Claims Interest Group Seminar 2012 At - CPCU Society

What’s in This IssueMessage From the Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Navigating the Straits—Considerations for Ethical Adjusting . . . . . . . . 2

Summary Jury Trials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

CIG Committee New Members Spotlight . . . . . . . . . . . . . . . . . . 7

Managing Litigation: Is There an Adjuster Duty to Attend Trial? . . . . . . 8

Circle of Excellence—Platinum Award . . . . . . . . . . . . . . . . . . . . 10

Claims Interest Group Seminar 2012 . . . . . . . . . . . . . . . . . . . . . 10

Catastrophe Claims Adjusters—When Duty Calls, The Institutes Offer Exam Rescheduling Options . . . . . . . . . . . . . . 11

Annual Meeting Claims Luncheon . . . . . . . . . . . . . . . . . . . . . . 12

Actual Cash Value (ACV), Depreciation Deduction, and the Broad Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Visit us online.www.cpcusociety.org

Volume 30 • Number 3 • December 2012

Claims Interest Group

Message From the Chairby James W. Beckley, CPCU, AIC, ARe, AIM

Claims Quorum

Being a Chartered Property Casualty Underwriter has many elements . Some recent occurrences cause me to comment on association experiences that come with being a CPCU and their effect on me .

I would like to share three CPCU association experiences:• On a recent flight, I was reading

Dr. Robert Hartwig’s testimony to Congress on a weighty national issue (Dodd-Frank legislation) . Dr . Hartwig’s introduction lists his name, profession, and the organization for which he works (Insurance Information Institute) . His next words were, “I am also a Chartered Property Casualty Underwriter .”

• While attending a claims conference of a client company, I greeted some folks in the hall during a break . As I was walking away, I heard one of the

gentlemen comment to another that I was involved with the CPCU Claims Interest Group .

• At a chapter meeting, I commented on the CPCU lapel pin that the gentleman across the table from me was wearing . He told me he wears it every day as a constant reminder to always do business in an ethical manner .

Each of these three different experiences helped me realize the power of being a member of the CPCU Society .

I am not qualified to testify to Congress on national insurance matters, as Dr . Hartwig is, but I, too, am a Chartered Property Casualty Underwriter .

The client company is a group of claims professionals with whom I have a relationship I really value . That one of

James W. Beckley, CPCU, AIC, ARe, AIM, is senior vice president of claims for American Agricultural Insurance Company of Schaumburg, Ill. Beckley began his insurance career in 1980 with North Carolina Farm Bureau Mutual Insurance Company. From 1992 to 2004, he served at Farm Bureau Mutual Insurance Company of Idaho as vice president of claims. His current duties at American Agricultural Insurance Company include serving Farm Bureau client companies for their property and casualty reinsurance claims and acting as an account executive.

Continued on page 2

reconsider their ethical obligations and to whom they are owed . Although bad faith and dishonest practices certainly exist in the claim profession (as in every sector of the business world), even adjusters with good intentions can go astray by losing their sense of balance and overemphasizing one duty or obligation at the expense of another .

The classic dilemma from Greek mythology is that of the tandem perils of Scylla and Charybdis . Scylla, a fearsome, six-headed, serpentine-necked monster, was cursed by an enchantress and stuck fast to a rock in the perilous straits between Italy and Sicily . Close to the channel lay Charybdis, another horrible creature whose cavernous jaws created deadly whirlpools that sucked down any seafaring vessel that sailed within its path . Often thought to be the origin of

CPCU Society Claims Interest Group • Claims Quorum • December 20122

Navigating the Straits—Considerations for Ethical Adjustingby Barrett A. Evans, CPCU, AIC, MDiv, MAC

Barrett A. Evans, MDiv, CPCU, AIC, MAC, is a regional claims manager for County Reinsurance, Ltd., in Clemmons, N.C. He can be reached by e-mail at [email protected].

Editor’s Note: A slightly different version of this article was originally published in the March 2007 issue of Claims magazine. It is reprinted with the permission of the author.

Although the business world and society at large have always been concerned about business ethics, the need for further attention to the issue has been underscored in recent years by a seemingly constant stream of disturbing news reports from the financial sector . The insurance industry has certainly not escaped scrutiny, and an increasingly watchful eye on claim practices should be expected in the months and years ahead .

This recent heightened sensitivity to financial misdealings should be seen as an opportunity for all adjusters to

their group recognized and commented on my association with the CPCU Claims Interest Group energized me .

Because of the experience at the chapter meeting, I wear my CPCU lapel pin more often and am reminded of the professional expectations that come with being a CPCU .

Continuing on the subject of associations, the 2012–13 Claims Interest Group Committee is now set . Two Claims Interest Group Committee members are rotating off the committee after years of outstanding service to the CPCU Society: • Eric Sieber, CPCU, of Sieber Claims

Investigations in Alta Loma, Calif . Eric was an active member and contributed much to the committee’s efforts .

Message From the ChairContinued from page 1

• Art Beckman, CPCU, of State Farm in Bloomington, Ill . Art was the Claims Interest Group webmaster and contributed in many additional ways .

Thanks and best wishes to them both .

I also would like to welcome these new members to the Claims Interest Group Committee: Denise Brown, CPCU (Pilot Hill, Calif .); Rick Lamar, CPCU (West Columbia, S .C .); Nancy Lawrence, CPCU (Eagle, Nebr .); and Donna Popow, JD, CPCU (Hatboro, Pa .) . I also welcome CPCU Liaison Judith Vaughan, CPCU, as part of our group . Special thanks go to Kimberly Riordan, CPCU, for stepping up as Claims Interest Group Committee vice chair .

