mean degraded service. The PPVAR is reach-ing out to the insurance industry, and especially to loss control professionals, to join the partnership. The NICB (National Insurance Crime Bureau) has a seat on

the board and is a strong supporter of Priority Response for more arrests. The NICB is supported by over 1,100 property/casualty insurers and the major interface between these companies and law enforcement. We welcome your partici-pation as we move forward to maximize the value of “loss control with a badge.”

The PPVAR is reaching out to the insurance industry... We welcome your participation as we move forward to maximize the value of “loss control with a badge.”

Contact: www.priorityreponse.info Phone: 651-855-7802

VIDEOF16154.indd 1 10/2/12 4:07 PM


SPECIAL REPORT | PERSONAL LINES

By Denise Johnson

Despite the thousands of products recalled each year, whether or not recalls are effective is still debated. Some experts question the effectiveness of recalls.

They say too many recalls are based on inadequate safety testing and undertaken more to satisfy regulators than to improve safety. Often, recalls suffer from poor execution and communication and are inconsistently enforced globally. All the while, the costs of recalls may not be enough to change a product maker’s practices.

Recall Costs and Regulatory Pressure There have been more than 350,000 products recalled each year since 2008, according to the website wemakeitsafer.com, a company that builds web applications for consumers, manufacturers and retailers to improve communication relat-

ing to product safety recalls. While a recall might seem to be an expensive prospect, that’s not always the case. Kenneth Ross, counsel at the Minneapolis-based law prod-uct liability defense firm of Bowman and Brooke, says that just 5 percent of all consumer products involved in a recall are returned to the product maker. “The cost to the manufacturer is not that great,” Ross said. “Some manufacturers will report to the CPCS [Consumer Product Safety Commission] even if they’ve never had an ac-cident before.” Angie Puthoff, senior marketing communications manager for Stericycle, a company that has provided recall services to manufacturers and retailers for more than 2,000


recalls to date, said the company doesn’t track costs of a recall because it varies based on a number of factors. Some factors that impact the total cost of a recall include the size of the recall, the length of time for the recall, the location of the products in the supply chain, and the need for additional recall announcements or an expansion of the recall, Puthoff said. “The costs of a recall are really hard to estimate given all

the risks that different companies face,” Puthoff said. Ross said because recalls are fact specific, figuring

out the average cost is pointless. “Every recall I’ve done is a bit different. I can tell

you that the cost can be enormous if you get a lot of products back or if you have to send out lots of letters,”

Ross said. For example, a recall for a well-known home improvement retailer involved sending out letters to

35,000 customers and cost the company more than $100,000, he said.

One reason for the noticeable increase in product recalls can be

attributed to increased govern-mental pressure on manufactur-ers to publicize problems with their products, according to Ross. “There are more recalls because there is more respon-sibility for manufacturers to report to the government ... and also to foreign govern-ments,” Ross said.

According to Ross, who also serves as an expert witness

on recall adequacy, manufactur-ers believe that recalling a prod-

uct voluntarily protects them from further action by the CPSC and might

help them defend themselves in the event of a future accident.

“What we see is that many recalls are occurring where no one’s been hurt and no one may ever be hurt,”

Ross said. “But there’s a defect in the product and it could cause a serious injury, so the companies are deciding for various reasons, both regulatory and product liability, to just recall their product.”

Global Variations in Rules and Enforcement Product recalls on a global scale in particular can be prob-lematic due to varying reporting requirements and differing legal landscapes among the countries involved. “What’s kind of goosed everything up here, depending on where you sell your products, is that we now have report-ing responsibilities in Australia, the EU [European Union], Canada, South Africa,” Ross said. The Bowman and Brooke former law firm partner has

seen how these differences play out. “In Canada and Australia you have a duty to report if you’ve had a serious accident and it could happen again. You don’t have to have a defect.” However, in the United States, under National Highway Traffice Safety Administration (NHTSA) and CPSC, there must be a defect, he said. “There are different reporting responsibilities, different thresholds for reporting. You can have the situation where you would actually have a duty to report in one country and not in another,” Ross said. The Bridgestone tire recall in 2000 is an example of re-porting differences among countries. “What happened is that Ford recalled the product in Venezuela and Saudi Arabia, and not in the U.S., because it’s hot there, and they were having accidents there. They didn’t report to NHTSA, and they hadn’t taken a recall in the U.S. Well, NHTSA found out about this, and made them report, and made them do a recall. Ford took a hit for that, and they had to defend themselves because they were recalling products in foreign countries and not here,” Ross said. In addition to reporting requirements, companies must understand the legal landscape of each of the countries where their products are sold. “When I talk to manufacturers, wherever you sell your product, you have to understand what the laws are, and be prepared to comply with them. Because there may be things that are going on in foreign countries that will adversely af-fect your U.S. litigation,” said Ross. For example, a case involving a baby product recalled in both the United States and Europe resulted in litigation being filed in the United States because product liability litigation is difficult to pursue in Europe. “If I’m remembering correctly, they weren’t that rigorous in Europe, because Europe has very little product liability litigation,” Ross explained. “They didn’t tell the retailers to go get the product back from their customers. One retailer took the product off his shelves, sent it back, but he never communicated to his customers to send the product back.” After a baby died in Sweden, the mother filed suit in the United States. The company was unable to get the lawsuit moved out of the United States. “We had to justify why we implemented this recall dif-ferently from country to country, and didn’t require a recall among consumers in Sweden, and we did in the U.S. It was a loser of a case, we had to settle it. When you’re defending recalls, these are really hard cases because with 20/20 hind-sight you can always do more,” Ross said. Product liability litigation in Europe is limited as well,

