“Claims Manager” Indistinguishable from Insurance Company for Purposes of Unfair Settlement Practices

A recent United States District Court ruling indicates that third party claims management providers- often utilized by large, self-insured corporations – will be liable to the same extent as actual insurance agencies and brokers for unfair settlement practices utilized throughout the claims process.

Most large companies have the financial resources to compensate individuals who suffer personal injury or property damage as a result of their employees’ negligence out of their own monetary reserves, though they may choose to delegate the handling of these claims to a third party management company.    These claims management companies or “administrators” do not underwrite insurance policies or pay out any monies to any injured parties, but they do investigate claims, negotiate and offer settlement terms, and in some cases may coordinate with those insurance providers that the corporate client does contract with (for example, workers’ compensation and professional liability carriers).   In this sense, claims managers and administrators assume the role of insurance investigators for the vast majority of incidents reported at some of the largest companies in the country.

This also means that claims management representatives are susceptible to falling into the same legal “traps for the unwary” applicable to insurance investigators — prejudicial delay in processing claims; the withholding of documents; passing claims off from one investigator to the next, and so on.     In Massachusetts, such tactics are specifically enumerated in General Law Chapter 176D as unfair and deceptive when practiced by any entity “engaged in the business of insurance.”   Similar to other consumer protection statutes, a violation of Chapter 176D may entitle aggrieved claimants to three times the amount of any court judgment eventually awarded, pursuant to The Massachusetts Consumer Protection Act, General Law Chapter 93A (if the case is dragged out but settled prior to judgment, then the claimant may still recoup up to three times the amount of interest on settlement from the date that liability and damages became reasonably clear).

The question presented in the recent case of Silva v. Home Depot was whether the plaintiff could plausibly allege “stalling tactics” and recover triple damages against Sedgwick Claims Management Services, Inc., Home Depot’s third party claims manager, despite the fact that Sedgwick did not sell any insurance policies or fund any settlement payments.   In ruling on Sedgwick’s motion to dismiss, the Court declined to offer any insight as to Sedgwick’s status as an entity “engaged in the business of insurance” under Chapter 176D because the parties agreed to dismiss this claim prior to hearing.   Notwithstanding this issue, however, the Court found the unfair settlement practices alleged by the plaintiff to be actionable against Sedgwick under the Consumer Protection Act directly, thereby eliminating the need for a party to first successfully prove its standing under Chapter 176D.

Strategic negotiation and representation is necessary when presenting any sizeable claim, whether the claim is being submitted and processed under a homeowner’s or general liability insurance policy, a professional liability policy, or directly to a company that utilizes a third party claims management services.   Please contact the attorneys at Mirageas & Avery, LLC with any questions.