Insurance companies often hire an “expert”  as part of their investigation of a policyholder’s claim.  The expert can be a doctor, an engineer, an accident reconstructionist, an accountant, etc. , depending on the type of claim and the issue being investigated.  Insurance companies and their lawyers love nothing better than to claim that because they hired and relied on an expert before denying the claim, they cannot be in bad faith.  They use the old “legitimate dispute” defense discussed in earlier posts on this blog.  In effect they argue:  “How can we have been in bad faith when we solicited the opinion of an expert in the field, and relied on that opinion?”

Most folks’ common sense tells them there are real experts in a field and then there are “experts” willing to sell dishonest “opinions” for money.  This is a sad commentary on the state of play in litigation, but it’s as true as anything can be about our court system.  Ask any lawyer and they’ll tell you this is true.  So how does this play out in bad faith cases?

Here’s an example:  Mrs. Jones, a policyholder of ABC Insurance Co., is involved in a car wreck with an uninsured driver.  Mrs. Jones makes an uninsured motorist (“UM”) insurance claim under the ABC policy, and submits a report from her treating neurosurgeon showing the policyholder needs a neck surgery as a result of her injuries in the accident.  Of course, the cost of such a surgery is high and if the need for surgery was caused by the accident, then ABC will have to pay a lot more to resolve the claim than if it isn’t.  The ABC insurance adjuster knows this very well, so he decides to try to disprove Mrs. Jones needs a surgery at all, or if she does need a surgery, it wasn’t caused by the car wreck.

ABC has trained its adjusters to demand policyholders undergo an “Independent Medical Examination” or IME when appropriate.  Most auto insurance policies require the policyholder to submit to an exam by a doctor of the insurance company’s choosing if the company asks, so the policyholder is obligated to do so or risk being paid nothing for her claim.  The idea is that the company should be able to verify whether the alleged injuries are real, whether they were caused by the accident, and what the proper treatment for them would be.  This is not a crazy idea, of course, because an insurance company ought to be able to conduct a thorough investigation of a claim before deciding to pay it or not.

The problem comes in the execution.  Many insurance companies have conveniently created a list of “approved” doctors to perform IME’s on their policyholders and given that “approved doctor list” to their policyholders.  So, in our example above, ABC’s adjuster refers to that list and demands that Mrs. Jones submit to an examination by a Dr. Payne, whose name was on the list.  Of course, the adjuster is very familiar with Dr. Payne’s work because the adjuster has sent dozens of policyholders to be examined by him.  The adjuster would also be highly surprised if Dr. Payne said Mrs. Jones needed a surgery at all, and if so that the need for surgery was caused by the accident.  Instead, the adjuster has a real good idea that Dr. Payne is going to say Mrs. Jones had a pre-existing neck problem (don’t we all, by the way) and the need for surgery (if any) is related to that problem, not the car wreck.

Once Dr. Payne has written his report saying just that (oddly, it looks almost identical to all the other reports he has written for ABC with only the names changed), ABC’s adjuster tells Mrs. Jones he’s sorry, but the evidence indicates she doesn’t need a surgery at all and if so it was because of her prior neck problem.  Mrs. Jones tries to tell the ABC adjuster that she trusts her treating doctor more than an insurance-hired doctor, and tells the adjuster she’s never had any symptoms of neck problems before.  ABC says they’re very sorry, but they are relying on Dr. Payne’s report and won’t consider the surgery when evaluating the claim.

Is this a legitimate dispute barring a claim for bad faith?  What if in our example the evidence is that Dr. Payne has done over a hundred IME’s for ABC, and several hundred for other insurance  companies?  And he’s been paid tons of money for his work?  And the percentage of the time he opines the policyholder is actually injured is less than 10%?  And the majority of his income comes from IME’s?

Believe it or not, this very kind of thing goes on regularly in the insurance industry.  Is it a legitimate dispute for the insurance company to use a doctor to perform an IME doctor it knows good and well will always say exactly what the insurance company wants?  Is it good faith to knowingly rely on a biased expert?

I say the answer is no.  Other examples of this kind of conduct by insurance companies will be the subject of later posts.

Policyholders don’t want insurance adjusters who don’t know what they’re doing handling their claims.  It wouldn’t be fair to the policyholder.  Adjusters can’t know how the insurance company they work for wants them to handle claims unless the company tells them.  Therefore, in order for policyholders to have their claims handled the way the insurance company wants them handled (hopefully in good faith), it is incumbent on an insurance company to put proper policies and procedures for claim handling in place.

The Oklahoma Unfair Claims Settlement Practices Act recognizes this fundamental truth.  That statute provides an insurance company must “adopt and implement reasonable standards for prompt investigations of claims…”  This is a well-known fact in the insurance industry.  As a result, it is industry standard for insurance companies to do so.  Commonly, insurance companies draft and disseminate a set of claim handling rules and guidelines to their adjusters, claim supervisors and claim management personnel.  These documents are put together in what is often called a “claim manual.”  In the old days, claim manuals could be found on adjusters desks in three-ring binders.  Now, in the “paperless” world, claim manuals are usually found on an insurance company’s intranet.  Adjusters and claim supervisory employees have access to the “electronic claim manual” on their company computers.  Insurance companies sometimes refer to their claim policies and procedures by other names (like “Best Practices” or “Claim Bulletins”) but regardless of what they call them, every insurance company must adopt “reasonable standards” for claim handling.

It only makes sense that when a policyholder finds herself in a bad faith lawsuit against an insurance company based on a claim the adjuster and/or supervisor handled the claim incorrectly in some way, the insurance company’s own internal rules and regulations will be highly important.

The policyholder’s attorney should always obtain the company’s claim manual in discovery and carefully measure the adjuster’s performance by the company’s own measuring stick as set forth in their claim manual.

Also, the policyholder’s lawyer should examine the company’s claim manual closely to make sure the policies and procedures contained there are in fact “reasonable.”  Many insurance companies have claim handling procedures in place that are very similar to one another, but sometimes a company will have overlooked something important that may become relevant in a bad faith case.

The moral of the story is the insurance company is required to establish fair claim handling rules for its adjusters, then to follow them when adjusting a claim.  If the company doesn’t do so, they will find themselves under criticism for it in a bad faith case.