‘There are more recalls because there is more responsibility for manufacturers to report to the government.’

continued on page 22


Ross said. “I’ll call it procedural. There are no contingent fees in most countries. There’s no pain and suffering. There are no punitive damages. There’s really no claim for lost wages because the safety net in Europe is such that you’re getting medical expenses and lost earnings if you’re injured. You can’t get a big verdict in Europe. That and the lack of punitive damages and jury trials makes litigation a lot less remunerative than it is here,” Ross said. Michael Krauss, a law profes-sor at George Mason University School of Law, an expert on products liability and the author of a book on the subject, “Principles of Product Liability,” agreed. “There’s an increasing amount [of litigation] in Europe and Canada but it is still much less than in the United States,” Krauss said. One reason is due to the taxpayer funded medical care available in those countries. According to Krauss, an injured person is not out of pocket any money and there is less of a need to find a deep pocket to pay the bills. Another reason, he said, is that jury trials are not common. “All throughout the western world, apart from the United States, jury trials do not exist in tort law,” Krauss said.

Europe isn’t the only place where product liability cases rarely stick. The same holds true in Canada and Australia. “We’re [the United States] the champion on litigation, and there’s a reason for it, and the reason is because the attorneys can get money out of it. That’s what drives it more than anything else,” Ross said. Customer notification is another issue. Despite technolo-gy and multiple social media platforms, retailers and manu-facturers aren’t communicating well with their customers. “The retailers are working on it but Target and Wal-Mart, for example, don’t keep track of who buys what. Costco does — Costco knows exactly who buys what, and they can communicate, email or mail to everybody who bought a particular product that’s being recalled,” Ross said. And while manufacturers are not required to report a recall to their liability insurer, there are reasons they might want to do so, he said. “We like to tell them if we’re going to do a recall, particu-larly during pending litigation. But we’re not required to tell an insurance company that we’re recalling our product. That’s not an insurable event,” Ross said. “People have asked me before, you know, ‘I’m going to recall my product and I’ve got some current claims, should I tell my insurance company?’ Yeah, you probably ought to let them know because maybe you want to go out and settle some cases before the recall becomes public knowledge,” he added. CJ

Timing Crucial in Product Failure Liability Investigations

SPECIAL REPORT | PERSONAL LINES

Manufacturers are not required to report a recall to their liability insurer.

Residential appliance fires annually result in an esti-mated 9,600 fires, 25 deaths, 525 injuries and $211

million in property losses each year, according to the U.S. Fire Administration. A Consumer Reports study analyzed home fires oc-curring between 2002 and 2009 found that appliances were to blame in more than 69,000 fires and over 35,000 were due to defective products. Ryan Allaire, a Colorado engineering manager with Phoenix Investigations, said product liability failure investigations often include a check for recalls. “When we go do an investigation and it’s a poten-tial product failure liability case, we generally pull up recalls for that product or brand,” Allaire said. While it may seem like a costly expense, it’s ben-eficial to hire a cause and origin expert early on in an investigation. That’s because timing is important in a product failure liability investigation. Getting there after a restoration company or contractor has begun work can be detrimental to a product liability subro-gation case.

“Be aware that during a fire, products are getting damaged and components are getting moved around and tossed around by the fire department,” said Allaire. Witness statements are important to gather early too, Al-laire added. CJ

continued from page 21


SPECIAL REPORT | APPRAISALS

In today’s fast-paced, competitive world companies feel pressure to get the job

done right and done quickly. Nowhere is this more evident than in the property industry, where adjusters strive to quickly handle assignments and exert better control over the claims process to minimize operat-ing costs and keep policyholders satisfied. During the scoping and estimating phase of the claims process, adjusters face several major challenges that determine whether they will succeed: efficiently documenting the loss, avoiding scoping errors, and tracking and responding to building cost trends. Several strategies can enable adjusters to complete claims assignments according to their compa-nies’ highest standards.

Losses and Errors The faster an adjuster can scope a loss,

the better; however, accuracy shouldn’t be sacrificed. Ad-equately scoping structural damage is crucial because errors made during this phase have far-reaching repercussions later in the cycle. Making effective use of mobile technology is a great way to achieve these goals. Now a smartphone or tablet can replace paper, pencils, a tape measure and camera to help adjusters document structural damage more efficiently. Adjusters can use mobile technology to take photos, record voice notes and cap-ture structural dimensions. Industry-specific apps further streamline the workflow by allowing adjusters to electroni-cally transfer claims notes from their mobile devices to their claims estimating system, which saves time and reduces errors that can occur when manually inputting scope data. Recent developments in aerial imagery also provide adjusters with ways to scope difficult losses, such as roof damage and total losses. Few claims are as time-consuming or as dangerous as roof losses. According to the U.S. Bureau of Labor Statistics, more than one-third of all 645 work-related fatal falls in 2009 involved ladders and roofs. Ad-justers can save time and reduce the risk when handling these

losses by using aerial technology that leverages high-resolu-tion images to produce detailed renderings of roof structures. In a total loss, aerial imagery also allows estimators to recreate exteriors of structures that have been reduced to rubble. Upon completion of the scoping phase, adjusters can use several strategies to maintain control while estimating repair costs.

