As discussed in my last post, insurance companies (not policyholders) gamble when an insurance policy is issued. The insurance company takes on the risk of paying claims under the policy in exchange for the policyholder’s premium. The policyholder does the opposite of gambling. She does away with (or at least protects against) the risk of an insurable loss. The risks and rewards of the policy contract are put in place up front, at the beginning of the policy period.
Insurance company claim departments often profess a pro-policyholder claim handling philosophy. I have heard this “philosophy” expressed many times, by many companies, for many years in many, many bad faith depositions as something like: “We pay what we owe on claims. Nothing more, nothing less.” Obviously, this saying sounds fair and looks good written on the front page of an insurance company’s claim handling manual. It also sounds pretty reasonable when an adjuster or supervisor says it in their deposition testimony in a bad faith case.
Unfortunately, as policyholders can learn when they make a claim, the old “we pay what we owe” mantra is too often little more than lip service. Some claim departments generally and some claim offices specifically seem to conduct themselves contrary to the old slogan.
Some adjusters and their management people seem to take a great deal of pride or satisfaction from saving the insurance company every nickel they can squeeze out of a claim settlement, even when it means the policyholder suffers in the process and ends up underpaid. Some claim personnel seem to believe there is no such thing as an underpayment of a claim, no matter what.
I am not of the belief that all claim people are evil or act with improper motives. To the contrary, many are real professionals who take their duty of good faith owed to the policyholder seriously. So how do certain insurance company claim departments earn their reputations as being prone to push the limits of good faith by consistently playing hardball with their policyholders? How do companies get their claim personnel (some of whom really want to do right by their customers) to take such unyielding, hardline positions on claims?
The big picture answer is insurance companies often create the culture in their claim departments that those claim personnel who are the toughest, who take the most extreme positions, who pay the absolute least amount of money possible on every claim regardless of what’s fair, are treated more favorably than those who don’t do these things. The insurance companies who do this are attempting to use their claim operation as a profit-making oufit or “profit center.” In other words, they are attempting to alter the risk they took when they issued the policy or “rig the game” in their own favor.
No one can argue doing so is consistent with the duty of good faith and fair dealing. The questions often in play in an insurance bad faith case are: “Specifically how does an insurance company create a ‘denials are better than payments’ culture?” My next post will give some answers.