The committee members are actively engaged, and the Society’s Malvern staff

is professional and supportive . I look forward to a continuing association with all of you, as well as the CPCU Society leadership . n

the phrase “between a rock and a hard place,” these mythical creatures came to symbolize the classic dilemma—one in which either choice will result in certain harm . In the real world of adjusting, competing parties can present analogous difficulties to those who have not fine-tuned their ethical senses . Fortunately, ethicists both inside and outside the insurance industry have provided guidelines that can make the sailing a bit smoother .

Duties of the AdjusterIn the financial world, general ethical responsibilities are usually referred to as fiduciary duties . As The American Heritage Dictionary defines it, a person with a fiduciary duty is one “who stands in a special relationship of trust, confidence, or responsibility in his obligations to others .” Most in the insurance industry agree that adjusters have two principal fiduciary duties: to contribute to the company’s profit goals through the responsible payment of losses and loss expenses and to respond to the demands of the insurance contract as well as applicable state and federal laws in a prompt, fair, and equitable manner .

Remembering these bedrock rules is crucial for ethical adjusting . For, just as no liability exists for an insured when no duty was owed, there can be no breach of ethics for an adjuster who performs according to his or her proper role and function . Once the adjuster’s duties are rightly understood and contextualized, any inappropriate requests or demands can be properly assessed and resisted .

The Generous AdjusterMost people recognize the moral and ethical good of generosity . The principle is central to every major world religion and is a driving force behind multitudes of social programs for the poor and unfortunate . Properly understood, it is also a characteristic of every good adjuster . Of course, an adjuster cannot be generous according to a personal agenda or any

unreasonable demands from claimants or insureds . Generosity can legitimately derive only from the aforementioned fiduciary duties of the adjuster .

As one modern ethicist described it, generosity is simply the willingness to expend one’s resources to help others . According to this description, generosity is inextricably tied to authentic possession . As one political pundit rightly noted, it is actually unethical to be generous with other people’s money .

When an adjuster is considering his or her own personal finances, giving away significant amounts of money can be both laudable and a wonderful moral example . On the job, however, an adjuster cannot overpay claims or pay claims that are not owed, even when there is dire need . Whether pressured by a fear of confrontation, false guilt, or a heartfelt desire to help the needy, an adjuster has not been authorized to act as a charity worker and cannot do so without being financially dishonest . As the saintly and altruistic Augustine of Hippo expressed it, “…no one can say that it was a duty for a wrong to be done .” Of course, Augustine would wholeheartedly agree that charitable giving is a fitting and proper activity . However, his ethical principles on issues of duty and fairness elucidate why such an action is not a legitimate undertaking for an adjuster in his or her professional role .

Despite restrictions imposed by fiduciary responsibilities, adjusters do have things that are authentically possessed and can appropriately be given . These may include empathy, professionalism, prompt service, and courtesy . When applicable, adjusters can even suggest ways to obtain funds from other insurance policies, charitable organizations, or governmental programs . Claim professionals also can encourage and participate in company programs that benefit the community (which can be both an ethical business practice and a valuable marketing tool) . But an adjuster can never act to the detriment of insureds,

the company, or stockholders by paying funds that are not owed . Such payments effectively constitute spending other people’s money against their wishes .

When claims involve tragic circumstances that create a desire to pay more than what is owed, it is helpful to remember how others are harmed by neglecting the terms of the insurance agreement . Overpaid claims can result in excessive and unfair premiums to insureds . A stockholder who made an investment with an expectation of honest dealings can be deprived of rightful investment growth . Employees and vendors who benefit from a healthy company can miss out on the dividends that come from financial stability . And lastly, society as a whole can suffer when other deserving claimants and insureds are left without compensation because of insolvent insurance companies . Recognizing all the different parties that are directly or indirectly involved in every claim can give an adjuster further confidence in the ethics behind denying or paying claims according to the policy contract and applicable state and federal laws .

The Frugal AdjusterPerhaps the more common danger associated with insurance claims is underpayment . The temptation to focus excessively on saving money may lead an adjuster to make the leap from equitable frugality to dishonest parsimony . There is little need for elaboration on why underpaying claims is unethical . The insurance contract is a promise, and when adjusters fail to pay fairly and promptly according to the contract, it is akin to dishonesty and theft .

Even for those not driven by ethical ideals, it is relatively easy to understand the business risk of such unfair claims settlement practices . Simply put, modern insurance regulation and society’s heightened litigiousness have created an environment in which such practices are “penny wise and pound foolish .” The

CPCU Society Claims Interest Group • Claims Quorum • December 2012 3

Continued on page 4

list of potential penalties and pitfalls is daunting:• Extracontractual and punitive

judgments for which no premium was paid (such as bad-faith actions)

• Increased litigation costs related to dissatisfied claimants and insureds

• Fines and other discipline by the state department of insurance

• Loss of adjuster or insurer license

• Bad reputation among agents or the general public, with a resulting reduction in policies

These sorts of repercussions are the reason many management teams are recognizing the relative value of low average net claim payments (ANCP) . Every claim manager with basic business sense understands the problem with a high ANCP . However, an ANCP that is significantly below an industry average could also be a sign of trouble ahead and an impetus for a closer examination of an adjuster’s or a department’s claim practices .

Character AdjustingOf all the world’s philosophers and sages, Confucius may be the best known for his recognition of the stressors of fulfilling the high calling of business ethics . He was under no illusion that following one’s duty is an easy affair, without challenges or significant risks . For Confucius, it was precisely this difficulty that made the experience so valuable: “The gem cannot be polished without friction, nor man perfected without trials .” It is the person who does what is right when it is difficult or detrimental who is found to be truly ethical and admirable .

For adjusters, it is through day-to-day work experiences that ethical growth takes place . Whether in the form of an insured or a claimant who is critical for being paid “only” according to the policy contract or a manager who objects to an equitable settlement, every adjuster is presented with opportunities for personal growth with each contested claim . In striving to follow their fiduciary duties properly, adjusters

also can help illuminate the same ethical opportunities for others involved .