Building Cost Trends Accurate scoping data does little good if the pricing data adjusters rely on to estimate repair costs is outdated. Materi-al, labor and equipment prices can shift quickly, and changes rarely occur at the rate some would expect. Using current, localized data to track building costs is the best way to stay on top of trends as they unfold, as well as to write repair estimates that appropriately match the losses they cover. For example, it is often assumed that material and labor rates will spike following a major catastrophe, but demand surges only affect costs when they outstrip the available sup-ply in the market. The widespread hailstorms that struck parts of Illinois, Indiana, Kentucky and Missouri on April 28 demonstrated this point. According to media reports, wind speeds reached 60 miles per hour, and the storms pelted several areas with hail that measured up to 4.5 inches in di-ameter — roughly the size of a softball — and damaged tens of thousands of homes. Yet the widespread damage did not have a drastic effect on the cost of roofing materials or labor. In fact, St. Louis, Mo., which experienced substantial damage, reported only one-fifth of a percent increase in average roofing labor costs one month after the hailstorms (See “Average Roofing Labor Cost” on page 23). The cost of 25-year composition shingles — a com-

Enhancing Efficiency and Quality in Claims Estimating

Trends for average roofing labor costs in St. Louis compared to state and national averages between January 2012 and June 2012.


By Jeffrey C. Taylor and Mike Fulton


SPECIAL REPORT | AUTO

On a recent business trip, Shelly rented a car using her American Express card. She opted for the

rental company’s auto insurance protection. Within a few days, Shelly had an accident that caused $8,000 in auto damage and sent her and a passenger to the hospital. How should the claim be paid? The answer may not be as easy as it appears. Because Shelly travels a lot, she purchases American Express’s rental car coverage. Is that the first payer? Then again, Shelly lives in a state that requires rental car companies to cover at the state minimum. Under state law, the rental car company might be the first payer. Or is it Shelly’s personal auto insurance that responds? For the claims adjuster new to the rental car process, it might be daunting to unravel. Justin Petty, president and CEO of Petty Details LLC, a claims, auditing and subroga-tion service company, says knowing where to look can simplify the job. Start with the rental agreement, he says.

What to Look For Petty has handled thousands of rental car claims. First, he says to make note of who’s driving, then check the agreement to see if that person is listed as a driver. Depending on the agreement, it could be that the person driving doesn’t make a difference, or could make a big difference. Another primary factor — knowing what is expected at the state level. In some states, he says, rental car companies are required by law to assume a minimum financial responsi-bility in any accident involving bodily injury. Peter Foley, vice president of claims administration for the American Insurance Association, says adjusters should know that state limit and what is applicable to rental car companies. “What does the state require of the companies? In some states, even though the collision loss might be subject to my policy, it could very well be that the first $25,000 of the bodily injury claim must be paid by the rental car company.” Loretta Worters doesn’t have auto insur-ance. The vice president of the Insurance Information Institute lives and works in

New York and doesn’t own a car. So when she rents a car, she contacts both her credit card company and the rental car company and has them send her information on just how much coverage she would have. She feels it is a necessary step for con-sumers, but may also be a good practice for adjusters. Adjusters should understand the coverages and should look for collision dam-age waivers to determine if the renter has taken on the responsibility unwittingly. “It’s a different animal from regular auto insur-ance; it’s more specialized.” The challenge for the adjuster, she believes, is when the renter’s regular auto policy isn’t adequate to cover even the excess insurance. Foley agrees. He says that especially if the renter has an older car at home with limited insurance, there’s a good chance the rental wouldn’t be adequately covered under the renter’s personal policy. In that case, he says adjusters should under-stand state laws to determine if the rental company is liable for part of the damages.

Oddities According to the experts, Shelly’s hypo-thetical claim is a fairly typical claim sce-nario. Then there are claims that stand out. Petty remembers one in particular. He was handed a claim on a car that was rented and then involved in a hit-and-run accident. The driver and passengers were all injured, and they’d purchased the maximum coverage available through the rental company. It was an easy claim to settle — until that same car showed up on yet another claim for yet another hit-and-run accident. Petty realized there was something odd when the car’s VIN showed up in the ISO history in his database. “When I pulled up the previous claim history, the damages on the vehicle were identical,” Petty says “The vehicle had not been in two separate accidents, clearly.” And again, the renter had purchased the maximum coverage. Upon investigating, Petty discovered that the vehicle was being used in multiple sce-narios and being presented as a rear-ender accident. The rental car company was al-

