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The Viability of Process Audits in the Subrogation Process

When subrogation documents are received by an attorney, claims adjuster or carrier the focus is normally on whether or not the insured can be held liable for the damages caused and an investigation is either commenced or the facts regarding the situation are reviewed. When dealing with files that pertain to large loss fire, water, smoke or other similar incidents some thought should also be given to the viability and precision of the quantum being claimed.

In this regard the use of a process audit should be contemplated. Granted as a third party you are not held to the terms of the policy issued to the claimant and thus you will be able to depreciate a loss. However what is the advantage to depreciating an item by 80% if the item was not required in the first place.

Furthermore if the claim includes a request for reimbursement of business interruption dollars paid you should be able to determine whether the repair process was timely and purposeful.

By utilizing a process audit you will be able to ascertain several factors amongst them:

Were the processes used consistent with existing standards? Did the processes used contribute to financially sound results or did they cause additional expenses i.e. drying materials later torn out, installing dehumidification equipment in an open environment.

Was the equipment utilized the best for the job? Often the contractor or preferred vendor does not have access to specialized equipment. As well, they tend to use what they have in inventory rather than what is best i.e. oversized or under capacity dehumidification.

What were the credentials of the employees utilized on the project? Were you charged rates concurrent with the individuals training and skill set? Often in times of disaster casual labor is used and charged out as technically proficient personnel.

Have you ascertained the value of the work performed? i.e. excessive tear out vs. salvaging.

Was a CPM (Critical Path Management) plan prepared and adhered to and if not why?
Could the project have been successfully completed in a shorter time frame and at less cost? Were Gantt charts used?

Did you scrutinize the validity of competitive bids? Sometimes all they indicate is a local feeling for the cost. Would bringing in outside resources mitigate the cost? Do the persons solicited for the bids have the required expertise?

These factors and others need to be taken into consideration prior to entertaining or paying for large loss claims.

There are several other factors that can be validated and thus a degree of certainty achieved that the amount being reimbursed is commensurate with your legal obligations.

By M.G.D. Claim Services Inc.
Commercial Large Loss Consultants/Adjusters
Marc Dubois is an Executive General Adjuster with thirty seven years experience in all facets of the commercial property and casualty claims handling business. As an independent adjuster, insurance company claims manager as well as the national manager of a large loss restoration firm Marc has a unique vantage point of the claims process. He is not only intimately familiar with the claims resolution process but also the vendor network that supports the process.

Copyright M.G.D. Claim Services Inc.

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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