Mediation May Not be the Answer to a Best Alternative Insurance Claim Resolution Process Because it is Subject to Abuse
I appreciate all the comments to posts from readers with various perspectives on insurance coverage and the insurance claims industry. I read them all, try to respond when I can, and honestly consider the viewpoint of those writing. This morning, I came across a comment worthy of consideration by all of us regarding mediation and alternative approaches to insurance claims dispute resolution.
For those of us in the trenches of working for fair and efficient resolutions of disputes, the following comment published early this morning to my post, Impressions Following the Alternative Dispute Resolution Roundtable, should provide serious consideration about how mediation can be easily abused:
Chip:
I am writing this to express my experiences with alternative claims resolution processes using both the Florida Mediation Program and the appraisal provisions of the insurance policy.
Let me start by saying that I have a somewhat unique perspective on claims handling. I have spent my entire 35 year professional career in the claims handling industry in one form or another. The first 24 years of my career I worked on the insurer side in various positions including a 5 year stint as a regional claims manager for a property casualty insurance carrier and 13 years as an equity partner in a regional independent adjusting company. For the past 11 years I have owned my own public adjusting company. So I have had extensive experience in both mediation and appraisal advocating for both the insurer and the insured.
First let me address the Florida Mediation program. To put it bluntly it is, in my opinion, an abject failure. Perhaps the first and foremost reason that it is a failure is that my experience has shown that the insurer’s representative almost always goes into the mediation without having full settlement authority. Without having that authority the insurer’s representative is unwilling or unable to offer a fair settlement to the insured simply because they either do not have the dollar authority to do so and/or are unwilling to go back to their supervisor for my authority. I have also experienced cases where the insurer agreed to go to mediation with an insured but at mediation they did not move one dollar from the original position that drove the claim to mediation in the first place. I have had an impasse declared within 10 minutes of the start of mediation with the insurer never making an offer above the original adjuster’s offer.
However, perhaps the most insidious aspect of mediation is the way the insurance industry advocates to the insured to use the mediation process without the insured having any professional assistance with their presentation. The insurer’s representative at the mediation is a professional claims person who has been trained in the mediation process and negotiation tactics. An unrepresented insured almost never understands the process and certainly does not have the training of the insurer’s representative. In the words of one insurer representative that I know when an insured goes into mediation without professional help, 'it is like leading the lambs to slaughter.' It has reached a point now that I see no redeeming reason to recommend to my clients, even with my help, that they avail themselves to the mediation program as it currently exists.
Next, let me relate my experiences with the appraisal process. In my career, I have appraised claims on behalf of both insurers and insureds. I have also served as an umpire on over 50 appraisals. I appreciate the appraisal process because it does give some finality to a claim. It is quicker and less costly than litigation and absent any coverage issues a properly crafted appraisal award is almost always binding on both the insurer and insured. The appraisal also gives the insured a professional advocate in the decision making process. That cannot be said for many mediation hearings. I also like appraisals because there is no such thing as an impasse in appraisal. I have yet to see an appraisal I was involved with that did not have an ending where at least two of the three appraisal panel members were able to reach an agreement.
Now, let me speak to the appraisal process. I believe the appraisal process would be very well served if it had some guidelines on how the process was to be conducted, such as having utilizing the Florida Arbitration Code as a guide. I have issues with the conduct of insurers and their appraisers. I believe insurers have far too much influence on their appraisers when it comes to the selection of an umpire.
As indicated by Umpires at the Roundtable, it is a very poorly kept secret that insurers have lists of umpires that they instruct their appraisers to never use, even if their own appraiser feels the person on that list is qualified and would make a good umpire on their appraisal. I have run across another problem in my capacity as umpire. I have had appraisals where the appraisers advise me they are at an impasse and need my umpire services to settle their differences. When I meet with the 2 appraisers they inform me that they really do agree on an amount of loss but the insurer’s appraiser informs me that he doesn’t want to sign the award. He won’t sign the award, even though he agrees with it, because he is afraid if he does sign it the insurer will stop using him on their appraisals. As an umpire I should be happy with this situation because it means more business for me. However that is not the case. I can’t help but think about the poor insured who has had his claim settlement delayed and now that an agreement has finally been reached he has to pay 50% of an umpire’s bill when in reality the umpire was not really needed. That is just wrong.
As a former claims manager and a person very familiar with the industry, it is naive to think that insurers, including Citizens, do not keep statistics and track which umpires and appraisers provide lower awards and then deselect those that give awards higher than what those insurers think is acceptable.
Does the appraisal process have warts? Certainly it does. However, I believe any problems with the appraisal process are repairable. I do not feel the same way about the Florida Mediation program.
Thanks for all your efforts on behalf of the policyholder.
Sincerely,
Don
Donald A. Phillips
Insurers, or any party to a dispute, can abuse the mediation process by having people that do not have the complete authority settle after considering everything presented at the mediation. I have heard of insurers that intentionally provide limited dollar authority to the adjuster at mediation, no matter how compelling the evidence presented, at a state sponsored mediation, knowing that many policyholders will simply give up. Many policyholders are afraid of litigation or appraisal. Nobody buys an insurance policy thinking they will have to become professional negotiators or litigators. Insurance companies have professional litigators and train their adjusters how to negotiate with unrepresented policyholders and how to hold their own in negotiations with attorneys. Honestly, what chance does a lone policyholder have against an insurer that has a claims attitude to pay as little as possible? Why do you think insurance company executives and their lobbyists are pushing for a mediation system in Florida where policyholders come all by themselves? "Lambs to slaughter" sounds about right to me.