Navigating the Rental Car Insurance HighwayBy Lori Widmer


lowing the use of its car and writing phony contracts. “No one was ever actually driving that vehicle,” he says. Each accident filed under that car amounted to $20,000. Criminal acts are rare, but Petty has seen his share. So it wasn’t surprising when he saw a claim that he began investigat-ing as potential arson. The claimants had rented a Crown Victoria, and within days filed a claim. The car had caught fire and burned while the renters weren’t near or in the car. “We thought it was arson because it looked like an accelerant had been poured all over the hood,” he says. Through a group effort among claims adjusters, Petty and the team found the problem. The cruise control deactivation switch on the car was located over the master cylinder and brake cylinder. Brake fluid, being highly flammable, would ig-nite whenever the defective switch failed to turn off when the car was turned off. Over time, it created an arc, which ignited the fluid. Foley, who worked in insurance companies prior to his current tenure at AIA, says he had to spell out to a renter why renting a car with full coverage wasn’t going to be paid for by the insurer. His insured had an accident with a car that had coverage for liability only. He rented a car while their car was being repaired. “[He] purchased the coverage for collision, then submitted the bill to my company. We wouldn’t reimburse him for that coverage because he had purchased more coverage than

he actually had on his policy.”

Exclusions to Consider Worters says many car rental companies now impose vari-ous fees after an accident that can include: towing, storage, impound fees, loss of use, diminished value and administrative services. Who pays those? It would depend on what coverage is in place, but also what personal auto insurance has decided to reimburse for. Administrative and diminished value fees vary widely, costing from several hundred to several thousand dollars, Worters says. Adjusters should check with insurers to understand what is covered and at what level. Another possible exclusion: an unnamed driver. While many rental agreements specifically exclude from coverage anyone who isn’t listed on the rental insurance policy, Petty says occasionally personal insur-ance covers the unnamed driver. It would depend on the state and the terms of the auto policy, he says, but adjusters should look into the possibility. “It’s a question of whether or not you’re allowed by contract. In the end, you’ll be responsible anyway. But whether it’s your insurance or the rental agency depends on the contract.” One key exclusion to look for is the damage liability waiver. If the renter has refused the damage liability waiver offered by the rental company, that portion of the claim would be the responsibility of the renter’s personal auto coverage. Petty believes the best coverage is provided by personal auto insurance. In his opinion, rental car insurance offers minimum coverage, which may not be adequate in an accident given the way cars are equipped with in-dash GPS systems, computer-ized MP3 players and the like. “You will get cheaper coverage through your own auto insurer than through a rental agency. Their rates are higher because you’re buying them on the spot.” So what about Shelly’s claim? Both Foley and Petty say that in a case where there are more than one coverages available, the rental policy would respond first, and any personal auto insur-ance would act as excess coverage. If the credit card protection is greater than either of the others, Shelly might do well to present the bill to the credit card company’s insurer, but only after determining whether the rental car company has a finan-cial responsibility under state law. Knowing those specifics make the difference in accurately settling a claim. Petty says. Foley says adjusters should exercise caution in claims involv-ing more than one insurance policy. “The adjuster should get the facts and, when in doubt, speak to their supervisor.” CJ

Widmer is a Philadelphia-area freelance writer who specializes in insurance and risk management.

Rental Insurance Differences

To understand what rental car insurance covers, and how that differs from traditional personal auto insurance, look at the

fine print. Here are potential areas of concern for adjusters trying to determine financial responsibility: Loss Damage Waiver. Also called collision damage waiver, this is not an insurance product. Instead, it’s a waiver of financial responsibility should the rental car be damaged or stolen. Many waivers also include a “loss of use” inclusion, which will reimburse renters for the inability to use the car should it need repair or replacement. This waiver can also cover towing and administration fees, not often paid for by traditional auto insurance. Liability Protection. Typically found on most personal auto, liability protection is often offered on rental agreements. Rental companies are in fact required to provide the state-required minimum of liability coverage, but the minimums are usually quite low. Also, rental agreements allow the companies to recoup any liability amounts paid from the renter. Personal Accident insurance. This covers renters for medical/ambulance services from injuries sustained in auto accidents. In many cases, it’s an unnecessary expense because most health insurance plans or personal auto insurance will cover renters for injuries due to auto accidents. Personal Effects coverage. If personal items are stolen from the rental car, this coverage would trigger. A homeowners or renters policy often includes off-premises theft coverage. CJ


Recent Cases Explore Scope of Auto Use Exclusion

A number of recent cases provide insight into the appli-cation and interpretation of auto use (or motor vehicle) exclusions generally present in a homeowner’s policy.

Auto use exclusions typically preclude coverage for injury or damage arising out of the ownership, maintenance, use, loading or unloading of motor vehicles. Courts have struggled with identifying bright-line rules for applying the auto use exclusion.

