Reservation of Rights: Harsh Consequences for Getting it Wrong

Reservations of Rights

In an industry that is built on standardization of policy forms, the reservation of rights letter is anything but standardized. This lack of set guidelines means that there are countless reasons why a reservation of rights letters can be found to be deficient. Courts have been penalizing insurers for issuing what they see as an inadequate reservation of rights letter, with the resulting huge potential loss of otherwise applicable coverage defenses.

According to an article in the December 2015 issue of Claims Magazine, the most common – yet easiest to prevent – reason for the deficiency is that the explanation provided to the insured of why coverage may not be owed for some claims or damages was not sufficiently specific. For example, a reservations of rights letter that sets forth a brief factual summary of the claim, followed by several pages of (sometimes irrelevant) policy language, and a concluding statement that the insurer reserves its rights. Mainly, it did not “fairly inform” the insured why, despite a defense being provided, coverage for any damages may not be owed.

The best way to approach drafting a reservation of rights letter is to remember its purpose. It needs to make it abundantly clear to the insured that, just because the insurer is defending, it should not get a false sense of security when it comes to coverage for any damages. In other words, fairly inform the insured. The way to achieve this is by including a thorough and clear explanation in the letter of why coverage may not be owed. Kompani Risk & Insurance Solutions, Inc. can help you navigate through the complex ends and outs of your coverages, contact us today.

3 Key Steps to a Successful Workers’ Compensation Fraud Investigation

Kompani Risk & Insurance Solutions, Inc.There’s no denying that workers’ compensation fraud has shown a dramatic increase recently. According to a Claims Magazine article, workers’ compensation fraud accounts for approximately $7.2 billion annually and is considered one of the fastest growing areas of fraud today.

Fraud may be committed for a variety of reasons including claimants’ financial problems or lack of medical insurance; employers’ trying to reduce premiums or underbid competitors; or a providers’ exploitation of loopholes or participation in organized crime.  In California, insurers are required to have a Special Investigations Unit (SIU) to handle such cases. Most compensability issues are able to be resolved by an informal inquiry, but in other cases a referral to a licensed investigator may be appropriate.

So what can you do to protect yourself from workers’ compensation fraud?

The first key step is to evaluate the potential case. Hiring an insurance company with solid experience and training is a must when looking for potential red flags in the early stages of the investigation. Fraud indicators can include things such as the claimant threatens to see a doctor or an attorney if the claim is not settled quickly; claimed injuries are disproportionate to type of accident; and/or claimant has multiple prior claims or lawsuits.

The next step is to investigate the suspected fraud using the skills of a licensed investigator with proven expertise in workers’ comp complaints. The investigator, who works with your insurance company, will be in charge of monitoring the claimant’s activities, look over video surveillance and recorded statements, review medical conflicts, and make certain that all information, documents, and records are confirmed with authenticated documentary evidence. Once the investigation is complete it is typically sent to a district attorney and the department of insurance to determine the viability of a case and whether the situation involved abuse or fraud.

Once the decision is made to proceed, it is advisable to take a solid defense posture which calls on the insistence of accurate and complete discovery. This is part of the pre-trial litigation process during which each party requests relevant information and documents from the other side in an attempt to “discover” pertinent facts, which usually include depositions, interrogatories, requests for admissions, document production requests and requests for inspection. Keep in mind that regardless of what the outcome is in the prosecution of a fraud case, under the law the workers’ comp claim must still continue during this time.

The role of the special investigations unit working closely with your insurance provider is absolutely essential in quickly and accurately gathering crucial information early on that will impact the overall outcome of a claim. At Kompani Risk & Insurance Solutions, Inc., we are happy to assist our valued clients in managing and planning for all types of risk, including workers’ compensation fraud. To discuss in greater detail how we can help you investigate a potential workers’ compensation fraud case, please contact our CEO R. Glenn Matsen directly on his personal extension at 916-306-5902. With us, you’ll experience the exceptional service and attention to detail that you can only find with an independent insurance agency.

