highway outsourcing guidance on a claims management … · highway outsourcing guidance on a claims...

Highway outsourcing Guidance on a claims management protocolFor use when highway safety inspections and repair are outsourced.

February 2015

in partnership with

© Risk Management Partners. All rights reserved www.rmpartners.co.uk

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Contents

Introduction 3

Members of the working group 4

Guidance on developing a protocol 5

The protocol document 6

Appendix 1 – Risk ownership matrix 11

Find out more 12

‘The overriding issue is the lack of a defined process from the very outset of the contract commencement. This results in confusion about who is best placed to take ownership of a claim, giving rise to confrontation and entrenched positions. A claims management protocol will help to eliminate many of the issues encountered that are simply a product of the reactive approach. Reducing friction in the claims process is in everyone’s best interest’ Scott FelthamAmey Group Insurance Manager

http://www.rmpartners.co.uk


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Introduction

‘Avoiding potholes: How to minimise risk when outsourcing highway liabilities’, was published in May 2014 and reported on an investigation by RMP into the significant problems being experienced by some authorities in relation to the transfer of liability for highway claims to their outsourced contractor. In a number of cases these authorities are now involved in time-consuming and costly legal disputes.

The report set out the key lessons and best practice recommendations gleaned from a review of several case histories and interviews with representatives from highway authorities and also a major outsourced service contractor.

The initial investigation and report revealed that there is a real need for clear guidance on the development of a protocol to sit alongside the contract documents to address in detail issues of:

—third party claims handling

—information sharing

—communication

—data ownership

—legacy arrangements

—dispute resolution activities.

RMP took the lead and formed a working group tasked with developing the guidance so clearly needed.

The working group established included representatives from several highway authorities, an outsourced contract service provider, claims handlers and public sector insurers and solicitors. The breadth and depth of the knowledge and experience of this group has ensured the credibility of the guidance produced and also ensures that the concerns and interests of all relevant parties have been considered. A full list of those who contributed to the work of the group is shown on page 4.

The working group has delivered two main outputs:

1 Highway Outsourcing – Best practice activities checklists.

2 Guidance on the development of a claims management protocol for use when highway safety inspection and repair are outsourced – this document.

‘Had the paper the working group have been involved in been available and used as a mandatory tool, I think both parties could have worked more closely and had more of a vested interest in one another to deliver an all-round good service’Melanie Ratcliffe Senior Insurance Officer Hertfordshire County Council



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Members of the working group

RMP would like to extend our thanks to the following individuals for their contribution to this project as part of the working group.

Amey

Scott Feltham Group Insurance Manager

Ruth Kinsella Account Director

Gallagher Bassett

Colette Dark Director Risk Control

Cathy Imms Assistant Branch Manager

Arthur Morris Associate Risk Control Consultant

Ian Ross-Bain Business Development Manager

Local Authority Representatives

Robert Craik Insurance ManagerEaling Council

Mark Greenall Insurance Manager LGSS (Cambridgeshire & Northants CC)

Mike Hocking Head of Corporate Risk and InsurancePlymouth City Council

Paul Lawrence Head of Insurance London Borough of Barnet

Melanie Ratcliffe Senior Insurance Officer Hertfordshire County Council

Peter Rogers Risk and Controls Assurance Manager Southampton City Council

RMP

Philip Farrar National Development Director

QBE

Chris Gill Liability Risk Manager

Alan Richardson Underwriter

Solicitors reviewing protocol guidance

Paul McClorey Partner BLM

Narrinder Taggar Senior Associate Blake Morgan LLP



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Guidance on developing a protocol for claims management

The following guidance provides information on the subject headings that should be considered for inclusion within a claims handling protocol in those circumstances where a highway authority has chosen to outsource both its highway inspection functions and highway maintenance / repair functions.

Where possible a form of text has been included, by way of example, for consideration during the drafting process. However, because the detail of the individual contractual arrangements will differ from authority to authority it is not possible to provide a finished document that will suit all circumstances.

In all cases the highway authority will need to amend the protocol to include the detail of their own arrangements. We would also strongly recommend that in all cases the highway authority and their contractor seeks the support of their own legal advisers in finalising their protocol document.

The working group does not claim that this guidance is definitive, nor the points covered exhaustive. It is however offered as a practical aide, intended to provide a route map through the many issues that need to be considered when highway functions are outsourced. The aim is to ensure that third party claims are handled in a timely and fair manner and to help both the highway authority and their chosen contractor work in partnership from the outset to address and resolve such issues that can be expected to arise whenever a significant transfer of risk takes place. The outcome will be a working relationship that benefits both parties through improved more efficient processes, significantly reduced costs and the provision of a better service to the public.

Although the working group has focused primarily on developing a protocol for use when both highway inspection and highway maintenance activities have been outsourced, we do believe that many of the underlying principles and the points considered within this guide will be of relevance to many other similar contractual arrangements and in particular where a public authority is outsourcing any statutory function which has a significant third party liability exposure.