The claim professional who knows the wording and intent of the policy and of applicable laws has the necessary knowledge to adhere to ethical claim handling . All adjusters should be careful to both know and understand their state’s unfair claims settlement practices laws and the potential consequences of breaking them . Knowledge is the starting point for ethical action, and adjusters must be prepared for the trials that may be ahead . Authentic ethical decisions can result in heated condemnations from insureds and claimants, friction with co-workers or supervisors, decreased audit scores, and even the need to change companies . These kinds of consequences are clearly part of the challenge that Confucius would have had every worker undertake .

Fortunately, such negative effects tend to be the exception rather than the rule . Confucius found many loyal disciples during his career and has come to be one of the most esteemed sages in world history . Many of his disciples rose to high government positions and found that their ethical and fair dealings brought trust and respect from both their superiors and their peers . Although ethical behavior should be its own reward, it is usually a solid basis for amicable claim settlements and a successful career as well .

Adjusting is perhaps one of life’s best examples of the phrase “You can’t please everyone .” Every claim professional knows the conflict that is inherent in the business . For the adjuster who has a firm grasp of proper role and duty, however, an ethical passage can be marked out for a principled career that benefits self, company, and society at large . In the ongoing practice of paying and denying claims according to duty and fairness, adjusters can reap rewards and improve themselves through the challenge . n

CPCU Society Claims Interest Group • Claims Quorum • December 20124

Navigating the Straits—Considerations for Ethical AdjustingContinued from page 3

CPCU Society Claims Interest Group • Claims Quorum • December 2012 5CPCU Society Claims Interest Group • Claims Quorum • December 2012 5

Summary Jury Trialsby Lisa A. Duran, Esq.

Lisa Duran is the Managing Attorney for Lisa A. Duran & Associates, staff counsel for State Farm Mutual Automobile Insurance Company in Tucson, Ariz. She transferred from California to Arizona after passing the Arizona Bar in 2008. Prior to that, for seventeen years, Duran served as claim litigiation counsel for State Farm’s Costa Mesa, Calif., office, after briefly working as a copyright and trademark litigator and passing the California Bar, in 1991. She began her legal career as an associate with Brock & Kelfer in San Antonio, Tex.

Duran earned a law degree from Southwestern University School of Law and was admitted to the Texas State Bar in 1987. She graduated cum laude from California State University at Long Beach in 1983 with a bachelor’s degree in English.

What is a summary/private jury trial (SJT)? An SJT is a blend of a jury trial and a binding arbitration that serves as an alternative means of resolving a case . It was developed to address litigants’ lack of access to the courts in smaller civil cases and high trial expenses under current procedures .

The goals behind the development of SJTs include establishing an alternative, streamlined method of handling civil cases; promoting speedy and economic resolution of cases; conserving judicial resources; and providing a cost savings to the parties and the courts . Most SJTs are conducted in one day; use a smaller jury than a traditional trial would have; have high/low agreements similar to a binding arbitration; and provide for simplified, efficient presentation without discovery or evidentiary limitations .

Multiple jurisdictions have adopted statutes governing the ground rules for an SJT . For example, California’s SJT, called an expedited jury trial, is governed by California Code of Civil Procedure Sections 3 .1545-3 .1552, which provide for the consensual, binding jury trial before a reduced jury panel and a judicial officer . The high/low agreement must specify a minimum amount of damages that a plaintiff is guaranteed to receive from the defendant and a maximum amount of damages for which the defendant will be liable, regardless of the ultimate jury verdict—both of which are unknown to the jury .

Under California’s procedure, the rules of evidence apply unless stipulated to the contrary, and the right to issue subpoenas and notices to appear to secure attendance or production of documents also apply . California uses an eight-juror panel, unless the parties agree to fewer, with no alternates . It is also agreed that each side waives motions for directed verdicts, motions to set aside the verdict or any judgment rendered by the jury, or

motions for new trial based on inadequate or excessive damages . No post-trial motions are permitted .

In Arizona, a party may remove a case from the Compulsory Arbitration pursuant to Rule 72(d)(2) of the Arizona Rules of Civil Procedure by conducting SJT . Each local jurisdiction has enacted rules governing the SJT . For instance, in Arizona Superior Court in Pima County, the SJT is a one-day jury trial from jury selection, presentation of evidence, and argument of counsel to jury deliberations and, hopefully, a verdict . The case is tried in front of four jurors, with a high/low agreement and no post-trial motions . Other jurisdictions that use SJTs include Indiana, North Carolina, Ohio, Tennessee, New York, Virginia, Texas, Utah, Nebraska, and Georgia .

When determining whether your case is appropriate for an SJT, consider some of the characteristics commons to such cases: • Type of case

• Small financial exposure

• Admitted liability with low-value soft tissue

• Most limited jurisdiction cases (especially cases with minimal policy limits)

• Disputed liability with low damages

• Causation disputes

• Credibility of a party at issue

• Stipulations between counsel to make the SJT work

• Limits to experts

• Limits to recovery of costs/fees

• Negotiating high/low agreements

• Evidentiary issues (for example, waiving hearsay on reports)

Any alternative means of dispute resolution involves pros and cons, and SJTs are no different . SJTs are low risk for

Continued on page 6

CPCU Society Claims Interest Group • Claims Quorum • December 20126 CPCU Society Claims Interest Group • Claims Quorum • December 20126

defendants . They provide an opportunity to “test” new experts in a low-risk/low-exposure environment . Also, scheduling experts to testify is easier because the dates are more certain and the time on the witness stand is limited .

In addition, the amount in controversy is usually unlimited, and discovery rules still apply . With a goal to have a jury impaneled within an hour, voir dire is limited—each side is usually restricted to fifteen to thirty minutes for jury questioning—and fewer peremptory challenges are permitted . Case

presentation is streamlined, typically allowing each side between two and three hours . Given the smaller jury, the majority needed for a verdict is adjusted (for example, six out of eight jurors in California and three out of four in Arizona) .

