If learning is not part of the process, and all that an insurance company is interested in is a decision, any decision, no matter how subjective, then insurers need to have an intercompany coin toss agreement.
Addressing the arbitrary in Subrogation Arbitration
I started my career in insurance in 1976. Whether it was the era or the company, as a new adjuster, I was assigned to a “mentor”. One evening as I went to dinner with my mentor and his wife, also a seasoned adjuster, they started talking about the “intercompany arbitration agreement”, and how they were arbitrators for subrogation cases. They talked about the upcoming arbitrations and made the comment they always ruled against a certain insurance company. Being new, I asked “why”? The response has stuck with me some 38 years later… “Because we hate [this company]” Here I was with my mentor who was trying to instill in me that the policyholder deserved what he paid for no matter how difficult the policyholder was during the claim, and I just heard how he always rules against a certain company based on his personal feelings and not the facts. Talk about hypocrisy.
I learned that adjusters, who volunteered their time on top of their busy schedule, decided arbitration cases. I had not been in claims long, but I had learned that the main focus of adjusters is to “close claims”. Obviously that predisposition carried over into arbitration decisions.
My career progressed and after I graduated from law school I managed several very small insurance companies. I handled subrogation as an attorney, using the courts as my venue of choice. Even though I later took a job as the corporate counsel to a larger insurance group of companies, I oversaw the subrogation department. I had the companies join the industry-accepted process at the time, but quickly became very disenchanted with the results. The decisions seemed to be no more fact based than my mentor had utilized some thirty years earlier. I provided the subrogation department with cases that supported our position as well as statutory law. Contentions and responses were well thought out and very documented; decisions rendered were not.
Decisions returned were in my opinion, arbitrary, with simply a decision, no facts or reasoning cited to back the decision. I quickly pulled both companies out of the process and when I was asked why, I told them that although they sounded good in theory, in practice, a coin flip was as fair and certainly more predictable.
The new subrogation “plan” for the companies I was counsel for was for all cases under $10,000 to be tried in “small claims court” – and cases over $10,000 to be tried in district court. The majority of cases were of course under $10,000. In Texas, an employee may represent a corporation in a case before a small claims court “justice”. I filed the petition, and the adjuster in the area appeared before the justice; I provided the support, the adjuster presented it. Our “win” ratio was over 70%.
To address one issue, justices in Texas are not required to be attorneys, and I found that some of them were as ignorant about their own court rules as some adjuster- subro arbitrators were about applying the law in the atbitration decision. I had one justice tell one of our adjusters that he had to be an attorney to be before him, even thought the justice himself was not an attorney and the law was quite clear on the issue that they did not have to be attorneys. .
I filed a grievance with the State Commission on Judicial Misconduct, and learned that incompetence of a “judge” is not misconduct. Be that as it may, I found the justices did overwhelmingly understand case citation and that if a higher court ruled a certain way, they were to follow that decision, and that they were not arbitrary in their decisions. By in large, I found small claims court decisions to be vastly superior to those coming from the industry-accepted alternative to litigation, arbitration.
The biggest complaint I now hear is exactly as I experienced, the decisions appear to be fundamentally flawed, determined by an overworked volunteer panel of adjusters that is not keen on weighing the evidence or providing a written opinion supporting their decision.
One of the best learning tools of the trial lawyer is in reading the opinion from the court, wherein the judge provides commentary for his or her decision. While it is true that the opinion itself is not law and includes dicta, it is something in which to garner a critique of where your case may have been better supported.
Law school teaches by the Socratic method. Where you read case after case after case to determine the law rather than being spoon fed “black letter” law. As professor Kingsfield said in the Paper Chase “You teach yourselves the law, but I train your minds. You come in here with a skull full of mush and, if you survive, you leave thinking like a lawyer.”
A written opinion does a lot to dissuade an arbitrary decision. If you must articulate a written opinion for your decision and not sound like a complete fool; you must know the facts and sound reasonable, or at least plausible. While that is not always the case, that is the hopes.
Removing the subjectivity of the jury is an advantage of arbitration, removing the prejudice of the judge is also an advantage. Plaintiff Attorneys often utilize what is now referred to as appealing to the “reptile” portion of the jury’s reasoning. When the Reptile sees a survival danger, even a small one, she protects her genes by impelling the juror to protect himself and the community. That is, convincing the jury that ruling in favor of the plaintiff is an act of protection to yourself and the community, not just about compensating the plaintiff. Of course the defense is not without its tactics. As stated by Gerry Spence, the famous Wyoming Defense attorney, "Storytelling is the heart of what you need to create a winning beginning. It's not that difficult. We are all natural storytellers because we are all natural story listeners. Everyone likes a good story, including jurors. You go where the power is, and the power is in the story of your case."
Appealing to the “reptile” for the plaintiff or telling a story for the defense, both are aimed at engaging emotions rather than specifically focusing on the facts. Subrogation arbitration decisions should be fact-based, and applying the law, made by impartial and learned arbitrators. It should have the advantages of speed and low costs over trial, but should also have the safety net and objectivity of written opinion, which is as close to what the policyholder would himself experience, had you as the insurer (subrogee) not stepped into his shoes.
The disconnect between what is really being assumed by the subrogee and its likely outcome in court and what is decided by a panel of claims adjuster arbitrators for an insurance company may be one reason the current system is flawed.
Your policyholder is not required to arbitrate against the tortfeasor, and chances are he wouldn’t voluntarily do so. The insurance company as the subrogee, either through equitable or conventional subrogation, step into your policyholder’s shoes but assume no greater rights than the policyholder. Therefore, the outcome of your assumption should reflect the reality of what you assumed, and not some subjective or false result.
If learning is not part of the process, and all that an insurance company is interested in is a decision, any decision, no matter how subjective, then insurers need to have an intercompany coin toss agreement. Decisions would be swift, more predictable and non-subjective, but no more reflective of what a court may do or reality than is presently being handed down by a panel of overworked claims adjusters.
The Industry can and should demand better in the process. I suggest that Arbitrators should be lawyers who can apply the law and who have participated in subrogation. Decisions rendered should be accompanied with a written opinion supporting the decision and applying the law based solely on the facts as presented, and ther should be an appeals process. The arbitrators as lawyers would be paid, which would increase the costs, but the outcome would be something more than simply a fast decision, it would be a learning tool and a way to shape the process, more reflective of the reality of the policyholder’s rights assumed and likely outcome.
If you think education is expensive, try ignorance ~ Derek Bok