Cause for concern - handling complex claims

Discovering the underlying cause behind a claim is not always easy. Complex claims require fair and careful handling to establish causation and confirm whether the loss is insurable.

When Ian Fulton, a Claims Consultant at Echelon, was contacted about a recent claim involving a steam turbine, it quickly became apparent that establishing the cause of the damage was not going to be straightforward. "Squealing noises were heard when the machine was shut down for planned maintenance work," he explains. "The insured decided to open up the machine, which revealed substantial damage." An initial investigation revealed four possible causes. Isolating the one to blame was vital to getting the claim paid but required investigation from a number of professionals. This shows just how complex and delicate the process can be.

When an incident takes place that gives rise to a large or complex claim, a variety of experts may step in. First is the loss adjuster from the insurer. "The loss adjuster has a big role to play because their challenge is to seek the causation of the loss and determine whether or not it's an insurable event," explains Alan Fleming, former Risk Manager for ICI and Railtrack and former CEO of the Association of Risk and Insurance Managers.

During his time in the chemicals industry, Fleming was involved in a number of large and complex claims wherein the main issue was to establish whether the losses were a result of an accident or negligence. One loss involved a truck explosion in Peterborough.The truck, which had been carrying explosives, caught fire when it was driven over some sleeping policemen. "In that case," Fleming says, "the truck wasn't packed solidly enough and therefore when there was friction, it caused a spark. It's about going back and looking in detail at the processes and that's exactly what the loss adjuster would do."

Impartial viewpoint

The second professional who might become involved is a technical expert, who can be brought in by the insurer where further investigation is needed to establish causation. The independence of such an expert is imperative, says Katherine Jeffers, Deputy Casualty Claims Manager at XL Insurance. "If your experts aren't independent, they won't be able to give you an impartial view of the circumstances and the cause of the event." These experts are tasked with finding the truth, but causation is frequently not an open-and-shut case. If the process is left entirely to the insurer and its advisers, there is a risk of a decision that the policyholder may not consider equitable. However, if policyholders wait until this point to challenge the conclusions, they may have a fight on their hands.

In the example given in the introduction, if the loss adjuster had concluded there were four separate causes to the breakdown, there would have been four separate claims, making the deductibles highly significant. If they were dealt with in one big claim, with one deductible, on the other hand, it would make a sizeable difference. In some instances, therefore, there is a third professional who may get involved, this time on behalf of the policyholder - the claims consultant.

Consensus of opinion

Claims consultants work alongside the loss adjuster to look after the policyholder's interests. In this instance, Fulton and his team drilled down into each possible cause, flagging up issues and considerations, and making sure conclusions were valid, appropriate and based on the right information. He was also able to offer alternative views when he thought the loss adjuster and experts were unfairly interpreting facts in favour of insurers, and this helped to reach a consensus of opinion.

Some claims consultants also have technical expertise, which carries additional weight when challenging other experts. Rob Sands, a Claims Consultant at Echelon, describes a situation where the client had notified a claim under an operations policy, which carried a significant deductible. "During the course of my review and research into the background of the claim, it became apparent that it should have been pursued under a contract works policy - and under that policy there was a significantly lower deductible - so that was applied to give a satisfactory outcome."

Key considerations

Establishing cause is a complex business, which can go as far back as purchase. The investigation will need to see copies of any paperwork detailing the history of the faulty equipment. "Are there details of the specification of the product available, plans and contracts where appropriate and photographs?" Jeffers asks. "We would want to know if the manufacturer knew what the product would be used for. Once all the initial information has been collated and reviewed, we would look to see what further investigations we need to make."

Those investigating would also want to know whether the equipment was properly tested and maintained, and whether there were any warning signs. Maintenance records should detail testing and quality assurance processes, and event logs, to show actions taken from the point at which the problem was discovered. "An obvious party to go to is the OEM [original equipment manufacturer] because they know the machine and they probably maintained it and they're well placed to do those investigations," says Fulton.

"On the other hand, they're not going to shoot themselves in the foot too readily if there is potentially some level of blame to be directed at them," he adds.

Of course, it is not always possible to establish cause. Fleming's time at Railtrack included three of the biggest UK rail disasters, including the collision of two passenger trains at Ladbroke Grove in October 1999. The crash and subsequent fire caused 31 deaths and left 400 injured. "Even now we're not sure what happened," he says. "Did the driver go through a red light? Was the red light obscured in the sunlight? Did the red light not work properly? There were so many questions and an enormous amount of research, and at the end of the day you get a probable outcome."

While questions surrounding liability were asked, the insurance market joined forces to ensure the passengers were dealt with quickly and correctly and compensated accordingly. "All the discussion about liability and responsibility was going on behind the scenes and the insurance market united because there was a legal and binding agreement that they did so," reveals Fleming. "That is a good example of how a situation can be sorted out over time, but the people directly affected are dealt with promptly."

Establishing causation is far from straightforward. The right approach by the right experts is vital, not only for ensuring the claim is settled fairly, but also to benefit the future business. "Once cause is established, the policyholder will ask: ‘How can we prevent this from happening again?' If we discover something the insured can rectify to prevent similar losses, we'll work with them to minimise future risk," says Jeffers.