For the last two mediations in which I participated, I was expressly informed beforehand that even though I was the Public Adjuster handling the claim, the policyholder HAD to attend as well. This was not the case previously.
I agree completely with the comments by D. Phillips regarding mediation. Some carriers are more difficult than others, but, in general, the strategy seems to be to beat down, drag out and intimidate the policyholder into a lower settlement. It's typically a huge waste of time, and just further delays payment of the claim.
This is a great article.
Thanks Chip and Don..
The post-Katrina State Farm mediation process here is a classic example of mediation gone wrong - and Mr. Phillips hit the nail on the head when he pointed out the process pits policyholders against professionals.
Policyholders need training and hands-on assistance in organizing their documentation and, in my opinion, a version of the court-appointed special advocate program for support at the mediation session.
Gary,
Thanks for the comment.
I have heard of all kinds of bizarre attempts of insurers to gain an advantage at a mediation.
There will be more written about this after the discussions I have had today.
Nowducit,
Maybe we need to do a better job warning policyholders and request some changes to the process if it is to continue.
You do a great job and everybody should subcribe to your site.
Nancy,
You have some good relations with ex claims adjusters.
Why don't you comment about what they say they are trained to do at mediation?
And, thank you. You are too kind.
Wow, a person w/a conscience (and concern for the insured):
"...As an umpire I should be happy with this situation because it means more business for me. However that is not the case." (Don Phillips)
It sure is nice to see that mode of thinking, Mr. Phillips. All too often, the insured gets left "in the dust."
SHIRLEY HEFLIN
Shirley,
People that have been in the claims business, especially in South Florida, know and usually have a tremendous amount of respect for Don Phillips. He is very professional and independent. He trained many of today's more seasoned independent adjusters. He switched over to becoming a public adjuster because he "did not like the way the industry was going."
I have seen him scold, in a fatherly type of way, another public adjuster for not properly discussing an aspect of adjustment that lead to litigation rather than resolution.
He worries when other public adjusters are conducting themselves in a manner that is more about them making money than serving customers....I know many of the best public adjusters share this concern.
When Don Phillips says something about insurance claims, I would suggest that people listen.
Having recently availed myself of the limited benefit of an appraisal, I would like to share some thoughts.
First, I found that the appraiser for the insured in many cases, tries to persuade the insured that the process is not necessarily an equity proceedure which results in a settlement of what should be paid by the insuror. Instead, some appraisers basically try to instruct the insured as to what it he is likely to recover.
I have a great problem with this since the insured is trying to recover enough money to rebuild his home, cover relocation (ALE) expenses, personal property loss, and out of pocket expense. It is not supposed to be a compromise process although this is what it has become.
If I undestand the basic fundamental of this process it is to allow both parties to reach an agreement that will be realistic and allow enough money to promote restoration and end the impassee between the insured and the insuror. Because of the "compromise" mentality currently prevalent I ended up having my home sold at a short sale to prevent foreclosure. This was due to the umpire's award which was less than the numerous estimates I received.
Then I also was required to pay the customary 10% fee to my appraiser and half ot the umpire's fee which further reduced my available recovery amount by almost $10,000. Since my ALE had maxed out I had to choose wether to continue paying my mortgage or paying rent on a place for my family to live. Obviously I decided to provide for my family first. When I stopped making the mortgage payment the mortgagee filed a lis pendins and I had to sell my home for less than half of what I paid for it to settle the mortgage and the mortgagee filed motions which entitled him to retain all of the money awarded from the umpire's award.
I walked away losing $140,000 between what I paid for my home and it sold for then I still had to pay all of the expenses I incured for the Public Adjuster which was almost $5,000. Additionally, I incured over $5,000 in attorney's fees and contractor estimate fees.
As you can see I was actually worse off after the appraisal. Then after such a long involved proceedure I cannot find an attorney willing to take my case and proceed to allow me to recover enough to break even.
The two points I want to address specifically is that this process should not be a compromise process. It should attempt to resolve the claim in a favorable settlement for both parties. Also, if the result of the appraisal shows that the insuror has drastically underestimated the claim I believe the insuror should be required to pay all the appraisal costs as in litigation.
This appraisal process is somewhat biased toward the insurer since with all the evidence entered into the hearing I don't see how the insuror will ever bee required to pay more than the actual contractor estimates which the insuror is responsible for in the first place.
Don's views on mediation and appraisal and the comments that followed mostly are 100% in sync with United Policyholders' educational approach to these two topics.
Because state-DOI run mediation programs typically underpay the mediators, they don't always attract top professionals, among other problems. I was very concerned when, after Katrina, Gulf Coast state DOIs rushed to create mediation programs without adequate safeguards/monitoring to track outcomes.
I've posted a link to United Policyholders "Guide to Mediation" and welcome input.
As mentioned, many policyholders are afraid of litigation.
This just allows the insurance companies to run over people, though. If policyholders were to begin to fight back, it would end up making the insurance companies afraid of litigation because it would end up being more costly on a consistent basis.