I have been consulting with attorneys for a few years as an expert on cases involving commercial insurance. Compared to my peers, I’m probably less experienced on the consulting side, but I have worked on more than a dozen cases. I have written 10 expert reports and sat for two depositions. I testified in a single jury trial, that found for the plaintiff who engaged me. The balance of cases settled as most should and do. Though I am not privileged to the terms settlement, the attorneys have told me my work was instrumental in achieving acceptable results. So, I’ll take them for wins.
I have been at this long enough now, to notice a pattern that rings true in every case. That is the idea of consulting with an underwriting expert is either ignored, dismissed or is an afterthought. In most of the cases, I’ve been retained months after selecting a claim adjusting or agency standard of care experts. To me, that seems rather bizarre because the role of the underwriter is critical within the insurance industry. Everything begins with the underwriter. Thus, in my logic, the expert who provides the best perspective into the facts surrounding the case will be an underwriting expert.
Why Engage an Underwriting Expert
The first reason to consult an underwriting expert is because in every single case revolving around intent, the intent was created when the insurance policy was written and not when the claim occurred. Moreover, the person who created the intent was the underwriter or the individual who created the artificial intelligence system that screened and accepted the policy. More likely than not, that individual was an underwriter. If you ignore the underwriting process, you are ignoring a major portion of intent.
When I look at intent, I think of an iceberg. The portion of the iceberg that is visible is just a small portion of the iceberg. Below the surface lies a much larger ice formation. In fact, it is the ice that lurks beneath the surface that forms the most treacherous portion of the iceberg that will sink a ship. Like an iceberg, the language of an insurance policy is just the tip of the iceberg. The underwriting process is the ice beneath the surface.
In litigation, the parties may argue the meaning of the syntax or structure of sentences. Reviewing nuances of the language may create possible alternative interpretations of the policy language. In my experience, little consideration is made to what I believe is the central premise of coverage intent. The central premise of coverage intent is “what exactly was the underwriter intending to cover?” The actions of underwriting may just deliver the most convincing evidence of intent and even wrongdoing on the part of the insurance carrier.
In today’s insurance industry, underwriters are tasked with handling larger and larger books of business. In many cases, the premium volume is five or six times the book of business I handled when I started my underwriting career back in 1980. When you couple that with less or no formal training, the propensity for errors in policy construction is multiplied. Thus, the final policy may not actually be the best evidence of what the underwriter was intending to cover or a true reflection of their decision. Imagine that! The policy language may not show intent.
In one recent case, I assisted the insureds legal team to prove that the insured paid for coverage excluded by endorsement that formed the basis for denying a large claim. The insurance carrier was a non-admitted carrier. While it is true that non-admitted carriers are immune from rate regulation by the various state regulatory agencies, that immunity does not excuse carriers from the consumer protection laws such as discrimination or charging for services or coverage they fail to deliver. It is not a stretch that if an insurance company does not deliver what the insured has paid for, they are in breach of the contract.
Additionally, I helped prove the endorsement had no underwriting merit and was apparently in violation of and contradicted the insurance company’s true underwriting intent. The underwriter was unable to provide any explanation of why they had chosen to attach the exclusion, or what they thought the exclusion accomplished.
Add that the underwriter could not provide any explanation about how the insurance premiums. The system generated quote was increased significantly after the underwriter’s intervention and attached the exclusion without any change in rating data. The underwriter had not documented any justification for altering the premium nor could they provide any explanation during their deposition. Failure to document or justify pricing opened up an argument that the underwriter sought to pursue a practice of predatory pricing.
To make matters worse, the underwriter included as part of their quote that they would add the coverage back onto the policy for an additional premium after a condition (that was already met) was confirmed. Adding to their problems, the underwriter did not specify what that additional charge was. When question, they could not even explain not express an opinion as to how the premium would be calculated.
Without any reasonable explanation by the underwriter as to why they needed to alter the coverage beyond what the insurance company provided, we provided a strong logical argument that exclusion should be voided and the insurance company’s original coverage intent to be applied.
This case highlights issues affecting coverage intent that are not physically within the policy language. Those issues even provided evidence of potential malicious behaviors on the part of the insurance company which may have an impact on damages awarded.
Truthfully, today some underwriters may not even realize the impact of what they are doing. Reduced skills training and greater reliance on technology has created a significant disconnect between underwriters and the products they are selling. That’s a good thing for the insured’ legal team, but not so good for the insurance carrier’s attorneys.
Nor is it just the individual underwriter. Underwriting management is often guilty of setting inappropriate underwriting guidelines and policies. I have seen discriminatory underwriting rules and guidelines published. In one example, a carrier distributed a set of underwriting guidelines limiting underwriting authority to a single ethnicity. Any person or entities that were not within the definition of that ethnic group could not be written by the underwriter. That example may be extreme, but often good faith efforts to set criteria for underwriters to follow often result in discrimination. Yes, that’s hard to believe but unfortunately true.