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The protocol document

1 Objective of the protocol

Clearly state the aims and objectives explaining the scope of the protocol and what it seeks to achieve. For example:

The objective of the following claims management protocol is to:

—Reduce friction in the claims process and thus make quicker liability decisions that minimise costs escalation during the life of the contract and in the post contract legacy period.

—Ensure that claims are investigated in a proportionate manner, handled promptly and within the timescales of the pre-action protocol and the portal process for low value injury claims.

—Ensure that the financial impact of claims is promptly recorded, accurate and properly maintained in a manner that will allow both parties to assess and monitor the financial cost of claims and comply with the requirements of their respective insurers during the life of the contract and in the post contract legacy period.

2 Statement of general principles

Outline the general principles to be established to inform the decisions made when the claims processes are developed and agreed. For example:

—The employer holds a non-delegable duty of care in respect of highways claims. This does not prevent the employer from seeking indemnity from another party such as a contractor or an insurer.

—The contract to which this protocol relates provides for significant elements of risk transfer in relation to civil liability claims by highways users from the employer to the contractor. Both parties need to be involved from the outset and work together to protect one another’s interests and the interests of their respective insurers. Information about the arrangements should be notified to the insurers of both parties.

—One of the basic principles of risk transfer is that the risk should be held and managed by the party in the best position to control the risk (ie the ‘risk owner’).

—The table in Appendix 1 outlines a suggested application of the basic principle of risk transfer in so far as it relates to highway claims where inspections and repairs are outsourced.

Note

It is acknowledged that the allegations made to support a claim are not always as clear cut as may be suggested by this table and, in the case of represented claimants, may often include a range of allegations.



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Additional principles to be considered for inclusion:

—The risk owner should take responsibility for the control and conduct of all claims falling under that category of ownership. The risk owner should take a view as to whether civil liability for the event attaches or not and then handle the claim accordingly – for clarity this includes handling the claim to conclusion where liability has been conceded and also where the risk owner feels that there is no legal liability to the claimant.

Some employers may want to continue to handle claims even where the risk owner is the contractor and it is the contractor who is expected to pick up the cost of the claims. In which case the reason for taking this stance should be made clear eg the employer is the long term risk owner and as such an adverse claims experience will affect the employer’s future insurance and other funding costs.

—To develop a principle to guide the parties where allegations are not clear cut, eg

An individual claim may not be specific with regards to allegations or may make allegations under more than one of the categories of risk transfer identified in the table (Appendix 1). In such cases the employer should take an early view on what are likely to be the main points at issue to determine which party should handle the claim.

—What to do if the parties cannot agree on a risk transfer of a specific claim

In those cases where the employer and contractor cannot reach agreement as to which party can be defined as the risk owner, it may be helpful to say that the employer should determine whether it or the contractor should handle the specific claim and resolve the conflict of risk ownership once the claim is concluded.

—It may also be helpful to have a principle about the need to co-operate such as:

Both parties need to commit to co-operate with each other in the gathering of information, documentation, witness evidence and attendance at hearings in a prompt and timely manner. Civil claims are subject to strict timescales even prior to formal litigation and both parties need to recognise the need to support one another in achieving these timescales to avoid escalation of the total cost of the claim(s). This commitment needs to extend beyond the service period of the contract to the legacy period.

—Claims handling philosophy

The employer may want to define its claims handling philosophy as discussed and agreed with the contractor. For example this would set out the agreed approach to ‘economic settlements’ where liability is not clear cut; or where there is a ‘nuisance value’ to the claim or where there is a desire to take a ‘hard line’ and put to proof a suspected fraudulent claim. The agreement should make provision for these occurrences and should indicate which party takes precedence if there is a difference in approach and who will bear any associated costs.



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3 Roles and Responsibilities

Define the roles and responsibilities for the handling of individual claims.

In developing this section each party needs to consider whether its claims handling is to be undertaken:

—in house

—externally by third party claims administrators

—externally by insurers

—a mix of one or more of these arrangements.

The extent this will differ for property damage only claims and those claims involving injury.

It will also be dependent on the value of the claim; and how this will affect the decisions made below on the allocation of roles, process and litigation as noted below.

Roles

The employer and the contractor should each consider appointing a liaison officer to act as the primary point of contact. They should be tasked with maintaining very regular communication with each other, notifying the other of all relevant events and addressing any issues concerning the day-to-day handling of claims.

The employer and the contractor should reach and record within the protocol their agreement on which party will:

—be the first point of contact for new claims

—maintain a database of all claims (and what data fields will this include)

—undertake the initial screening to determine risk ownership

—undertake the initial anti-fraud screening

—register any injury claim with the CRU

—respond to the claimant within the portal process or otherwise

—determine the initial financial reserve for damages, own costs and claimants’ costs

—investigate the claim from a liability and quantum aspect

—settle or repudiate the claim.

The agreement as to which party undertakes some or all of the above will depend on which party is deemed to be the risk owner for the claim concerned. However some of these roles may be carried out by one or other party irrespective of which is the designated risk owner. For example claimants are most likely to notify the claim to the employer and so it will usually be the employer that acts as the first point of contact, regardless of risk ownership. However the protocol should set out the procedure to follow should the wrong party be notified.