A Georgia court recently noted that “use of a motor vehicle” is generally not defined within a policy, and the court found an exact definition or bright-line standard to be “elusive.” See Hays v. Ga. Farm Bureau Mut. Ins. Co., 722 S.E.2d 923 (Ga. App. 2012). Despite their lengthy analyses in search of a more precise standard, courts have gener-ally resorted to common sense applications to determine if the use of the vehicle was

causally connected to the loss. The court in Hays, although confounded in its attempt to define “use of a vehicle,” was presented with one of the easier (and more entertaining) fact patterns. In Hays, two men devised a pulley system by which they would use their truck to hoist a portable toilet onto the top of a deer stand. As one man drove the truck to lift the toilet, the deer stand fell, injur-ing the other man. The court held that the injury was caused by the use of the truck. This determination was based on the proximity of the truck to the accident, the driver’s control of the truck, and the “plain and ordinary sense” of the term “use.” Sunshine State Insurance Co. v. Jones, 77 So.3d 254 (Fla. App. 2012) presented a more challenging scenario. In Jones, four teenagers were driving when the teen in the passenger seat grabbed the steering wheel to “get a rise out of” the driver. When the driver attempted to swat the passenger’s hands away, she lost control of the car, which veered off the road and crashed. Both the passenger’s homeowner’s insurer and auto

insurer disclaimed coverage. The homeowner insurer argued the passenger’s conduct con-stituted the “use of an automobile.” The auto insurer disagreed and argued that the passenger’s horseplay was not the use of a vehicle. The court determined that the passenger’s grabbing of the steering wheel did not constitute a “use of the vehicle” because he did not attempt to “employ the car in a manner intended … or to exert control over the operation of the car.” Auto use exclusions are not necessarily limited to vehicles in operation. Two other cases recently analyzed the “use” of parked vehicles under auto use exclusions in homeowner’s policies. In State Farm Mut. Auto. Ins. Co. v. Va. Farm Bureau Mut. Ins. Co., 462 Fed. Appx. 414 (4th Cir. 2012), a van had been parked at a construction site for a month when it caught fire. The Fourth Circuit Court of Appeals held that the term “use of a vehicle” required employment of the van as a vehicle. Because the van was not functioning as a vehicle when the fire occurred, the loss was not caused by the “use of a vehicle.” However, in New London County Mut. Ins. Co. v. Nantes, 36 A.3d 224 (Conn. 2012), the Connecticut Supreme Court found a vehicle to be in use despite the fact that it was parked and had no occupants. In Nantes, a woman parked her running car in the garage overnight with the garage door closed. The carbon monoxide filled the house and poisoned her sleeping guests. The court determined the injuries were caused by the “use of a motor vehicle,” noting that “use of a vehicle,” according to natu-ral and ordinary usage, is not limited to operation of the vehicle but includes the vehicle being parked. Auto use exclusions do not lend themselves to bright-line tests based on vehicle location, operation, or movement, but rather are best applied using common sense. CJ

Coleman is the legal counsel and compliance manager for Demotech Inc., Insurance Journal’s research partner. This article is not intended as legal advice, and is not a substi-tute for legal analysis and advice on a particular issue. Email: bcoleman@demotech.

IDEA EXCHANGE | BURKE’S LAW

By Burke Coleman


Coverage questions arise in automobile liability where family members, as additional insureds, are living apart from the household of the named insured.

Courts have reached differing results regarding insured sta-tus for the separated spouse or family members. Often, the reason for the separation is because there is marital discord that results in the non-named insured spouse living apart from the named insured. This was the situation before the

Court in Aetna Cas. & Sur. Co. v. Miller, 276 F.Supp. 341 (D. Kan. 1967) (applying Kansas law). In Miller, the non-named spouse was living apart from her husband at the time of an auto accident during the pendency of a di-vorce. The Court found

that the non-named insured spouse was a resident of the household and therefore in-sured for the accident. The Court looked at several factors to support its determination: 1) notwithstanding the fact that the wife and children had left the named insured’s home, they left a substantial amount of the couple’s mutual property at the home while taking limited mutual property upon separation; 2) the couple visited together after the separation occurred; 3) the insur-ance company policy in question was titled “family automobile policy,” which implied to the Court that the policy was to protect all family members as long as the family relationship legally existed; and 4) prior to the couple’s sepa-ration, the policy had been in effect. The Court noted that insurers should not require the equivalent of a “bed check” to determine whether the motor-ist is insured based on whether “conjugal bliss” existed in the home at the time of the accident.

Residency A similar granting of coverage was made by the Court in Lumbermens Mut. Cas. Co. v. Continental Cas. Co., 387 P.2d 104 (Alaska 1963), where the Court found that a non-named insured spouse was still a resident of the same household as her insured husband during marital discord and intended dissolution. In this case, the wife had filed for divorce from her husband, who was living outside the residence at that time. The husband had left the family home prior to the divorce filing and was staying with relatives or at a hotel, while the wife and children lived in the family home. In

determining that the household continued to exist, the Court observed that the husband: 1) had visited the home several times a week and spent Sundays there; 2) paid the house and utility bills 3) bought groceries for his family; 4) kept his tools and equipment in the home; 5) occasionally took his wife and children out for meals; and 6) the husband received most of his mail at the home. Additionally, during the separation, both spouses used the insured automobile. Thus, the Court found the usual place of residence had not been abandoned. A relevant consideration in adjusting claims where a

