The Importance of Pragmatism

By Andrew Buchanan

It is generally accepted within the Insurance Industry that, all else being equal, claims grow more expensive with age.  Technical arguments always have their place but the bottom-line is that such arguments must always be justified by saving more than they cost to run. The pragmatic approach can often result in less overall expenditure, as illustrated by the following two cases recently adjusted by me.

In the first case, my Principals Insured were Scrap Metal Merchants who had a permanent presence on a Steelworks site owned and operated by a third party.  The Insured controlled a large stock-pile of scrap steel, when they would deposit into vehicles operated by various third-party hauliers using a crane-grab.  An accident occurred when a piece of steel fell from the stockpile and struck a third-party driver, resulting in him sustaining a fractured spine.

The accident was caused by a combination of the stock-pile being too high and a failure to ensure that drivers stayed away from the “danger zone” during the loading operation.  The Insured, as the party in ultimate control of the stockpile, had a clear liability.  The Site Owners also had a liability due to their failure to instruct and direct third-party drivers entering the site.  The Haulier also had a liability given they had not adequately trained/instructed their drivers .

Prior to litigation commencing, I wrote to the Opposing Insurers recommending that liability be shared between the three Insureds/Defendants, but neither Opposing Insurer was willing to compromise and admit even partial responsibility.

In the absence of agreement, the case litigated and I immediately instructed a firm of Solicitors.  By co-incidence the two Opposing Adjusters (without realising) also sent instructions to the same law firm.  The Solicitors quickly identified the conflict of interest and sought my instructions.

Having been the first to instruct, I had the opportunity to tell the Solicitors to cease acting for the other two Defendants, whose Insurers would then have to appoint alternative Solicitors.  Instead I proposed that I would permit the Solicitors to continue to act for all three Insurers provided that agreement could be reached on liability apportionment between the three Defendants within a fortnight.

As a result, a one-third/one-third/one-third share was agreed between the three Defendants/their Insurers within one-month of litigation commencing.  This  prompt agreement, which in turn enabled swift settlement of the claim, resulted in a significant saving in Solicitors’ Costs (both Defendants’ and Claimant’s).

It is strange (and unfortunate) that such a pragmatic solution could not have been reached prior to litigation, and it is highly unlikely that it would have happened for some time had three different firms of Solicitors been appointed.  Had the case gone to Court, it is probable that at least one of the parties would have been held to contribute less than one-third, but that would clearly have been a pyrrhic victory.

The second example involved a Products Liability claim relating to the supply of game-bird feed.  The feed (which was produced on a bespoke basis for the Claimant) was allegedly defective, resulting in the birds rejecting it, which caused them to become under-nourished, allowing disease to set in and thousands of birds to die.

Aside from numerous issues regarding whether the feed was indeed defective and whether it was causative of the birds’ deaths, a significant problem arose due to the Insured having changed Insurer at the worst possible time: the preceding Insurer had been on cover when the Product was supplied to the Claimant and he had first started to feed such to his birds, but their cover terminated (and my Principal’s began) prior to the birds starting to die in significant numbers.

The Operative Clause of both Policies was written on a “Damage Occurring” basis, but when did the damage occur: when the birds started to reject the feed (and started to become malnourished)? At the point when they actually became medically “malnourished” and required veterinary treatment?   When death occurred?  

Clearly no loss or damage occurred straight-away: it would take some time for the lack of food to have a negative impact on the birds’ health/development.  Conversely, it is clear that the birds had sustained “damage” (even if their malnourishment was treatable, their development would have been set back) prior to their deaths.   The situation was further complicated by the fact that the affected birds numbered in the tens of thousands and the “occurrence” date would differ between birds.

So what should the percentage split be between the two Insurers?  There was, quite simply, no precise answer on the available evidence.  Both Insurers could bring to bear justifiable arguments that the other should contribute the lion’s share.

However, it was recognised that the increased legal costs resulting from delay would likely exceed the savings available and both Insurers were persuaded to agree a 50:50% proportionate share of all outlays. 

This spirit of pragmatic compromise extended to both the Insured and Claimant.  Through open discussion it was recognised that the Insured, who had raised debt-recovery proceedings against the Claimant, would be happy to have their outstanding debt (owed by the Claimant for unpaid feed) cleared and that the Claimant would be willing to walk away from his claim in the event the debt was written off: this being a fraction of the sum claimed (as supported by Veterinary Reports).

Ultimately, both the Insured and Claimant seemingly walked away happy with the outcome and each Insurer’s total outlays measured just into five-figure sums (when the potential combined claim value, inclusive of litigation costs had been approaching six-figures).

At Technical Assessing, we often say that our aim is to settle claims for the “right amount”, but the right amount must always take into account cost implications.   Our aim to settle claims quickly and pro-actively with the aim of avoiding unnecessary legal dispute and associated cost.