Complex claims process: recalls, third-party claims and CPI/CGL/STP crossover

When I think of complex claims, that Spider-Man meme comes to mind – the one where several Spider-Man are standing and pointing at each other.

Three different kinds of insurance, potentially three sets of consultants, and differing thoughts as to who pays what and when. There may be three coverage positions, or none at all yet, depending on the circumstances. Fortuitous or not? Prior knowledge, but who? Any contributing factors?

Product recalls or liability matters, depending on where an insured sits in the supply chain, can spiral into what seems like endless customer claims, legal correspondences, insurance companies asking for information, accountants seeking financial support, etc. Larger claims can require a significant investment of time, energy and money from all parties: the carriers, the insured and any consultants. Being aware of and prepared for how these claims can develop is critical to the claims process for all parties involved.

More often, we see multiple policies respond to the same event. For example:

An insured supplies a spice to its customer, which in turn incorporates the spice into its snack products. A recall is initiated, and the insured has to dispose of the contaminated spice currently in production, and may have finished spice in transit or in warehouses. The customer has its snacks in distribution centers and on shelves. They also need their equipment cleaned.

If an insured is carrying insurance policies that have overlapping coverages, any combination of policies might respond to the same recall, and at different speeds. Coverage may be determined right away, or coverage may be determined by one carrier while the other carrier waits for the outcome of a claim under the other policy.

As an industry, we all must be prepared to encounter claims like this and do what’s necessary to smooth out the process for everyone involved. What does that take? Here's some insight:

1. Speed: Send in adjusters and accountants as soon as possible to lay the groundwork for what will be needed throughout the claims process. Site visits and inventory counts are also starting up again post-COVID.
2. Using common consultants: We have been successful in the past working for the whole insurance tower, and where multiple carriers are involved in the same recall; we were hired jointly to conduct a single, independent review of the claim. In these instances, the insured only has to handle requests from one accounting firm.
3. Having NDAs at the ready: Customers hate sharing what they feel is sensitive or proprietary information. Claims can come to a halt while the two parties are sorting out NDAs. And unfortunately, in some cases, customers decide mid-claim they suddenly need an NDA; therefore, it is best to address this matter from the onset.
4. Expectation management: With regard to “pay on behalf of” and “reimbursement” policies, insureds are rarely aware that policies might be “reimbursement” policies and, as such, expect advances against unpaid expenses.
5. Education about the effects of settling claims before they are substantiated: Customers may refuse to cooperate if they have already been paid. The insured’s business decision to settle could prejudice the review process.
6. Direct, early access: Too often, the individual who can address requests directly is not involved in the claims process. The claim gets prepared by one group, and another group (in-house counsel, risk) attempts to speak for what others have done. A lot can get lost in translation and if there is employee turnover at the insured, there might be no one left to speak to the claim.

Managing product recalls or product liability claims can be a complex and time-consuming process involving multiple parties. It's important for insurers, policyholders and consultants to be aware of and prepared for how these claims can develop.

By working together, adopting best practices around speed, collaboration and clear communication, we can minimize the risks and mitigate the impact of these claims on all parties involved. By having a detailed understanding of the policies, procedures and industry norms, all parties can be better equipped to manage such situations. Having a clear understanding of the coverages, who is responsible for what, and how the claims process will be handled will ultimately help ensure a smooth and efficient resolution of the claims.

This article is part three of four of the Hot topics in product recall series. Read part four, “The modern consultant: AI's thoughts on the impact of labor shortages on the recall insurance market”, to learn more.