marital separation has occurred is whether the separation was intended to be permanent or temporary with a possible reconciliation. Compare, Miroff v. State Farm Fire & Cas. Co., 471 N.Y.S.2d 807 (1984) with Marlowe v. Reliance Ins. Co., 15 N.C.App. 456, 190 S.E.2d 417 (1972), cert denied, 282 N.C. 153, 191 S.E.2d 602. In Marlowe, the Court found that the non-named insured husband was not a resident of the household because he had been separated from his wife for approximately two months at the time the motor vehicle accident had occurred. Ad-ditionally, the Court noted: 1) the insured wife and children moved into a trailer following the couple’s separation; 2) at the time of the accident the husband was not paying rent or support to his family; 3) the husband did not live with his wife in the trailer; and 4) during the separation period leading to the motor vehicle accident, evidence established that the wife did not know where her husband was living.

Essentials: Determining Insured Status on Auto Liability Coverage

IDEA EXCHANGE | COVERAGE CORNER

By Steven Plitt



IDEA EXCHANGE | COVERAGE CORNER

mon repair item for hail damage — only rose 0.32 percent by June 1 (See “Average 25-Year Composition Shingle Cost” chart). A post-hailstorm price surge might have occurred in a healthy construction market, but there are many contrac-tors and service providers nationwide in need of work. After the storm passed, the local workforce was able, willing and eager to meet the increased demand for labor. Adjusters who carefully monitor building costs in their local areas and make adjustments based on these shifts are in a better position to exert more control over their claims handling. This strategy also ensures they are writing component-based repair estimates that reflect the conditions of the markets they service. By apply these strategies during the scoping and estimat-ing phases of the claims cycle, adjusters can improve the speed of their claims handling while making sure the job gets done right. CJ

Taylor is the assistant vice president of the Xactimate Group, and Fulton is the assistant vice president of Xactware’s Pricing Data Services division.

Trends for average 25-year composition shingle costs in St. Louis compared to state and national averages between January 2012 and June 2012.


In reaching its decision that the non-named insured husband was not a resident of the house, the Court found that “residence” required some kind of abode between the parties, which the husband did not have with his wife at the time of the accident.

Children of Divorced Parents Determining the insured status of minor children of divorced parents who maintain dual residency also presents some diffi-culty. In determining the insured status of a minor child, courts will focus on the amount of time the child spends at the insured household, child’s age, intent of the parties, and whether the named insured is legally obligated to the minor child. See, e.g., Auto-Owners Ins. Co. v. Merillat, 167 Ohio App.3d 148, 2006-Ohio-2491, 854 N.E.2d 513 (6th Dist. Fulton County 2006). When the child lives with the non-custodial parent during weekends, courts have found that the child is a resident of both parents’ household for purposes of automobile liability coverage.

See, e.g., Alava By and Through Alava v. Allstate Ins. Co., 497 So. 2d 1286 (Fla. Dist. Ct. App. 3rd Dist. 1986). The fact that one parent has legal custody is not disposi-tive of the question of whether a child may be a resident of the household of the non-custodial parent. See, e.g., Simmons v. Ins. Co. of North America, 17 P.3d 56 (Alaska 2001). Therefore, custody is not dispositive of the final

coverage determination. Additionally, joint custody alone has been found not to be sufficient to establish that the child was a resident of the mother’s household at the time the automobile accident hap-pened, where the child’s presence in the mother’s household was minimal, the child’s visits with the mother were sporadic and irregular, and the child’s own testimony was that he lived with his father. See, e.g., Aetna Cas. & Sur. Co. v. Crafton, 551 N.E.2d 893 (Ind. Ct. App. 1990). Where the spouses are separated due to military duty, or where a child is living apart from the named insured’s house-hold while serving in the military, courts have found that the household remains intact. See, e.g., State Farm Mut. Auto. Ins. Co. v. Holloway, 423 F.2d 1281 (10th Cir. 1970) (interpreting Oklahoma law) (separated spouses), and Beck v. Pennsylvania National Mut. Cas. Ins. Co., 429 F.2d 813 (5th Cir. 1970), reh’g denied, 432 F.2d 563 (1970) (applying Pennsylvania law) (a separated child). One court provides guidance in determining insured status where additional insureds are not living in the residence at the time of the accident. In Mid-Century Ins. Co. v. Duzykowski, 131 Ariz. 428, 641 P .2d 1272, 1274 (1982), the Court found the follow-ing should be considered in determining whether the individual is a “resident of the same household:” [T]he individual’s presence in, or absence from, the named insured’s home on the date of the occurrence; reasons or circumstances relating to the absence

or presence; relationship of the individual to the named insured; living arrangements of the individual in earlier time periods; individual’s subjective or declared intent of place of residence; [and] the existence of a second place of lodging. The claim representative should inquire as to the reasons for the putative insured’s absence from the residence, including temporary or permanent separation; reasons or circumstances relating to the absence or presence, i.e., current living arrangements including support and visita-tion both before and after the separation; and the subjective or declared intent of the putative insured and the named insured. The claim representative should not jump to a premature conclusion that if the putative additional insured is not living with the named insured at the house listed on the declarations page, that the putative additional insured is not insured under the automobile policy. CJ

Plitt is a nationally recognized expert in insurance law. Email: [email protected].


