Cedric Stephens | Resolving insurance disputes

I bought shares in The Gleaner Company some years ago. My aim was to show by action my belief that a free press is necessary to preserve democracy.

I have attended only one annual general meeting. However, reading the company’s report to shareholders is now one of my yearly routines. The merger a few years ago, between The Gleaner and RJR Communications Group, has reinforced that decision. To quote the merged entity’s newly appointed chairman, a “strong and independent media business (is) required to support our democracy”.

The theme of the company’s 71st annual report for the past financial year is ‘Promoting Accountability, Credibility & Transparency’. When I reviewed last week’s article – Arbitrating Insurance Disputes – through those lenses and its vision statement: “to be the most credible, trusted … media and communications brand”, my piece, unfortunately, was found wanting. It did not meet those high ideals. I will try to make amends today.

The headline writer used wishy-washy words to summarise my piece. The well-known local phrase, ‘Puss inna a bag’ followed by ‘arbitration?’ would have accurately captured the essence of the content. Also, they would have been more memorable. I didn’t do a particularly good job.

The article defined the arbitration procedures used by a respected international organisation. I suggested that insurance policies tended to follow those practices.

The second to last paragraph of my article said: “I found out that the decision about which party caused the accident was not determined using (generally accepted) arbitration procedures. The decision was made by a group of experienced insurance professionals.”

Careful readers would have concluded that neither the disputants and/or their attorneys were involved in the process that was erroneously called arbitration and differed from the standard arbitration condition of a motor policy.

The article ended with the statement that I was still awaiting a copy of the written procedures that governed the insurers’ dispute resolution process that the headline falsely called arbitration.

Two Fridays ago, the Insurance Association of Jamaica sent me a copy of a three-page document. It provided information about the IAJ’s Liability Resolution Process, the LRP – not arbitration, please note. LRP has four aims:

1. Provide an expeditious process for the settlement of motor claims disputes thereby reducing the lifespan of claims files;

2. Improve customer satisfaction by resolving disputed motor claims;

3. Conduct fair and impartial hearings, and

4. Limit costs incurred by insurance companies.

A key and implicit assumption underlying this process is that it saves time and money for policyholders and insurers, and that those savings are reflected in the premiums that consumers are charged. The cynic in me asks: If the process is a win-win, why has the industry kept LRP such a big secret?

The document that I reviewed did nothing to inspire my confidence in LRP. This comment is being made by someone who was exposed to a few legal principles decades ago and received some training in making minor changes to standard contracts of insurance. I have, however, read thousands of different types of legal agreements over the years.

One of the things I have learned is that contracts are usually structured in a special way, preamble or recital, definitions, conditions, etc, and that the words used are carefully selected. The devil is always in the details.

LRP ignores these basic rules. It contains very few guidelines that can be usefully employed to resolve intra-insurance industry disputes about liability for motor vehicle accidents. This was most surprising given the fact that many lawyers are employed by the industry and are directly involved in the claim settlement process.

LRP says that it applies to “motor claims not exceeding $7,500,000, of which no more than $1,000,000 is in respect of personal injury claims”. This means that it is used in a situation where two or more vehicles are involved in a collision and the total property damage does not exceed the $7.5 million threshold, inclusive of claims for personal injury, subject to a ceiling of $1 million.

The process is employed where there is a dispute about which party is at fault. Liability, under those circumstances, will be decided by a three-member “neutral panel of arbitrators” (the document does not define the word arbitrator) one of whom will be a “mediator” – another term the document fails to define.

The document also states that: “Each panellist is expected to disclose any conflict of interest that may exist, and if any such conflict arises in the course of the resolution process, the panellist is expected to disclose.”

The paper is silent on what constitutes a conflict of interest or say what is the minimum level knowledge and experience each member of the panel should have except that it should be “above the level of a supervisor”.

If the document that was sent to me reflects the same level of research and analysis that characterises the IAJ’s Liability Resolution Process, I have very little confidence in it. Furthermore, I doubt whether the persons who prepared it read and understood the Financial Services Commission’s February 2019 Revised Market Conduct Guidelines for insurance companies and intermediaries; or made any attempts to ensure compliance with those rules.

Insurance companies are among institutions that have done bad things over the years to lose consumer trust. These things were done mostly in relation to claims and selling malpractices.

Legal theory still holds that contracts of insurance are founded on the principle of uberrima fides (‘the utmost good faith’) despite misdeeds while in other kinds of agreements. The watchwords caveat emptor, (‘let the buyer beware’) applies.

It is not inconceivable, given LIBOR scandal of a few years ago and the recent approval by a US federal Judge of a US$320 million settlement of a class-action lawsuit against a major bank and an insurance company for selling unnecessary insurance that ways can be found to manipulate LRP to the detriment of consumers.

It was my expectation that the LRP would have addressed these and other risks and attempted to reduce the opacity surrounding the process.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com.