Insurance Companies: How Do They Decide What’s A Fair Settlement?

Dramatic trials, judges and juries are the stuff of Hollywood. Here’s how insurance companies decide what’s fair in the real world…

Matt Damon and Julia Roberts, step aside; it’s time to let go of the myth that big insurance payouts happen in the dramatic fashion we see in Rainmaker and Erin Brockovich.

In Canada, at least, the question of ‘what’s fair?’ comes down to a careful negotiation between the defense (the insurance company) and you, the victim.

First and foremost, your team needs to include a personal injury lawyer. Having worked as a defense lawyer for an insurance company prior to opening my own firm, I understand how the negotiations work from both sides. I know how insurance companies think.

Insurance companies aren’t charities and while you pay premiums so that you can be covered in the event of an accident, they are not working FOR you. That’s important to keep in mind. While you never want to take an adversarial stance with your adjuster or the company’s lawyer, you want to keep this in mind at all times while your claim is being settled.

Basically, every personal injury claim is set up at the insurance company with what’s called a reserve fund.

A reserve fund is the sum of money that they think your claim is likely to payout. This amount is determined at the start of your claim although you will never be told exactly how much of a reserve has been set aside.

Why is this reserve fund number important?

Because insurance companies are profit making institutions. They have a board and shareholders to whom the company must report their profits.

The insurance company’s motivation is to payout less than the reserve, so while they want to pay what’s fair, they will take an extremely conservative view.

On the other side, our job is to build a case that that proves to the insurance company how much you really need to move on with your life over the long term and ensure the insurance company is not underestimating your case in order to save money.

We want to increase the money in the reserve fund. They want to decrease it.

Each reserve needs to be relatively accurate as it is difficult if not impossible to raise it later and this is where having an experienced lawyer on your case from the beginning is important. After the reserve is set, the claim is investigated and settlement negotiations can begin.

Call A Lawyer

Given what I’ve said above, it should be clear that the first thing you need to do post-accident is to contact your doctor. Make sure have your doctor write down everything that you’re feeling. Don’t hold back.

You see, tiny symptoms soon after an accident that seem insignificant can unexpectedly grow into larger problems as time goes on, so it’s good to get it all down on paper and don’t judge of what’s important and what’s not – let your doctor do that.

The next step? Contact a personal injury lawyer, who can help you to build your case accurately. We know what to say and the questions to ask.

Third, refer anyone from the insurance company who contacts you to call your lawyer. Don’t engage with them directly because, as I said above, if the reserve amount determined by the insurance company is low because, working alone you failed to present the right information about your injury, it’s going to be hard if not impossible to increase it later.

Start as you mean to finish by getting a lawyer involved who will steer you, and your case, in the right direction.

Some Things The Insurance Company Will Be Looking For

  1. Did you mention your injury to the first responders at the accident scene?
    I’m referring to how much you shared with the paramedics, at the emergency room or to your family doctor the next day? In my opinion, the more the better, because, as I said before, seemingly insignificant symptoms can be a big deal down the road.
    This kind of information is vital to the insurance company’s assessment of compensation i.e. setting up that reserve fund. The theory is that if you didn’t complain of injury at one of those times—where notes are taken and kept for records purposes—how injured can you really be?
  1. Inconsistencies in your medical records.If your doctor isn’t writing EVERYTHING down, your insurance company will question the validity of your injury claims.
    It might seem odd to be telling your doctor how to do their job, but ultimately, the success of your claim hangs in the balance of this kind of information, so better too much than too little.
    Don’t be shy, if your doctor is a bit rushed and not recording what you say, ask them to get writing. Tell them why. Medical professionals understand your injury better than anyone, and the accuracy of these records is critical to both your team and the insurance company in determining what’s fair.
  1. Impatience on your part to settle.Yes, you have expenses and those are important considerations, but in the negotiation of a settlement, the legal procedures take time. Typically 1-2 years.
    It’s a long time when you’re dealing with so much stress, but ultimately, both your lawyer and your insurance company need that time to evaluate the true extent of your injuries and a fair settlement offer.
    Trying to rush things only creates errors and misunderstandings that can undermine a settlement negotiation.
    Consider the case of a concussion. Sometimes you don’t even know you have a concussion at the beginning, yet concussions can have serious long-term ramifications down the road. If a concussion victim settles immediately, only to realize that the injury is much more serious down the road than first anticipated, they are unable to go back.
    Bottom line? Your case must move at the same pace as your healing journey; never be pressured into an early settlement by either the insurance company or your lawyer.
    I have a lot more details on the breakdown of why it takes this amount of time on another post.
  1. Inconsistencies in your behaviour.Here’s where the time lag for settlement of 1 to 2 years can be a problem.
    You need to be 100% honest all of the time about your current medical status: with your doctor and with your lawyer.
    If you are claiming that your injury prevents you from engaging in normal household maintenance, don’t be mowing your lawn or tarring your driveway.
    Surveillance is often used by insurance companies to verify claims, and while it can be misleading, it can also provide damning evidence when it comes down to deciding compensation.
    For example, you might have decided that you felt a bit better and could take care of your hedge clipping. The video surveillance shows you doing just that. Of course, the video doesn’t show how you end up going back inside and laying flat on your back for three days afterwards, because you overdid things. But from the insurance company’s perspective, you misrepresented your abilities and the damage is done.
    Social media is another way insurance companies will research your claim, and I’ve talked about this in another post. To summarize, posting your latest trip pictures to the Caribbean that include a few snaps or video snippets of your parasailing adventure, will lead the company to think that you are not as injured as you have claimed. Keep your social media chatter to a minimum, if you need to do it all.

Finally, a word to the wise: Contrary to popular belief (that is perpetuated by the inflammatory language many personal injury lawyers use in their advertising), hiring a lawyer is not viewed as adversarial by insurance companies. I can tell you this first hand. In reality, it’s standard practice and makes good sense.

Forewarned is forearmed. If you have any questions, it never hurts to reach out and speak to a personal injury lawyer.


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