SJTs provide an excellent opportunity for new or less-experienced trial attorneys to get jury trial experience . They are a great way to obtain a jury’s objectivity on the evidence and the witnesses while limiting the potential exposure . So, the next time you have a case involving a dog bite, slip

and fall, or car accident, consider an SJT as an alternative to a traditional jury trial or binding arbitration . n

Summary Jury TrialsContinued from page 5


CIG Committee New Members Spotlightby Donald O. Johnson, JD, LLM, CPCU

Donald O. Johnson, JD, LLM, CPCU, is the editor of Claims Quorum. His law practice has concentrated primarily on property and liability insurance coverage litigation. He also serves as general counsel of the National African-American Insurance Association.

The Claims Interest Group Committee added three new members this year . Each of them has been elected to serve a three-year term . To introduce you to our new committee members, we provide a brief bio of each of them in alphabetical order .

Denise Brown, CPCU, AINS, AICDenise Brown is the director of claims for InterWest Insurance Services, Inc . Brown has been

in the insurance industry for over thirty years, starting out as a policy typist, then moving into underwriting and eventually becoming an account executive, and spending the past twenty-three years in a variety of management positions with InterWest, which eventually elevated her to her current position . Brown has earned the CPCU, AINS, AIC, ARM, CIC, CISC, CRIS, and AIS designations, and her many designations are not only a reflection of her commitment to excellence, but also demonstrate her insatiable appetite for knowledge .

Brown currently serves as vice president for the CPCU Society Sacramento Valley Chapter, and she recently accepted the invitation to serve at the national level on the Claims Interest Group (CIG) Committee of the CPCU Society . Denise is also a California certified continuing education provider and has developed curriculum and insurance course instruction .

In addition to being a new member of the CIG Committee, Denise has accepted the position of assistant editor of Claims Quorum (CQ) and has agreed to become the CQ editor next year (when the current editor’s term on the committee expires) .

Charles R. Lamar Jr., CPCU, AICCharles “Rick” Lamar Jr . is employed by S .C . Farm Bureau as a district claims manager . His duties include litigation management, claims administration, and serving as a training instructor for agents . Lamar was hired in 1978 as a field adjuster, promoted to senior adjuster in 1981, and promoted to district claims manager in 1984 .

Lamar is a graduate of Clemson University, where he earned a bachelor of science in administrative management . He also is a former president of the South Carolina Claims Managers Association .

Nancy Lawrence, CPCUNancy Lawrence has worked for State Farm Insurance in Lincoln, Nebr ., for thirty-five

years . She has held positions in Fire Personal Lines, Finance, and Auditing . She is currently a fire claim representative for State Farm .

Lawrence has been very involved with the CPCU Society . She obtained her CPCU in 1995 and is a member of the Nebraska Chapter . She has held several positions on the Nebraska Chapter board and was the chapter president from 2010-2011 . Lawrence is active with the New Designee Committee . Lawrence also taught CPCU 540 for five years . In addition, Lawrence has completed the CLU and FLMI designations . n

Denise Brown, CPCU, AINS, AIC

Nancy Lawrence, CPCU


Managing Litigation: Is There an Adjuster Duty to Attend Trial?by Kevin Quinley, CPCU, ARM, AIC

Kevin Quinley, CPCU, ARM, AIC, is principal of Quinley Risk Associates, LLC, a boutique claims consulting company with nationwide clientele. He is the author of ten books and more than 600 articles on claims management, risk, and litigation. You can reach Quinley at [email protected] or via his website, www.claimscoach.com.

“Absence makes the heart grow fonder,” according to the proverb . In the case of claims adjusters attending trials, though, this is not necessarily true . Many benefits may accrue to the adjuster (and thereby the claims operation) by attending trials . Attendance can alert adjusters to the changing dynamics of a trial . It may reveal opportunities for renewed settlement talks . It can sound an alarm, warning of incipient disasters . Observing trial can lend valuable insights as to defense counsel’s courtroom prowess .

Adjusters who are cut off from trials and watch them only on “Law & Order” are vulnerable to nasty surprises and to being second-guessed by other constituencies—such as excess carriers and policyholders—who may pressure the adjuster to settle . Hence the question: Are adjusters obligated to attend trials in person? Let’s be clear: No insurance policy language requires that an adjuster physically attend trial . However, it may be wise for adjusters to attend trial or at least part of it .

Why don’t more adjusters attend trials? It’s not because adjusters are lazy or indifferent . When I began my career, it was not unusual for adjusters to attend trials . Of course, it was also the norm to leave the office to visit claimants, insureds, and witnesses first-hand, and to meet opposing counsel to investigate claims and to provide “eyes-on-target” reconnaissance about high-dollar claims . This was before the prevalence of inside adjusters and telephone adjusters .

Now, however, it is rare for adjusters to attend a trial . Let’s not knock adjusters, though, but concede that legitimate reasons exist for claim professionals’ not attending trials . These include:• Caseload responsibilities

• Constrained travel budgets

• Lack of perceived need

Let’s examine each point in turn .

Workload PressuresAdjusters are so busy with their caseloads, they can scarcely afford to be out of the office long enough to attend a typical trial . Assume that even a short trial lasts a week . That means adjusters are out of the office and unable to attend to their caseloads, which may be lying fallow while adjusters sit in court .

And boy, will they sit! Much of a trial involves sitting and waiting, cooling your heels while attorneys “sidebar” with the judge or wait for jurors to file in . There are long stretches of tedium . Some testimony may be routine and may not bear heavily on the case’s value or fate . Add to this the travel time needed to attend trial, and you are talking about a massive “bomb” to adjuster schedules, impairing the ability to stay on top of caseloads and the daily tsunami of phone calls, faxes, e-mails, phone messages, and meeting requests .

