ISO Data's Closed-Claim Survey Shows Growing Use of Alternative Dispute Resolution Methods
NEW YORK, May 21, 1996 — The proportion of general liability insurance cases settled through alternative dispute resolution has doubled since 1991.
Alternative dispute resolution methods include approaches such as mediation and arbitration that are outside the court system.
The percentage of incidents settled for $75,000 or more through alternative dispute resolution increased to 14.4 percent in 1994 from 6.8 percent in 1991, according to a new study by ISO DATA, Inc.
The subsidiary of Insurance Services Office, Inc., performed the survey under the auspices of the National Association of Insurance Commissioners.
This third biennial closed-claims survey performed by ISO DATA analyzed 1,778 claims that closed between July 1, 1994, and October 31, 1994, with payments of at least $75,000. Thirty-five insurers representing 66 percent of the commercial general liability market participated in the survey.
Other findings of the latest survey — which were consistent with the results of the earlier surveys — include:
- More than 90 percent of the claims were settled after the claimant filed a suit. This percentage is essentially unchanged since 1991.
- The greatest percentage of cases — about two thirds — were settled after a suit was filed, but before it went to trial. The smallest percentage of cases — less than one percent — were concluded by appellate court verdicts.
- Cases in which claimants filed lawsuits took more than twice as long to settle — 48 months on average — than did cases in which no suit was filed — 20 months.
- The ratio of allocated loss adjustment expenses — which includes legal defense costs — to insurer loss payments was generally higher than average in cases where claims advanced to later stages of the legal process, in incidents involving multiple potentially liable parties, for claims that outside counsel handled for the insured and in products liability claims. On average, allocated loss adjustment expenses in 1994 were 15.8 cents per dollar of loss payments, compared with 14.0 cents in 1990.
- In incidents where the survey respondent knew whether or not the claimant used collateral sources — most commonly workers compensation — about three-quarters of the claimants used them. Few of the collateral-source payments resulted in reduced insurer claim payments. (Collateral sources are sources outside the liability insurance system that reimburse injured parties for their medical expenses or other economic losses.)
- The most common injuries were dislocations or fractures — 29 percent — and back injuries — 19 percent. Deaths accounted for approximately 11 percent of the claims.
- Cases in which the claimant sought damages from more than one party involved serious injuries more often than cases in which the insured was the only liable party. When the claimant sought damages from more than one party, the final average total payment through the insurance mechanism was significantly higher, $505,000, or 120 percent more than the average indemnity amount of $229,000 paid in single party cases.
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
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