Insured status of minor children of divorced parents

who maintain dual residency

also presents some difficulty.


IDEA EXCHANGE | BEST PRACTICES

est with the parties or their counsel. The mediator helps the parties try to understand where each side perceives their respective areas of risk to be, to frame offers each side might be willing to accept, and to ap-preciate what might happen if there were no deal. The mediator typically starts with the parties and counsel making opening statements. Thereafter, in continued joint session and/or in private meetings, also known as caucuses, with just one side at a time, the mediator asks probing ques-tions, leads a discussion on the strengths and weaknesses of each side’s case, and makes suggestions about offers or coun-teroffers each side might choose to move towards settlement. If a deal is reached, it is a binding, enforceable agreement. If not, then the claim proceeds with further litigation.

Arbitration and Related Processes In arbitration, the parties submit a claim to a neutral third person, known as an umpire in an appraisal and a neutral evaluator in neutral evaluations, who decides the outcome. This is the principle difference between mediation and arbi-tration: who decides. There are two types of arbitration: binding and nonbind-ing. A nonbinding arbitration may also be referred to as an appraisal in first-party property losses or a neutral evaluation. Depending on whether the arbitration is binding or non-binding, the parties are required to follow the arbitrator’s decision, or may seek resolution through litigation. While the nature and format of the submission of proof may vary from formal, court-like presentations to oral or writ-ten arguments made by counsel or the parties, the arbitrator’s role is the same — to make a decision. If the decision is bind-ing, but one side does not follow the award, the opposing party has recourse to the courts to enforce the award. There are many factors to consider in deciding whom to select as a neutral for a claim: the neutral’s reputation and experience as an ADR professional; experience in the subject matter of the claim; lack of connection to the dispute or disputants; price; and ease of scheduling. CJ

Shulman is a member of the Florida Circuit-Civil Mediator Society and a member of the National Academy of Distinguished Neutrals.

An Alternative Dispute Resolutions Guide for Adjusters

Alternative dispute resolution (ADR) is playing an increasingly frequent

and important role in claims adjusting. The majority of an adjuster’s job entails working to resolve claims with claimants or their counsel directly, although, not all claims resolve in that fashion. Some that don’t settle result in litigation; others are subject to different kinds of ADR processes before, as part of, or during the litigation process.

It is estimated that in Florida alone, more than 75 percent of all unresolved claims (i.e., those that do not resolve through direct negotiation), are submitted to ADR. Most of those are referred to mediation, considered the most com-mon type of ADR. Others are referred to appraisal. If the claim reaches litigation, more than 90 percent of all insurance claims are referred to mediation. Occasion-ally, courts will refer insurance disputes, usually first-party claims entailing an assignment of benefits to a provider, to nonbinding arbitration. It is not uncommon for third-party claims against insureds to be submitted to binding arbitration outside the court process (i.e., employment practices claims and certain other types of casualty claims).

Mediation The most common ADR process is mediation, in which a neutral assists the parties to explore a negotiated settlement. Mediation is characterized by three core features: •Self-determination where the parties, not the mediator, make all substantive decisions on whether to settle and, if so, under what terms; •Confidentiality and, in some states, privilege, such that what is said at mediation stays at mediation unless there is an express exception; and •Impartiality of the mediator, meaning that the mediator does not take sides and has no undisclosed conflicts of inter-

More than 90% of claims are referred to mediation.

By Christopher Shulman


DEPARTMENTS

EVENT CALENDAROctober 2012Annual Insurance Loss Control Association ConferenceFor insurance loss control personnel, conference topics include crane safety, slip/trips/falls, distracted driving, flam-mable liquids and nanotechnology. This year’s conference includes a field trip to the Ohio Fire Academy. October 8-10Columbus, OhioContact: See website for details, www.insurancelosscontrol.org

First Party Claims ConferenceThis year’s conference offers 50 nationally recognized speak-ers, sponsors and exhibitors, and up to 15 continuing educa-tion credits for adjusters seeking educational and networking opportunities in the first-party claims community. October 15-17Warwick, R.I.Contact: [email protected]. See website to register, www.firstpartyclaims.com

PLRB/LIRB 2012 Large Loss ConferenceAn educational and networking conference designed for senior claims adjusters and managers, and technical adjust-ing staff. Topics relate to large and complex property and casualty subjects, and are organized into tracks. October 29-31Washington, D.C.Contact: Valerie Berka, meetings manager, at [email protected]. Or, phone 630-724-2227

November 2012National Workers’ Compensation and Disability ConferenceThis 21st annual conference is for anyone involved in the workers’ compensation and disability management industries. Four claim tracks will be offered: better claims management, health/medical management, solving legal/regulatory issues, and opioid solutions. There will be 25-plus breakout sessions on workers’ compensation, including sessions on regional conflicts, disability and return-to-work programs. November 7-8Las VegasContact: See website for details, www.wcconference.com