Perhaps in bygone days, adjusters could sit through trials . Nowadays, with caseloads of 150–200 files and the push to close cases, adjusters who spend a week out of the office are slammed when they return to their desks . The work backlog virtually punishes the adjuster for being gone . Welcome back! This exemplifies the notion “No good deed goes unpunished .”

Defense attorneys have a different perspective . They live for trials, and many are hungry for trial experience . Their caseloads are likely a fraction of the adjusters’ . Plus, they bill by the hour for time spent in trial and preparing for trial . Further, they are active partners, not just sitting and monitoring the proceedings . Attending trials is a necessary and inherent part of their job duties .

Budget ConstraintsLimited travel budgets also constrain adjusters . Some adjusters cannot travel outside the office, except in rare

circumstances . Travel budgets are tight, and adjusters may have difficulty justifying being out of the office for a week or two . For long trials, adjusters may need to come home on weekends, adding further travel costs . In addition, there is the tab for lodging and meals while the adjuster is away . The company is already incurring significant legal costs from attorneys defending the trial; compounding this with extra adjusting expense can be a tough sell to upper management .

With more companies consolidating claim offices, fewer branches may handle claims . Companies may “regionalize” claims handling, resulting in longer distances to cover to attend a trial and thereby involving more time and expense .

No Perceived NeedIn some cases, adjusters don’t see the point of attending trial in person . Maybe they feel the case exposure doesn’t warrant it . Maybe they have complete confidence and trust in defense counsel to give them the skinny . Perhaps they check frequently with defense counsel and are confident that they have their finger on the pulse of how a trial is progressing . For whatever reason, adjusters may not perceive a compelling need to be present and burn work hours that they could instead spend managing a broader caseload . Some may also feel that attending sends the wrong message to defense counsel, signaling an attitude of “We don’t trust you .”

However, attending trial is not a matter of being distrustful or lacking faith in defense counsel . Defense counsel is in the midst of the fight, which makes it hard to be objective and to see everything going on from a panoramic view . Trial observers can provide this broader perspective from an objective standpoint because they are not advocates for either side .

If adjusters cannot spare the time to attend trials in person, what are the other options? Here are some:

• Attend part of the trial . This might include opening and closing statements or testimony of key parties: plaintiff, defendant, and key experts . Admittedly, this is more feasible if the trial is geographically close to the adjuster’s office .

• Keep close tabs through regular phone updates from defense counsel . “Regular” means every day or night, without fail .

• Hire a surrogate . Let’s turn to that for a moment .

Surrogate Options Adjusters can hire a “surrogate” to observe the trial and regularly report back . A surrogate serves as the adjuster’s eyes and ears at trial, providing reconnaissance as to case progress . The adjuster should trust the surrogate’s objectivity and assessments . With a surrogate, adjusters need not abandon the rest of their caseloads to sit in a courtroom during trial . In considering surrogates for trial observation, here are three options: • Lay jury observer. This is just what

it sounds like . I worked for a carrier that periodically hired schoolteachers, retirees, or other lay persons to observe and report on daily trial events . Daily, they faxed to the adjuster a completed form evaluating both plaintiff and defense counsel . The carrier did not tell the observers who they were working for, to minimize bias .

• Local independent adjuster. Locate and dust off a local TPA directory . Call the claim servicing office closest to the courthouse where the trial will be held . Arrange to hire an adjuster to sit in trial and report back .

• Trial monitoring counsel. This is another attorney to sit in court, observe the proceeding, and report back daily .

If you are considering hiring a surrogate, clear it with defense counsel, and make sure counsel is comfortable with it . Usually, defense counsel will understand

and will not object . However, counsel may have reservations about the wisdom of having an observer present . While adjusters need not necessarily bend to the defense counsel’s wishes, they should weigh them carefully .

You want defense counsel’s “head in the game,” defending the case, not distracted by an observer . Most defense attorneys will not feel threatened by the presence of either the adjuster or his or her surrogate . Still, if defense counsel has any reason not to want such oversight, listen carefully . If the case turns sour, you do not want the policyholder or anyone else claiming that you undercut defense counsel’s performance by having an observer present . You should have a compelling reason to override counsel in such a situation or be able to show that the attorney’s rationale for not having an observer was invalid .

Woody Allen once said, “Eighty percent of success is showing up .” When the adjuster shows up for trial, it does not in any way guarantee that the result will be successful . However, attending trial—while not obligatory—can provide insights that benefit adjusters and enhance the ability to spot quick changes in a claim’s progress and complexion . Instead of burning large amounts of time sitting in courtrooms, however, adjusters have multiple options at their fingertips to achieve the same end . You can use these tips and ideas to keep tabs on trial dynamics and to gauge the courtroom performance of defense counsel . n



Circle of Excellence—Platinum Awardby Denise Brown, CPCU, CIC, AINS

Denise Brown, CPCU, CIC, AINS, is assistant editor of Claims Quorum and vice president of the CPCU Society Sacramento Valley Chapter. She is also director of claims for InterWest Insurance Services, Inc.

Once again, the Claims Interest Group achieves the highest interest group Circle of Excellence Award—Platinum . The CPCU Society introduced the Platinum award for 2011–12, and the Claims Interest Group was among five interest groups to achieve this level of recognition .

A minimum of 125 points in categories serving the goals of the CPCU Society is required for qualification . The Claims Interest Group prepared a 68-page report documenting activities that totaled

133 points, highlighting activities that included conducting workshops, publishing newsletters, and reaching out to local chapters and new designees .