In addition the employer and contractor should consider whether to have one central point to which all ‘portal’ claims should be directed, or reassigned. If so the party designated as the central point for portal claims should be the party expected to deal with (and fund) the majority of claims.

Process

Assuming that the allocated risk owner (or its own claims handling company or insurer) will handle the claim the protocol should record the agreed process. This should clarify the following questions:

—Whether claims will be investigated at the desktop or will include site visit?

—If site visit is to be undertaken, who will undertake the site visit?

—How will the risk owner be able to have access, if required, to the other party’s records and/or staff to provide supporting evidence, including witness attendance at pre-trial meetings and at trial?

—How will changes in reserve be communicated between the two parties (eg as and when, monthly, quarterly etc)

—What financial authority (if any) will be given for settlements and how will they be financed?

—How will settlements, including financials, be communicated between the employer and the contractor? (eg as and when, monthly, quarterly etc)

Both parties should be mindful that communications between them could become disclosable to claimants.



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Litigation

In the event that the claim is litigated there is a need to agree:

—who will formally represent the party(ies) to the claim

—who will sign ‘statements of truth’ and

—what settlement authority will such representative have.

Claims experiences

The capacity to track claims experiences will be important for both parties and their insurers. The employer and the contractor both need to think about and record agreement made with regards:

—a common reserving philosophy

—a common philosophy on the closure of rejected claims

—how often claims experiences will be updated, including taking account of the needs of insurers

—how these updates will be communicated between one another.

Contract management

The employer and the contractor should agree and record the process for regular contract review meetings between both parties claims handlers.

Dispute resolution

The parties should develop and record within the protocol a dispute resolution process to resolve:

—disputes as to risk ownership

—allegations of failure to co-operate and/or comply with the protocol.

An underlying principle is that it is in everyone’s interest to settle the claim first and address issues of risk ownership second. As the employer holds a non-delegable duty for the maintenance of the highway, where ownership is in dispute it will usually fall to the employer to handle the claim. If the issue cannot be resolved then consideration should be given to agreement within the protocol to use an Alternative Dispute Resolution method to avoid the need for litigation.

Pre-contract legacy

Consider and record agreement with regards the timing of the risk transfer.

For example who will be the risk owner for claims occurring within the service period but before the contractor is scheduled to undertake its first inspection of the area concerned (either on a programmed inspection or in response to complaints). It may be that the parties agree that the risk transfer should take place immediately at the start of the service period, or it may be agreed that risk transfer will take effect perhaps 1 or 2 weeks after the due date of the first inspection (either programmed or in response to complaints) following the start of the service period.

Other issues to address in the run off of pre-contract legacy claims include:

—access to key witnesses (may be transferred to the new contractor) and

—witness co-operation and attendance at hearings, including who pays for witness time in the event that the witness is no longer employed by the employer.



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Post contract legacy

Claims relating to the service period will continue to be received for up to three years (or more in the case of claims by minors) following the end of a service period. The parties should therefore agree and record how the protocol will continue to operate following the cessation of the contract. Issues to address will include:

—access to inspection records

—access to key witnesses (who may be transferred to the new contractor)

—witness co-operation and attendance at hearings, including who pays for witness time in the event that the witness is no longer employed by either party

—continued update and sharing of claims experience information

—document and information preservation; and

—a revision of dispute resolution processes to reflect changed circumstances

—who should carry the financial risk in the event that either records cannot be located or key witnesses cannot be traced or cannot/will not give evidence.

Other stakeholders and their needs/requirements

Finally in drafting the protocol consultation should take place with the full range of stakeholders to the process in order to ensure that due consideration has been given to all of their needs and requirements. Interested parties will include the following:

—highways service delivery teams

—insurers

—third party claims handlers

—those parties involved with sharing of information about potential and actual fraudulent claims.



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Appendix 1

Risk ownership matrix

It is acknowledged that the allegations made to support a claim are not always as clear cut as may be suggested by this table and, in the case of represented claimants, may often include a range of allegations.

Headline risk Employer risk Contractor risk

The inspection and maintenance regime as defined in the Employer’s Highway Maintenance policy is alleged to be inadequate

Yes

The alleged defect is actionable under Section 41 of the Highways Act 1980

Yes, if there are grounds to consider that the employer’s inspection and maintenance regime will be found to be inadequate

Otherwise this will fall to the contractor

The inspection is not carried out in accordance with the policy

Yes

The inspection fails to identify the defect

Yes

The defect is noted but is not allocated to the correct category of priority of repair

Yes

The record of inspections cannot be traced

Yes

The repair is undertaken outside of the time frame laid down in the policy

Yes

The repair fails Yes


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Find out more

If you would like to discuss any of the issues raised in this report or to receive copies of associated reports and guidance documents, please contact:

Colette Dark Director Risk Control Gallagher Bassett [email protected]

or join the RMP Government LinkedIn group where you can raise any issues you may have with a panel of local government practitioners and risk management experts.

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highway outsourcing guidance on a claims management … · highway outsourcing guidance on a claims...

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