was written for the Reed McClure Insurance Law Seminar
in April, 2000. What does a good claim file look like to
the policyholder's attorney?
To policyholderís 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 insuredís appearance, race, or
sexuality. It was salted liberally with unsupported
allegations of fraud. The line adjuster and supervisor
openly concluded that the claim wasnít 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.
A. The Sanitized Claim File
The sanitized file is my personal favorite. Someone
in the claim department just canít 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
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:
- It proves the insurance company is staffed and
represented by crooks, who care nothing for the law,
or for the rights of the insured.
- 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
- It proves the insurance company and its staff
cannot be trusted to testify truthfully about
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 Ė 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.
B. The Intentionally Incomplete Claim
This model is pre-sanitized. Itís 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
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 policyholderís counsel can have with an
intentionally incomplete claim file.
C. The Unbalanced 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, itís not easy to investigate in a balanced
manner, and claim files usually show it.
Claim professionals donít want to simply pay bills.
They want to discover fraud and see that it is punished.
Itís fun to catch a crook. For that reason, many claim
professionals donít 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
The unbalanced claim file can lead to an unwarranted
denial. Often, the coverage decision is made far up the
chain of authority Ė if the adjuster doesnít
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.
D. The Self Serving Claim File
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
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
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 professionalís 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
E. The Delegated Claim File
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 donít want the truth. They think you
simply want to deny claims, and need their help doing
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 wonít 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.