We extend our sincere appreciation for the collective contributions from our interest group members . Special thanks to the Circle of Excellence committee members Karen Hope, Rick Villela, and Kim Riordan for their dedicated efforts in preparing the quality submission that resulted in our receipt of this award . n

Claims Interest Group Seminar 2012

At this year’s Annual Meeting, the Claims Interest Group presented “Using Social Media Effectively to Investigate Insurance Claims—And How to Avoid Getting Trapped in Your Own Investigations!” The dynamic panel consisted of claims professional Tony Nix, CPCU, CIFI, State Farm Insurance Special Investigative Unit; defense attorney Matthew Smith, Esq., president of Smith, Rolfes & Skavdhal Company, LPA; and jury consultant S. Russ Suter, Esq., senior litigation consultant at Magna Legal Services . Fifty attendees learned practical application of social media, starting with claims investigation through litigation discovery and trial . The presentation is available on the Claims Interest Group website, http://claims .cpcusociety .org . n


Catastrophe Claims Adjusters—When Duty Calls, The Institutes Offer Exam Rescheduling Options

Are you an adjuster who has recently been called away on catastrophe duty and will not be able to take your scheduled Institutes exam? No need to worry; The Institutes understand that when duty calls, you must answer .

If you find yourself in this predicament, contact Customer Service, and a representative will assist you in rescheduling your exam free of charge . You will be provided with an Extenuating Circumstances Request Form, which you will need to complete and submit, along with documentation supporting your request . The Institutes will e-mail you within seven business days of the date your form is received .

Contact Customer Service at (800) 644-2101 or specialconditions@TheInstitutes .org to learn more .

The Institutes recognize that catastrophic events can occur without warning, at any time, and a missed exam should be the least of your worries!

New Online Course From The Institutes: Catastrophe Claim Fundamentals Be prepared for the unexpected with our newest online course, Catastrophe Claim Fundamentals, and learn to respond to catastrophic claims more accurately and effectively! Visit www .TheInstitutes .org/ccf to learn more and to register . n

Corrections

In the August 2012 issue of Claims Quorum, we reprinted the article “Technical Writing: Don’t Let It Be Your Nemesis,” by Brian N . Marx, CPCU, which was originally published in the December 2003 issue . When we reprinted the article, we were unaware that Marx had passed away a few years ago . We hope that his article continues to motivate and inspire our readers .

Also in the August 2012 issue, the article “Claims Interest Group Committee Members Spotlights” erroneously indicated that Kim Riordan, CPCU, is an attorney .


Annual Meeting Claims Luncheon: Award to the Claims Person of the Year and Presentation by the National Weather Service Directorby James W. Beckley, CPCU, AIC, ARe, AIM

During the 2012 CPCU Society Annual Meeting and Seminars, the Claims Interest Group hosted the Claims Luncheon as part of its meeting activities .

As part of the luncheon activities Adam Kutinsky, JD, CPCU, was honored by the Claims Interest Group as 2012 Claims

Person of the Year . This is in

recognition of Adam’s contributions to the CPCU Society, the Claims Interest Group, and the insurance profession . Congratulations, Adam!

The guest speaker was Dr. Edward Johnson, director of strategic planning and policy for the National Weather Service (NWS) . Dr . Johnson spoke about the NWS campaign of “Building a Weather-Ready Nation .”

Attendees heard Dr . Johnson describe six goals of the “Building a Weather Ready Nation” plan:• Improve weather decisions and services

for events that threaten lives and livelihoods

• Deliver a broad suite of improved water forecasting services to support management of the nation’s water supply

• Enhance climate services to help communities, businesses, and governments understand and adapt to climate-related risks

• Improve sector-relevant information in support of economic productivity

• Enable integrated environmental forecast services supporting healthy communities and ecosystems

• Sustain a highly skilled, professional workforce equipped with the training, tools, and infrastructure to accomplish the NWS mission

Dr . Johnson impressed the group with his commitment and professionalism . Further information about “Building a Weather-Ready Nation” can be found at www .nws .noaa .gov/com/weatherreadynation .

The Claims Interest Group also was pleased to host seven college students at the luncheon . These students are currently in risk or insurance-related studies at their colleges .

Other activities included recognizing claims seminar trainers and drawing door prizes .

Thanks to Insurance Services Office, Inc . (ISO) for its gracious sponsorship of the Claims Interest Group Luncheon and other annual meeting activities . n

Adam Kutinsky, JD, CPCU


Actual Cash Value (ACV), Depreciation Deduction, and the Broad Evidence Ruleby Jerome “Jerry” Trupin, CPCU, CLU, ChFC

Jerome “Jerry” Trupin, CPCU, CLU, ChFC, is a partner in Trupin Insurance Services located in Briarcliff Manor, N.Y. He provides property-casualty insurance consulting advice to commercial, not-for-profit, and government entities.

Trupin has been an expert witness in numerous cases involving insurance policy coverage disputes and has coauthored more than ten insurance texts used in Institutes programs, including the CPCU texts Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He has spoken across the country on insurance topics and taught Institutes courses; in addition, he regularly contributes articles to CPCU Society interest group newsletters, the Insurance Advocate, and other publications. Trupin can be reached at [email protected].

Does actual cash value (ACV) always equal replacement cost less depreciation? Don’t be too sure .

A recent New York court case held that an insurer could not deduct depreciation when calculating the actual cash value of a partial loss .1 The valuation provision in the policy reads as follows:

9. Valuation

We will determine the value of Covered Property in the event of loss or damage as follows:

a. At actual cash value as of the time of loss or damage…

(There were some exceptions that followed, but they didn’t apply to this loss .)

The court said that, unlike older New York policies, the policy in question did not specify that actual cash value is to be ascertained with proper deductions for depreciation . The reference to a “proper deduction for depreciation” was eliminated in the 1943 revision of the New York Standard Fire Insurance Policy (SFP)—it had appeared in the 1918 version and prior iterations . Because those words are no longer explicitly used, the judge ruled that depreciation could not be deducted in calculating actual cash value .