2012 PLUS International ConferenceCelebrating 25 years, the conference focuses on issues affect-ing the professional liability industry. Sessions will focus on generational differences in the workplace, cyber liability exposures, EPLI litigation, Corporate D&O litigation and new risks facing health care providers.November 7-9ChicagoContact: Laura Palmer-Turnacliff, [email protected]

National Association of Subrogation Professionals’ 2012 Annual ConferenceThe annual conference of subrogation professionals offers more than 70 educational sessions in seven tracks, covering all aspects of subrogation and recovery: auto, property, products liability, workers’ compensation, health, management and general. Most sessions will have updates on recent case law and statutory changes, as well as trends to watch.November 11-14Las VegasContact: NASP at 1-800-574-9961 for more information

PLRB Western Regional Adjusters ConferenceOne of a series of regional claims adjuster conferences held in the United States. Network with peers while taking part in educational sessions designed to improve knowledge of core claims issues. November 13-14DallasContact: Alissha Watley, [email protected]. CJ

ClaimExpress

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Haag Engineering Company

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Hughes Associates, Inc.

www.haifire.com 9

IICF

www.iicf.org 15

Pilot

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RGL Forensics

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The Institutes

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Videofied

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Weather Forensics

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By David A. Sampson

IDEA EXCHANGE | FINAL OFFER

Partisan Divide

With less than a month to go before the 2012 elections, one of the most significant macro trends that has

emerged is the highly partisan environment. A study by the Pew Research Center highlights a sharp increase in political po-larization and forecasts continued political gridlock. The study found that Americans

are more polarized along partisan lines than at any point in the past 25 years.

The exact onset of hyper-partisanship is difficult to pinpoint, but in 2011, New York Times columnist Joe Nocera claimed that the fight over Ronald Reagan’s nomination of Robert Bork to the Supreme Court marked the beginning. Since Bork, we’ve seen contentious confirmation hearings for a number of Supreme Court nominees, including Clarence Thomas, John Roberts, Samuel Alito, Sonia Sotomayor and Elena Kagan. The 2000 election clearly drew the battle lines between right and left. Although we saw national unity in the aftermath of the 9/11 terror attacks, the partisan gap quickly widened again during the Iraq War and split even wider after 2008’s financial crisis. When President Obama was elect-ed, many hoped we would see a new national unity emerge. But almost immediately, Democrats in Con-gress pushed through the financial stimulus and health care reform with little Republican support. The 2010 mid-term elections returned Republi-cans to the House majority, which has created the gridlock we see today. This year’s elections have been sharply fought, and they are likely to widen the partisan divide, not reduce it. There is nothing on the horizon to suggest that hyper-partisanship will dissipate.

Economic Challenges The second macro trend is a historically weak economic recovery that once again is slowing. In the past several months, slow job growth has come in well below expectations. The current recovery pales in comparison with most other recoveries, including the one fol-lowing the Great Depression. In the three years following the Great Depression, the economy rebounded with growth rates of 11 percent, 9 percent,and 13 percent. The current recovery began in the second half of 2009, but economic growth in 2010 was only 3 percent, and in 2011, it was 1.7 percent.

The U.S. economy is not growing fast enough to absorb new entrants into the workforce, much less re-employ the nearly 8 million people who lost their jobs during the Great Recession. Believe it or not, the story is about to get worse. At the end of this year, we are facing what Federal Reserve Chairman Ben Bernanke has called the “fiscal cliff.” This is when large spending cuts will intersect with major tax increases, and together threaten to cripple our historically weak recovery. The first problem stems from the failure of the 2011 Con-gressional Super Committee, which was formed in the wake of the federal government’s near default on sovereign debt. The Committee’s inability to reach an agreement on bud-

get cuts last fall has led to “automatic” budget cuts of $1.2 trillion, split between defense and nondefense spending, set to take effect in January 2013. The second issue is the expiration of the Bush-era tax rates. All of the current tax rates on personal income, capital gains and dividends, and estates are set to expire on December 31. This means every American taxpayer and business is facing an automatic tax increase on New Year’s Day, unless Congress extends the current rates. According to economist Martin Feldstein, “a sustained tax in-crease of that magnitude would push the U.S. into a new and deep recession.” These critical issues will not be ad-dressed before the elections. That means Americans will have to rely on lawmak-ers to fix these major problems during a lame-duck session at the end of the year. Of course, the Eurozone sovereign debt crisis is deeply concerning because the path it follows could determine whether the United States goes back into recession.

These economic woes have led to a rise in populism and greater scrutiny for everyone in the financial services industry. Even normal business activity for insurers — such as under-writing and claims processes — will be viewed skeptically. Any misstep, real or perceived, will be magnified tenfold. Property/casualty insurers are facing serious challenges. The economic, political and regulatory challenges posed here have the potential to be just as costly and disruptive to insur-ers as major natural catastrophes. CJ

Sampson is the president and CEO of the Property Casualty Insurers Association of America (PCI), which represents more than 1,000 homeowners, auto and business insurance companies that write 38.3 percent of the nation’s property/casualty insur-ance.

Two key macro trends — the 2012 elections and

the weak economy — are impacting the property/

casualty insurance industry.


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