Last week there was significant media attention given to a report issued by the Consumer Federation of America regarding the use of software by insurers to adjust bodily injury claims, such as “Colossus,” typically under auto insurance policies.  The report explains:

Over the past ten to fifteen years, the payment of bodily injury claims covered by automobile or home and property insurance has evolved from a system based primarily upon the experience and knowledge of claims’ adjusters to a computer-based assessment that has the potential to be easily and broadly manipulated by insurers. This technology has enabled many insurers to increase profits by reducing the amount paid to consumers who file bodily injury liability claims, including uninsured and underinsured motorist claims.  . . . The authors’ primary objective in writing this report is to inform regulators about the technical complexity of this topic and the need to exercise better oversight regarding how these systems can be manipulated to the detriment of consumers.

The report was the subject of articles by Leslie Scism and Erik Holm in the Wall Street Journal, by Denise Johnson in Insurance Journal, by Patricia Sabatini in the Pittsburgh Post-Gazette, by Grant Gross in Computerworld, and others.

Denise Johnson’s article quotes a statement from the National Association of Insurance Commissioners (NAIC) regarding the Consumer Federation report as follows:

“Computerized claims systems are generally geared for use in the claims settlement portion that involves pain and suffering, which can be a very subjective process. It is the expectation of state insurance regulators that these systems are just one factor in helping a claim representative reach a settlement conclusion,” the NAIC said in a statement.

In my view, the Consumer Federation is digging up an old issue that has been litigated fairly extensively for a long time (as they say, this has been going on for ten to fifteen years) and it has largely been resolved because class action cases were dismissed, had certification denied or they settled.  This is certainly nothing new and it’s unclear why it’s being highlighted now.  As I’ve described in posts on this blog over the last year, this is the type of issue on which the Illinois Appellate Court reversed class certification last year, although the Oregon Supreme Court upheld a large verdict after a class action trial.

One thing that seems to be missing from the Consumer Federation report and the articles about it is that, whatever use is made of software in evaluating bodily injury claims, the end result is simply a settlement offer that the claimant or insured are free to accept or reject.  The claimant or insured usually have an attorney if the injury is any kind of serious injury (or even a lot of times when they have a soft-tissue injury of questionable significance).  The software is nothing more than a tool that can be used in negotiations.  There is never any obligation for a claimant or insured to accept any settlement offer.  If insurers make offers that are too low the cases will not settle and juries or judges will decide how much to award.  Insurers also might risk bad faith penalties in some circumstances in some jurisdictions if they fail to make a “fair” offer before trial. 

Litigants who are trying to settle cases never want to pay more than they have to. That is why mediations predictably often start with relatively extreme positions on both sides until finally, at the end of the day, the parties might come close enough to try to reach a settlement.  Even before the advent of this kind of software, insurers could train adjusters to be tough negotiators in settling cases.  Especially when insureds and claimants have aggressive lawyers on their side, I’m not sure what is wrong with an insurer also having a strong negotiator, perhaps aided by computer data regarding prior settlements, on its side.  If insurers enter into settlements that are too generous, it will only lead to higher premiums for everyone.  Maybe I’m missing something, but if similar cases are really settling for less than they used to settle for, the only reason for that seems to be because plaintiffs or their lawyers are becoming weaker negotiators.  That seems hard to believe.

For purposes of avoiding class action exposure on this kind of issue, as I see it the key for an insurer is not to have hard-and-fast immutable rules about how software is used and what kinds of offers are made by claim professionals, but rather to use software as a potential aid where appropriate, together with the claim professional’s experience, education, discretion and guidance from a supervisor, and keeping mind applicable law in the jurisdiction, in order to try to reach a settlement.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.