Most current forms don’t include the depreciation wording . Even if they do, many states require insurers to provide at least as much coverage as that afforded by the 1943 SFP—no matter what an insured’s current policy says . Insureds in those states can claim the advantage of the SFP wording .2

Twenty-eight states mandate coverage at least equal to the 1943 SFP:3

• Arizona • Nebraska

• California • New Hampshire

• Connecticut • New Jersey

• Georgia • New York

• Hawaii • North Carolina

• Idaho • North Dakota

• Illinois • Oklahoma

• Iowa • Oregon

• Louisiana • Pennsylvania

• Maine • Rhode Island

• Massachusetts • Virginia

• Michigan • Washington

• Minnesota • West Virginia

• Missouri • Wisconsin

Is ACV Still Important?We sometimes think all policies are written on a replacement-cost basis and that ACV is of only academic interest, but that’s not correct . Right off the bat you have Fair Plan policies that, in most states, call for ACV valuation . Furthermore, replacement cost coverage is only an option in the Insurance Services Office, Inc . (ISO) commercial property forms used by most insurers . Many insureds don’t elect replacement cost coverage because they don’t want to spend the additional premium,4 the insurance company won’t provide the coverage, or they weren’t informed that the option was available .

Homeowners policies provide replacement cost, but only if the amount of insurance equals 80 percent of the replacement cost . If it doesn’t, recovery is the higher of the ACV of the loss or a coinsured payment based on dividing the amount carried by 80 percent of the

Continued on page 14


replacement cost . Many businessowners policies (BOPs) provide standard replacement cost coverage, but ISO BOPs follow the homeowners model . The result: numerous losses are settled on an ACV basis .

What Is the Definition of ACV?In Insurance 101, we learned that “ACV equals replacement cost less depreciation” is written in stone . The decision in the recent New York court case seems to be an aberration that violates the rule . However, courts have decided against a deduction for depreciation in a number of other cases .

The leading New York case, Lazaroff v. Northwestern National, was decided in 1952 and affirmed on appeal .5 Pennsylvania courts have also come down on the side of no deduction for depreciation for partial losses . In William Kane, et al. v. State Farm Fire and Casualty Company, et al., the Pennsylvania Superior Court, whose decision was affirmed on appeal, ruled as follows:

[*P19] From these cases, we conclude that in partial loss situations, in the absence of clear language [***24] to the contrary, an insurer may not deduct depreciation from the replacement cost of a policy and that the phrase "actual cash value" may not be interpreted as including a depreciation deduction, where such deduction would thwart the insured's expectation to be made whole. Where qualifying language is absent and an insured is promised "actual cash value," the insured is entitled to the cost to repair or replace the damaged property. 6

In a more general sense, the New York Court of Appeals (New York’s highest court and, at the time of the decision, probably the leading court for insurance matters in the United States) dealt with the meaning of ACV in McAnarney v.

Newark Fire Insurance Company,7 which posed an interesting problem for the court . In 1919, McAnarney purchased seven buildings designed for use as a brewery for $8,000, and in January 1920, he insured them with various insurance companies for a total of $60,000,8 probably a reasonable valuation based on replacement cost less depreciation . The buildings were destroyed by fire in April 1920 .

McAnarney submitted a claim for $60,000, based on replacement cost less depreciation . However, the 18th amendment, which prohibited the manufacture, sale, or transportation of intoxicating liquors in the United States, had been ratified on January 16, 1919 . Because that greatly affected the value of the buildings, the insurance companies disputed the claim . They pointed out that McAnarney had been unable to find a purchaser for the buildings even though he advertised them for sale for $12,000; that he had submitted an affidavit to the local assessors saying that the buildings had no value as they were only suitable for the manufacture of malt liquor, which was illegal under prohibition; and that the best offer he had received for the property was $6,000 .9

In the court case that followed, the jury awarded McAnarney $55,000 . The insurers appealed, and the New York Court of Appeals reversed the lower courts . It wrote:

Indemnity is the basis and foundation of all insurance law. The contract with the Insurer is not that, if the property is burned, he will pay its market value, but that he will indemnify the assured, that is, save him harmless or put him in as good a condition, so far as practicable, as he would have been in if no fire had occurred.

In effect, the court rejected both the insured’s claim that ACV equals replacement cost less depreciation and the insurer’s position that it equals market

value . As a standard for determining the payment that would restore the insured to the same condition that existed before the loss, the court adopted what’s come to be known as the broad evidence rule . The broad evidence rule says that everything that bears on the value of property should be considered . The list of possible factors is a long one . Here are some of them:10

• market value

• replacement cost

• depreciation

• original cost

• condition of the property

• location

• use

• assessed value

• offers to sell

• offers to purchase

The court in Goorland v. New York Property discussed McAnarney, pointing out that it is the “seminal case” on the subject of ACV . The strength of the broad evidence rule is its inclusiveness . The problem is that it doesn’t provide a specific method for doing the ACV calculation . Which factors do you consider? How much weight do you give to each of the factors?

What’s Happening in Practice?Insurance companies raised the broad evidence issue in the 1970s, when arson was ravaging inner cities and real estate values had fallen through the floor . The market value of many buildings was far lower than replacement cost less depreciation, and insurance companies wanted that factored into the settlement of large losses . It was not unusual to have a building that was insured for $1,000,000 sustain a loss, on an ACV-equals-replacement-cost-less-depreciation basis, that equaled or exceeded the amount of insurance . At the bottom of the market, buildings in depressed areas were selling

Actual Cash Value (ACV), Depreciation Deduction, and the Broad Evidence RuleContinued from page 13


for one times annual rents .11 The market value of such buildings may have been $200,000 or less; insurance companies argued that the broad evidence rule indicated that the ACV was therefore close to $200,000 . In certain situations, insureds also seized on a broad-evidence valuation approach as a way to reduce or avoid coinsurance penalties for smaller losses . However, even then, the typical ACV loss was adjusted on the basis that ACV equals replacement cost less depreciation—and that continues to be the case today .

