This morning, there was a panel discussion entitled “What’s Wrong With the Claims Process?”  The panel discussed some of the major sources of dissatisfaction and discontent in the D&O claims handling process.

The panel consisted of the following individuals:

  • John F. McCarrick, Partner, Edwards, Angell, Palmer & Dodge
  • Stephen Propper, Assistant Treasurer, Merck & Co.
  • Mark Rosen, Senior Vice President and Chief Claims Officer, U.S. Operations, Allied World Assurance Company
  • David A. Stryker, Principle, DAS Consulting LLC
  • Hon. Daniel Weinstein (Ret.), Mediator, JAMS

The following issues were discussed and points were made:

  • There is a general understanding that while participants in the claims process are generally satisfied with the outcome of the claims process, many of these participants find that the road to that outcome was unnecessarily difficult and frustrating.
  • Panelists generally agree that the D&O industry is not doing any worse in this regard than other insurance lines (which of course does not mean that there is not room for improvement).
  • Judge Weinstein emphasized two sources of disfunctionment:  (1) unnecessarily complicated insurance programs where excess participants have conflicting policy terms, and more generally, conflicting interests; and (2) the failure to effectively communicate in the underwriting process to set appropriate coverage expectations.  Judge Weinstein tempered his comments by noting that, based on his experience, after the claims process winds up, D&O insurers responsibly pay and settle claims according to their contractual obligations.  In particular, Weinstein noted that the D&O industry has successfully and efficiently resolved the vast majority of the stock options backdating claims.
  • Insurance professionals would be well served by an additional dose of empathy by placing themselves in the shoes of policyholders who are defendants in criminal or civil cases that threaten their personal liberty and financial stability.
  • According to David Stryker, a consultant to D&O policyholders, placing the duty to defend on the insurer is not a potential solution that would be acceptable to policyholders.  It is very important to policyholders to have the right to select and directly monitor defense counsel.
  • Policyholders are generally well served by retaining coverage counsel, which eliminates any potential for conflict of interest (particularly with regard to panel counsel) and inefficient resolution of coverage issues.
  • As in any business, having a positive reputation and general credibility can create significant (although subjectively evaluated) value.  Insurers that consistently treat insureds fairly are able to build strong claims-handling reputations.  This can assist insurers in gaining a competitive advantage during the underwriting process.  Unfortunately, however, a number of panelists noted that many policyholders tend to place too little importance on an insurer’s claims-handling reputation.
  • Insurers gain an additional advantage by gaining the trust of their insureds – they can call on insureds to partner in pushing back against excessive defense costs.  Insureds typically have greater leverage than insurers in ensuring that defense counsel is conducting the defense in a cost effective manner.