To policyholder’s counsel, a good claim file is one which helps the insured win the case. Twenty years ago, the good claim file probably contained something scandalous about the insured’s appearance, race, or sexuality. It was salted liberally with unsupported allegations of fraud. The line adjuster and supervisor openly concluded that the claim wasn’t covered and discussed how to prove it.

Those days are gone. Everybody knows the claim file may be discoverable, and must look and sound professional. The investigation must be fair and objective. Truly great claim files are becoming uncommon, but good claim files still can be found.

The sanitized file is my personal favorite. Someone in the claim department just can’t bear to let a document or two leave the office, so they become "lost." The file gets copied and produced in discovery. Maybe nobody will find out. Then again, maybe they will.

If the insurer gets caught, the case may be over. To the jury, the fact that an insurer would secretly sanitize the file proves three key points:

1. It proves the insurance company is staffed and represented by crooks, who care nothing for the law, or for the rights of the insured.
2. It proves the insurance company committed terrible acts of bad faith in handling the claim. Why else would the company go to such extreme means to hide the facts?
3. It proves the insurance company and its staff cannot be trusted to testify truthfully about anything.

Usually, the deception is fairly easy to find. Claim file documents, log notes, and reports all track each other. Responses and requests for action or authority create a paper trail, building on each other, and referring back and forth to events, conversations, meetings, and other documents.

Although the relationship between some documents is subtle, experienced counsel or an expert witness can often find the connection to a missing document. Multiple copies of claim files are another fertile source for sleuthing, found inside various levels of the company, and sometimes outside as well. An agent or the Insurance Commission may have portions of claim files. In a nutshell, if you sanitize a claim file, the odds are good that you will be caught. The consequences in court are severe – including everything from monetary fines to a default judgment.

How does it reach a crisis point? You find yourself testifying, under oath, before a court reporter. You may be in deposition, or in trial. You are sworn to tell the whole truth. Perjury is a felony. You are asked whether you, or anyone to your knowledge, removed something from the claim file. You now have one foot in jail and the other in the unemployment line. Nobody will help you. The sanitized claim file is my personal favorite.

This model is pre-sanitized. It’s great fun. Experienced claim professionals often anticipate litigation in troublesome cases. Knowing the consequences of sanitizing a file, the participants simply agree not to memorialize some of the important events. Maybe they never heard of WAC 284-30-340:

File and record documentation. The insurer's claim files shall be subject to examination by the commissioner or by his duly appointed designees. Such files shall contain all notes and work papers pertaining to the claim in such detail that pertinent events and the dates of such events can be reconstructed..

In addition to being blatantly illegal, pre-sanitized claim files are fun because they are so obvious. Omitted events are usually key meetings or phone calls between different levels of supervision. Just this last weekend, I was going through a file where the line adjuster suggested a meeting between the analyst, the SIU person, and the line adjuster. The file contains no response to her suggestion, and no way to tell if a meeting took place or not.

Did they hold the meeting? Probably. Somebody picked up the phone, set a meeting, and nobody put their notes in the file. It was "off the record" so they could speak freely without fear of later cross examination. Will they get away with it? You can see how much fun policyholder’s counsel can have with an intentionally incomplete claim file.

Heavily investigated claims usually involve suspicions of fraud or arson. We have all been

taught to look for and document red flags. Look for financial trouble, vacant buildings, prior claims, unusual activities. The list goes on. Many claim files read like a catalog of red flags and the facts which support them. Nobody mentions the facts which lead to coverage. Nobody questions the quality of the witnesses who support fraud. These are good claim files. I can make money on these.

In Coventry v. American States, 136 Wn.2d 269, 961 P.2d 933 (1998), the Supreme Court said policyholders deserve a good investigation. They pay for it in premium. It follows from Coventry that the investigation must be balanced, focused equally on providing coverage as on finding a defense. Fortunately for me, it’s not easy to investigate in a balanced manner, and claim files usually show it.

Claim professionals don’t want to simply pay bills. They want to discover fraud and see that it is punished. It’s fun to catch a crook. For that reason, many claim professionals don’t report the blind alleys of investigation. They ignore obvious holes in witness accounts which support denial. The claim file focuses entirely on red flags and the facts and circumstances which raise suspicion.

This practice is dangerous to the carrier because it is so transparent. In trial, the adjusters can be cross examined at length about the omitted facts, making each of them stand out to the jury. The adjuster loses any appearance of objectivity. The company loses the case at trial.

The unbalanced claim file can lead to an unwarranted denial. Often, the coverage decision is made far up the chain of authority – if the adjuster doesn’t document the file evenly, the decision makers above will authorize denial when it is not supported by the facts. Bad denials are the most expensive claims.

Some claim professionals try to help the file by plugging their own objectivity. A file on my desk contains at least a dozen instances where the adjuster, the SIU person, and the supervisor each say, "Unfortunately, it appears we must deny coverage," or "Unfortunately, the policy says..." How unfortunate for them when they testify in court! The jury will get a good laugh out of this one.

We see self serving comments in claim files because modern claim professionals know they must create a product that puts the company in a good light. They just go about it the wrong way. Do you want the reader of the claim file to believe you are skilled, objective and fair? Just investigate and adjust the claim professionally, objectively, in a balanced manner. It will show.

A variation on the self serving claim file occurs when supervisors either praise or criticize the adjuster or SIU person doing the investigation. We know that much of a claim professional’s training comes from this kind of feedback. How does it play in the courtroom?

In my experience, it plays just fine. Honest praise or criticism is part of the process. If the investigator gets to the heart of the issue, finds solid evidence to tip the scales one way or the other, praise is in order. If the investigator fails to follow up, the supervisor needs to point that out. Absence of this kind of give-and-take is a dead giveaway that something is wrong. Either the file has been sanitized, or nobody cares.

The delegated claim file is not a claim file at all. It documents a failure to adjust a claim. Here, the adjusting staff delegates all or part of its job to outside experts, then uncritically accepts whatever those experts conclude. PIP claims provide the best examples. Instead of investigating, or even thinking about a claim, the adjuster sends the insured for an Independent Medical Exam. A month or so later, the report comes back, concluding that no more treatment is necessary. The adjuster denies payment for further treatment. End of adjustment, end of claim.

You can substitute fire investigator, accident reconstructionist, pathologist, attorney, private investigator or any expert for the examining physician. The world is literally crawling with "experts" who cannot make a living any other way. They will handle the claim for you. They know the insurance industry is a great place to sell their opinions, and they actually believe you don’t want the truth. They think you simply want to deny claims, and need their help doing it.

The only way to prevent the delegated claim file problem is not to delegate claim decisions to people who are not claim professionals.

Reading the claim file is a treasure hunt. Attorneys look hard for jewels, among missing documents, unrecorded pertinent events, and evidence of unbalanced investigation. Once we find them, we dig in and pursue these buried nuggets. You won’t see them until you are sitting on the witness chair, stared at by judge and jury. By then, it is far too late to do a good job and document it properly.