Will we see a change in this standard? My guess is that, despite the court decisions, replacement cost less depreciation will continue to be the way insurers want to settle losses . Insureds will have to resort to the courts to recover more than replacement cost less depreciation for ACV losses .

The Situation in Other StatesThe broad evidence rule is widely accepted, although some states (for example, California) specify that ACV equals market value . A few have other opinions, or their courts have not resolved the issue .

Munich Reinsurance publishes a guide for adjusters dealing with a number of subjects . With regard to the broad evidence rule, when a policy does not define ACV, this guide notes that the following findings: 12

• Courts have adopted the broad evidence rule in twenty-three states .

• Eleven states use fair market value .

• Four states say ACV equals replacement less depreciation .

• Two states call for replacement cost with no depreciation .

• No pertinent decisions were found in ten states .

If I Were KingIf I could make the rules, I would focus on betterment . That is, is the insured in a better position after the loss is paid than it was before the loss? If so, a deduction is in order . If not, then replacement cost should be the standard .

For example, if a fire destroys one apartment in a multifamily dwelling, replacement of structural elements will probably not produce any economic benefit for the insured . Repainting the apartment, if it hasn’t been painted in several years, probably would . My position is that the component items in a loss should be looked at separately . For some, a deduction for betterment is proper; for others, it’s not .

For property that isn’t going to be repaired, I’d go for a market-value standard: would the lack of repairs reduce the market value of the property? If so, that’s the measure of the loss . If not, the insured hasn’t sustained any loss and shouldn’t receive indemnification until the repairs are done .

What do you think? n

Endnotes1 . Goorland v. New York Property Insurance

Underwriting Association, Supreme NY 106212/08 4/5/11 .

2 . The advantages to an insured of SFP wording have cropped up in several places in recent years . For example, because there is no terrorism exclusion in the SFP, fire damage resulting from otherwise excluded terrorism would be covered in SFP states . Insurers have sought a change that would permit the terrorism exclusion to apply to fire, the SFP notwithstanding . Many states have complied . The latest is Massachusetts, which amended its law as of April 13, 2011 . Although that eliminates the SFP as a source of terrorism coverage in those states, it affirms the validity of claims based on SFP wording in other cases .

3 . See www .aaisonline .com/terrorism/SFP_NSFPchart .html . In many of these states, the mandate does not apply to inland marine insurance, and in some, it does not apply to terrorism losses .

4 . There is no rate increase when the replacement cost option is selected, but most companies require an accompanying increase in the amount of insurance, which increases the premium .

5 . 121 N . Y . S . 2d 122, affd . 281 App . Div . 672 1952 .

6 . 2003 PA Super 502; 841 A .2d 1038; 2003 Pa . Super . LEXIS 4588 appeal denied by Kane v. State Farm Fire & Cas. Co., 2005 Pa . LEXIS 470 (Pa ., Mar . 15, 2005) .

7 . 247 NY 176 159 N .E . 02 1928 .

8 . Prior to the 1960s, insurance companies would only provide small amounts of insurance on any one risk, and it was necessary to place coverage with multiple companies to cover most properties .

9 . Dennis M Perlberg, Esq ., and Gina M . Fortunato, “The Broad Evidence Rule,” www .longislandweb .com/speyer/pages/news/cashvalue .pdf .

10 . The first seven are from an article by Joshua Mallin, Esq .: “Actual Cash Value vs . Replacement Cost Coverage Defined and Distinguished,” www .wegandmyers .com/Articles/Article-29 .aspx .

11 . At present, these buildings, if they’re still standing, can sell for seven times annual rents or more .

12 . “First Party Property Claims Desk Reference” Edward J . Ryan, editor, 2nd Edition, 2010, Munich Reinsurance America, Inc . Broad Evidence is discussed on pages 40 through 46 .

CPCU Society 720 Providence RoadMalvern, PA 19355www.cpcusociety.org

Address Service Requested

Volume 30 • Number 3 • December 2012

The Claims Interest Group newsletter is published by the CPCU Society’s Claims Interest Group.

Claims Interest Grouphttp://claims.cpcusociety.org

ChairJames W. Beckley, CPCU, AIC, ARe, AIMAmerican Agricultural Insurance Company Email: [email protected]

EditorDonald O. Johnson, CPCU, JD, LLM D. O. Johnson Law Office, PC Email: [email protected]

CPCU Society720 Providence RoadMalvern, PA 19355(800) 932-CPCU (2728) www.cpcusociety.org

Statements of fact and opinion are the responsibility of the authors alone and do not imply an opinion on the part of officers, individual members, or staff of the CPCU Society.

© 2012 Society of Chartered Property and Casualty Underwriters

CPCU is a registered trademark of The Institutes.

Claims Interest GroupClaims Quorum

FacebookLinkedInTwitter

We’re always looking for quality article content for the Claims Interest Group newsletter. If you or someone you know has knowledge in a given insurance area that could be shared with other insurance professionals, we’re interested in talking with you.

Don’t worry about not being a journalism major. We have folks who can arrange and edit the content to publication-ready status. Here are some benefits of being a contributing writer to Claims Quorum:

• Sharing knowledge with other insurance professionals

• Gaining exposure as a thought leader or authority on a given subject

• Expanding your networking base

• Overall career development

To jump on this opportunity, please e-mail either James W. Beckley, CPCU, AIC, ARe, AIM, at [email protected] or Donald O. Johnson, CPCU, JD, LLM, at [email protected].

Get Exposed

Documents

Claims Interest Group Seminar 2012 At - CPCU Society