Lessons from Katrina: Weathering a Catastrophe

Storm Damaged Home

It’s been ten years since the fateful Hurricane Katrina, and this month’s edition of Claims Magazine takes an in-depth look at the lessons that insurers and claims specialists should have learned from this unspeakable tragedy. A lot has changed in the last decade, but even so, there’s no denying that a catastrophe of this magnitude can come quickly and unexpectedly, taking both individuals and companies to very dark places in the blink of an eye.

Ultimately, the article addresses the failings of insurance adjusters and contractors that occurred specifically during Hurricane Katrina and how similar failings can be mediated or avoided in the event of another disaster. With billions of dollars in damages, only half of which were covered losses, not to mention the loss of life and horrifying conditions, this was a cleanup job that still haunts many people today. As insurance brokers, what can we do to ensure that we’re caring for our people on the ground as well as our clients in the event of a similar event?

Claims Magazine suggests, first and foremost, that all teams discuss disaster plans and figure out how they’ll proceed before an event of this magnitude occurs. How will the team organize? Is there a backup communications plan in place should usual methods be knocked out? What technology will you use (cellular, satellite, cloud)? Is there a remote office location that can be used as a base until the crisis has passed, and do all workers have the ability and equipment to work remotely?

All of these questions can just as easily be applied to businesses beyond insurance. Much of the damage sustained during Katrina was sustained by businesses, many of which were uninsured or unable to get the help they needed in time to stay afloat. This is where being proactive is the key to success. Speak with your insurance company to make sure you’re covered for potential disasters, and ask them pointedly if they have plans in place to take care of you during a catastrophic event. Your livelihood can and should be protected, and you have every right to do what you can to make sure that happens.

If you have any questions about coverage or disaster planning, please contact us here via our online form. If you would prefer, you may contact our CEO, R. Glenn Matsen, directly by phone at 916-306-5902. We operate in 27 states and will be happy to find a solution that works for you and gives you the peace of mind you need.

80% of Companies Violate the FSLA

Truck Driver

The Fair Labor Standards Act (FLSA) was signed into law by President Roosevelt in 1938, governing, among other things, hours worked per week and overtime. According to a recent article in Claims Magazine, “…nearly 80% of companies in the U.S. violate the FLSA.” This is really not surprising given the number of times the law has been amended since its inception, not to mention the plethora of laws paced by states and municipalities covering wage and other compensation issues.

Lately cities across the country have been taking it upon themselves to legislate the minimum wage. As of July 1st, 2015, the City of Chicago raised its minimum wage to $10 an hour taking it to $13 by 2019. How the city defined who was eligible for this wage left some business potentially open to liability. According to the ordinance: “Employees who work two hours in the City within the period of two weeks qualify for the minimum wage required by the ordinance.”

Consider that you operate a small delivery business in the suburbs of Chicago, having a few clients inside the City of Chicago so that your drivers spend, say, two hours a week delivering inside the city limits. Would this wage increase apply to your employees? If it did, when would you become aware of this? A few months after the change? A few years? Might there be additional liability beyond back pay owed to your employees?

Recently, the Department of Labor requested information regarding employee’s email use after work hours. Without the Department of Labor weighing in on this issue, there have already been a few lawsuits concerning afterhours, and unpaid, use of email by employees. According to a The Wall Street Journal in May of this year: “Several lawsuits have alleged that companies expect employees to work unpaid and off hours via iPhones, BlackBerrys or other digital devices. The number of suits—and legal opinions—is relatively small so far, but attorneys say a newly sympathetic attitude among judges, as well as coming changes to federal labor regulations, could open the door to more claims.”

As the laws and regulations evolve and change, so does the liability your business may be exposed to. Part of any prudent strategy is to review your insurance coverage with someone who has years of experience. To do so at any time, contact our CEO, R. Glenn Matsen. He can be reached directly by phone at 916-306-5902, or you may contact our team using our online form. At Kompani Risk & Insurance Solutions, Inc., we’re licensed in 27 states and have a great deal of experience creating custom plans for a variety of industries and businesses.