Insurer To Pay “Extra” Expenses
On May 22, 2011, a tornado struck Joplin, Mo., substantially damaging the Midwest Regional Allergy, Asthma, Arthritis & Osteoporosis Center and its contents.
While at the temporary location, Midwest Regional did not accept new patients, operated at a reduced schedule and did not install various pieces of specialty equipment — such as an MRI machine, X-ray machine and bone density machine — because of space restrictions and other reasons.
The new location finally opened on May 1, 2012, and Dr. Joseph requested additional reimbursement from Cincinnati Insurance Co. under the “extra expense” provision of his business owner’s policy for the cost to repair and relocate the MRI machine and other specialty equipment.
Cincinnati Insurance had already paid Midwest Regional the policy limits of $2.4 million for building loss, $388,000 for business personal property loss and $828,100 for business income interruption and extra expenses.
It denied the physician’s request for the additional payment, contending that the specialty equipment expenses had already been covered under the building and personal business property provisions.
After Midwest Regional filed suit in the U.S. District Court for the Western District of Missouri-Joplin, the federal court ruled the expenses were recoverable under the extra expense provision. It noted that the policy was ambiguous and therefore should be read as providing coverage.
Although the insurer and physician subsequently settled, the insurer appealed the court decision to the U.S. 8th Circuit Court of Appeals.
Cincinnati Insurance argued the expenses were not recoverable because they were connected to the policy’s business income provision. It also argued the request was the insured’s attempt to circumvent the policy limits of the building and business personal property provisions.
The court ruled on July 31 that “an ordinary person of average understanding” would interpret the policy’s definitions of extra expenses as “distinct and separate” from the business income provision, and that the policy “specifically states that ‘Extra Expense’ coverage is not subject to the policy limits.”
Scorecard: Although the insurance company had already agreed to a settlement, the ruling underscored that reimbursement was covered under the policy.
Takeaway: Because the policy did not clearly prohibit reimbursement of the extra expense coverage, “an ordinary person” would expect the insurer to pay the disputed amount.
Court Rejects Claim
On April 7, 2011, a custom-built bookmobile for the City of Beverly, Mass., was destroyed after fire spread from a nearby vehicle at Moroney’s Body Works Inc.
The city refused to accept delivery of the damaged bookmobile, and Moroney submitted a claim to Pilgrim Insurance Co., which had issued a garage insurance policy, and to Central Insurance Cos., which had issued a commercial property insurance policy.
Pilgrim paid $12,450 to Moroney, based on an appraiser’s estimate of repair costs. Central denied coverage, asserting that its policy was not triggered until Pilgrim’s coverage was exhausted.
Moroney sued both insurers in Massachusetts Superior Court, after which Pilgrim settled the case, with a total payment of $30,668. The judge found in favor of Moroney, and ordered Central to pay $126,232 – which was the difference between the original contract price for the bookmobile ($156,900) and the amount received from Pilgrim.
Central appealed. On Aug. 6, 2015, the state’s Supreme Judicial Court reversed the decision.
It ruled the “other insurance” provision in Central’s policy meant that it did not come into play until Pilgrim’s limits were exhausted. It also agreed with Central’s other argument that if it did have liability, its coverage was limited to the cost to repair the bookmobile.
“Because both policies insure the same insured’s interest (Moroney’s ownership) in the same property (bookmobile) against the same risk (fire), Central’s ‘other insurance’ provision applies,” the court ruled. “Accordingly, Central’s liability does not begin until Pilgrim’s policy limit is exhausted.”
The three-panel judicial panel also ruled that Moroney was not entitled to receive anything more than repair costs.
Scorecard: The insurance company did not have to pay $126,232 for the claim.
Takeaway: Claims involving “other insurance” clauses often default to allocation of liability between carriers, whether it is excess, such as in this case, pro-rata shared liability, or escape clauses, which result in no payment.
Paralyzed Man Can’t Collect From Insurers
In September 2009, Scot Vandenberg fell from the upper deck of a 75-foot chartered yacht during a five-hour cruise. The bench he was sitting on tipped over when turned around to speak to someone. It left him paralyzed from the chest down.
Rose Paving was insured by Westfield Insurance Co. for commercial general liability and an umbrella policy.
Vandenberg settled liability claims against the owners and operators of the yacht for $25 million on Oct. 10, 2012. In addition, RQM’s insurer paid $2 million; Rose Paving, Michael Rose and Alan Rose agreed to pay $300,000. The $25 million was to be satisfied through an assignment of rights of recovery under their insurance policies.
