Tuesday, September 4, 2007

The Dirty Secret: Insurance Companies Like Litigation

Note: Adding emphasize to the point I'm about to put forth I've changed the name of the insurance companies to avoid the prospect of litigation. Believe me I know from which I speak. Thank you Guardian Life. Ed

In a perfect world insurance companies would always do the right thing. The other day I read an on-line tale of woe on Edmunds.com from a car owner whose vehicle was hit while parked in his driveway. A driver insured by Worldwide hit the parked car. The Worldwide driver claimed that another driver insured by Suppressive forced him off the road. Damage to the parked car totaled around $2,000. The owner of the parked car did not carry collision insurance, so he submitted a third party claim against both Worldwide and Suppressive for his repair costs.

Unfortunately, with an inconclusive police report both companies promptly pointed their respective fingers at each other. Eventually, Worldwide floated an offer for 50%, but Suppressive has yet to give an inch. Therefore, short of litigation the innocent owner of the parked car looks like he’s out at least a grand.

The irony here seems almost cloudlike considering how often insurance companies complain about litigation. Yet in reality the industry harbors a dirty secret. Insurance companies regularly and deliberately invite lawsuits whenever the costs and hassles for a third party claimant look to exceed all potential for recovery. Rather than just doing the right thing, too many insurers prefer to play a game of litigation chicken: a frivolous lawsuit strategy in reverse. Don’t like it? Sue me.

And while insurance companies play rough with consumers, they play even rougher with each other. Take the process of subrogation for example. Here you have one insurance company making a claim against another. In the matter above if the owner of the parked car carried phyical damage insurance he likely would have submitted the $2,000 repair bill to his own insurance company. Ordinarily his insurer would attempt to collect back from Worldwide and Suppressive via the subrogation channel. Except now Worldwide and Suppressive care even less. Rather than the "sue me" response, the greeting afforded a subrogation claim usually starts with a two word expletitive. Occasionally when fault is indisputable a claimant insurance company may receive an offer amounting to something less than 100 cents on the dollar. Likely it will take the money and run - particularly if the offer looks to exceed all potential for recovery net of litigation.

Still that does not make this game right whether played against consumers or other insurance companies. A dollar saved owing only to a claimant's sense of pragmatism and threshold for litigation is not a dollar earned in any traditional sense. It is more like a dollar stolen, and it happens all the time.

Thanks for checking in…

Ed Campbell, III

As Featured On EzineArticles


bhargava said...
This comment has been removed by the author.
Walt said...

We need regulation to prevent big insurance from screwing their own customers. As long as investing makes more than insuring we will have these issues. I think a lot of them forgot they were insurance companies first.