Redlining continues to be real as well. This is particularly true of smaller non-admitted carriers that use ISO based products and rating methodologies. Deviations from ISO rules and methodologies often result in discriminatory practices. While they may not have intended to discriminate against a protected class, I doubt the concept that “we didn’t mean to discriminate” is a good defense strategy. While God may forgive them because they do not know what they have done, courts and juries are more likely to punish the insurance company for those practices.
Without engaging an individual deeply skilled in the role and mechanics behind the underwriting process, these practices are likely to remain in the dark and not see light in the litigation process.
When to Engage an Underwriting Expert
A good underwriting expert gives the insured or agent’s legal teams an accurate peek into the inner workings of the underwriting process to expose possible problem areas. That peek inside may open additional litigation avenues to explore. Thus, enabling the insured’s legal team to construct pleadings, structure specific discover documents requests, and even help prepare specific targeted lines of questioning for depositions. Therefore, early engagement is always better than later engagement as it is more difficult to go back for additional evidence you didn’t request the first time around or justify deposing witnesses a second time.
Early engagement of an underwriting expert is also advisable for legal teams representing insurance carriers. The underwriting expert gives you a critical look at areas that may create weak spots in your case. Even the most diligent underwriting operation trying to operate in good faith is prone to making mistakes. Knowing where your weak areas rest puts you in a position to outline your path out of a potential litigation nightmare or provide better confidence in pursuing a strong case.
In contrast to the case that I described earlier, I worked with the defense team for an insurance carrier where the plaintiff was arguing that the premium for a location in New Orleans was 4 or 5 times greater than the locations in California, hence there should be coverage for a claim because they must have coverage because of such a high premium.
As an underwriter experienced with risks located in both hurricane and earthquake exposed territories, I knew almost instantly the cause of the extraordinarily high premium in the New Orleans location was due to storm modelling. Hence, I knew exactly what to look for in the underwriting file to build a logical argument to help get the case dismissed.
After working on over a dozen cases over the last few years, I am often told by the attorneys that they should have been contacted earlier. Even if you decide not to use the underwriting expert as a witness, as a consultant, the underwriting expert will prove to be a valuable resource providing perspective as well as a wealth of information.
So, when should you engage an underwriting expert? The answer is to engage an underwriting expert is early and often, even if it is to just run the case by them.
What to Look for in an Underwriting Expert
The final question is what to look for in an underwriting expert consultant? In my opinion, the ideal candidate to engage as an underwriting consultant/expert who possess practical experience and proficiency in critical underwriting skills.
One critical skill to look for is in-depth knowledge of how insurance premiums are calculated. The catchphrase of “follow the money” was popularized in the 1976 film All the President’s Men. The core premise of underwriting is matching a premium with the loss potential. Perhaps nothing is more critical in determining coverage intent than what did the insured is paying for. At least that’s my perception as an experienced underwriter.
When I started my first job as an underwriter trainee in 1980, the first thing I was taught was how to rate up policy premiums. At the time, the only technology I could call upon was a solar powered calculator that could add, subtract, multiply, divide, and calculate a square root. Armed with the calculator and rating manual of at least 1,000 pages, I learned how to rate insurance coverages. That knowledge provided me with a solid grounding to understand the relationship between the risk of loss and the premium.
In today’s age of technology, that connection between risk of loss and the premium among underwriters is becoming a lost skill. Underwriters are often only trained in inputting data into the policy administration system and how to modify the premium on an individual risk basis. However, without a grounding as I received, underwriters are prone to rating mistakes which can muddy the coverage intent. Too often today, underwriters do not have a clear understanding of the premiums they charge and often charge for coverage they are not giving and, in some cases, even double charging.
Therefore, as you search for the right underwriting consultant it is important to look for an in-depth understanding of rating and premium calculations. Unfortunately, it is a skill or knowledge base that is quickly disappearing as technology is relied upon more and more. If you find an underwriting expert knowledgeable in premium rating, don’t lose their contact information as you may never find another one!
Another valuable area of expertise to look for is significant experience in auditing underwriters and underwriting files. Underwriting auditors review underwriting files to evaluate whether an underwriter executed their duties appropriately by following established protocols, guidelines and rules in addition to generally accepted underwriting practices. The auditor has reviewed enough files to know how underwriters operate and what mistakes they likely made. The auditor has likely seen it all before.
Understanding what the underwriter was thinking as they went through the underwriting process. This is particularly important for the insured’s legal team. In many cases, they are looking for a reason to invalidate the policy language in favor of the insured. The experienced auditor almost immediately knows where the underwriting likely broke down.
The experienced auditor will have a sense of what the insurance companies underwriting criteria and procedures are. Thus, they can point to critical documents that will be helpful during the discovery phase. The auditor has been around the block more than once and they will instinctively know what to look for.
Possessing these areas of expertise are important. However, they need to be held within context of the real world. How recent or practical is the knowledge or experience? Some experts may have underwritten risks 30 years ago but haven’t touched an account since then. Thus, they cannot provide you with a true underwriting perspective.
The ideal candidate would be an individual who possesses significant underwriting experience, extensive knowledge of premium development, and managerial/auditing/compliance experience. Unfortunately, those ideal candidates are few and far between and getting rarer. Therefore, you may need to look for more than a single expert to provide the perspective you need.
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