Earlier, in January 2012, Westfield had sought a court determination that it owed no duty to defend or indemnify Rose Paving. It noted that Rose Paving represented that it did not use watercraft on its insurance application and that the CGL policy had a “watercraft exclusion.”
A federal district court in Illinois agreed.
On appeal to the U.S. 7th Circuit Court of Appeals, Vandenberg argued the policy did not expressly exclude accidents on the yacht. He also argued that even if Rose Paving was designated a construction business, the policy should extend to all of that corporation’s businesses, including yacht charters.
The federal appeals court rejected the arguments, noting the insurance policy only covered premises and operations “in connection with construction, reconstruction, repair or erection of buildings.”
“A policy does not need to exclude from coverage liability that was not contemplated by the parties and not intended to be covered under the agreement,” according to the ruling.
“Such a speculative exercise in hypotheticals [such as requiring Rose Paving to explicitly exclude all possible risks] would be nonsensical,” the court ruled.
Scorecard: Westfield Insurance Company did not have to pay $25 million to settle the liability claim.
Takeaway: For Vandenberg to succeed, he would have had to prove his injuries were wholly independent of any negligent operation of the watercraft.
The Paralysis of the Political Season
It’s political high season – those few months before the primaries and the elections when candidates across the country vie for a headline or a moment on the news.
Candidate commercials are rampant during the dinner hour and rhetoric is at an all time high. There appears to be an inordinate amount of interest as to whether hair is real, what a candidate ate for lunch and how many babies can get kissed within range of the camera.
A colleague of mine likens politics to putting lipstick on a pig to make it sexy.
Public risk professionals and those that insure them are battening down the hatches, measuring their resources and preparing for the inconceivable shot across the bow. Inevitably there will be that one case file you’ve worked hard to contain that beckons like a shiny bauble for a political sound bite and unwanted attention from a candidate who wouldn’t know the truth if it hit them square in the forehead.
The political sound bite from a candidate, who should know better, often sends ripples within a governance structure and sends its insurer into anaphylactic shock.
What better way to call attention to your candidacy than by preying on the unknown because the issue is sexy and the press eager to get the scoop. The political sound bite from a candidate, who should know better, often sends ripples within a governance structure and sends its insurer into anaphylactic shock.
Have you ever polled a public risk professional during election season? Many will comment that they have working populations split between apathy, undermining, open warfare or a weary acceptance that not a lot is going to get done while the rhetoric flies.
A paralysis seems to envelop ordinary tasks and strategic goals. Incumbents and prospective candidates often spar over the most trivial of issues that somehow made their way into the workplace causing concern, strife or heated arguments.
Public governance requires stamina and endurance regardless of the political season’s veiled threats and promises. Let’s be clear folks. Public employees, regardless of the season, have a responsibility to ensure governments run, offices are open for business, licenses and permits are issued, and the public is served.
Making that happen amidst the carnival sideshow, the empty promises and the campy atmosphere of “it’s a mess out there that needs a-changing” is a true testament to the public servants who keep the peace, clean the streets and manage the processes to ensure our economy is successful.
It’s a thankless job with no pictures or press or glory.
Although we believe we’ve seen and heard it all, we need to find solace and humor in the ridiculous lack of reality the political season brings.
As the potential onslaught looms, find strength in knowing your risk programming and your partnerships can withstand the potential threat of words. Gather your troops and shout “Ooh Rah” like a Marine as loud as your voice will carry. There are no knights in shining armor, only jesters who beg the attention of the crowd.
Public risk management is more than an issue. It’s a legacy that will more than withstand the test of time.
6 Truths about Predictive Analytics
Predictive data analytics is coming out of the shadows to change the course of claims management.
But along with the real benefits of this new technology comes a lot of hype and misinformation.
A new approach, ACE 4D, provides the tools and expertise to capture, analyze and leverage both structured and unstructured claims data. The former is what the industry is used to – the traditional line-item views of claims as they progress. The latter, comprises the vital information that does not fit neatly into the rows and columns of a traditional spreadsheet or database, such as claim adjuster notes.
ACE’s recently published whitepaper, “ACE 4D: Power of Predictive Analytics” provides an in-depth perspective on how to leverage predictive analytics to improve claims outcomes.
Below are 6 key insights that are highlighted in the paper:
1) Why is predictive analytics important to claims management?
Because it finds relationships in data that achieve a more complete picture of a claim, guiding better decisions around its management.
The typical workers’ compensation claim involves an enormous volume of disparate data that accumulates as the claim progresses. Making sense of it all for decision-making purposes can be extremely challenging, given the sheer complexity of the data that includes incident descriptions, doctor visits, medications, personal information, medical records, etc.
Predictive analytics alters this paradigm, offering the means to distill and assess all the aforementioned claims information. Such analytical tools can, for instance, identify previously unrecognized potential claims severity and the relevant contributing factors. Having this information in hand early in the claims process, a claims professional can take deliberate actions to more effectively manage the claim and potentially reduce or mitigate the claim exposures.
2) Unstructured data is vital
The industry has long relied on structured data to make business decisions. But, unstructured data like claim adjuster notes can be an equally important source of claims intelligence. The difficulty in the past has been the preparation and analysis of this fast-growing source of information.
Often buried within a claim adjuster’s notes are nuggets of information that can guide better treatment of the claimant or suggest actions that might lower associated claim costs. Adjusters routinely compile these notes from the initial investigation of the claim through subsequent medical reports, legal notifications, and conversations with the employer and claimant. This unstructured data, for example, may indicate that a claimant continually comments about a high level of pain.
With ACE 4D, the model determines the relationship between the number of times the word appears and the likely severity of the claim. Similarly, the notes may disclose a claimant’s diabetic condition (or other health-related issue), unknown at the time of the claim filing but voluntarily disclosed by the claimant in conversation with the adjuster. These insights are vital to evolving management strategies and improving a claim’s outcome.
3) Insights come from careful analysis
Predictive analytics will help identify claim characteristics that drive exposure. These characteristics coupled with claims handling experience create the opportunity to change the course of a claim.
To test the efficacy of the actions implemented, a before-after impact assessment serves as a measurement tool. Otherwise, how else can program stakeholders be sure that the actions that were taken actually achieved the desired effects?
Say certain claim management interventions are proposed to reduce the duration of a particular claim. One way to test this hypothesis is to go back in time and evaluate the interventions against previous claim experience. In other words, how does the intervention group of claims compare to the claims that would have been intervened on in the past had the model been in place?
An analogy to this past-present analysis is the insight that a pharmaceutical trial captures through the use of a placebo and an actual drug, but instead of the two approaches running at the same time, the placebo group is based on historical experience.
4) Making data actionable
Information is everything in business. But, unless it is given to applicable decision-makers on a timely basis for purposeful actions, information becomes stale and of little utility. Even worse, it may direct bad decisions.
For claims data to have value as actionable information, it must be accessible to prompt dialogue among those involved in the claims process. Although a model may capture reams of structured and unstructured data, these intricate data sets must be distilled into a comprehensible collection of usable information.
To simplify client understanding, ACE 4D produces a model score illustrating the relative severity of a claim, a percentage chance of a claim breaching a certain financial threshold or retention level depending on the model and program. The tool then documents the top factors feeding into these scores.
5) Balancing action with metrics
The capacity to mine, process, and analyze both structured and unstructured data together enhances the predictability of a model. But, there is risk in not carefully weighing the value and import of each type of data. Overdependence on text, for instance, or undervaluing such structured information as the type of injury or the claimant’s age, can result in inferior deductions.
A major modeling pitfall is measurement as an afterthought. Frequently this is caused by a rush to implement the model, which results in a failure to record relevant data concerning the actions that were taken over time to affect outcomes.
For modeling to be effective, actions must be translated into metrics and then monitored to ensure their consistent application. Prior to implementing the model, insurers need to establish clear processes and metrics as part of planning. Otherwise, they are flying blind, hoping their deliberate actions achieve the desired outcomes.
6) The bottom line
While the science of data analytics continues to improve, predictive modeling is not a replacement for experience. Seasoned claims professionals and risk managers will always be relied upon to evaluate the mathematical conclusions produced by the models, and base their actions on this guidance and their seasoned knowledge.
The reason is – like people – predictive models cannot know everything. There will always be nuances, subtle shifts in direction, or data that has not been captured in the model requiring careful consideration and judgment. People must take the science of predictive data analytics and apply their intellect and imagination to make more informed decisions.
Please download the whitepaper, “ACE 4D: Power of Predictive Analytics” to learn more about how predictive analytics can help you reduce costs and increase efficiencies.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with ACE Group. The editorial staff of Risk & Insurance had no role in its preparation.