Don’t Miss Your Golden Opportunity to Help the Insurer Set an Appropriate Reserve

Negotiating with Insurance CompaniesIf you’re fortunate enough to begin representing your client almost immediately after the injury, you’ve got a golden opportunity to help the adjuster and/or claims supervisor set the reserve for the claim.

Your goal is to help the adjuster or claims supervisor set that reserve as high as possible. The higher the reserve, the better your chances of obtaining a good settlement offer.  The way to do it is to provide the adjuster information about your client, the claim, and your client’s injuries on an ongoing basis as you receive it.

What Are Reserves?

Before a claim can be set up and assigned to an adjuster, the supervisor must set an initial “reserve.” A reserve is simply an amount of money an insurance company earmarks to settle a claim, including the anticipated costs of handling of the claim. Setting timely and proper reserves is an important function because the accuracy of reserves directly affects the company’s financial wellbeing, which is why insurance companies want to have reserves set properly and as quickly as possible.

How Reserves Are Set

When an insurance company first receives a claim, it generally has little more information than the name of the insured, an address, phone number, possibly a brief description of how the accident occurred, and an even briefer or nonexistent explanation of what injuries are involved. In most cases, the claims supervisor can only make a guess as to what the reserve should be.

Most insurance companies require an initial report by the adjuster to the claims supervisor within 15 days. The purpose of this initial report is to give the claims supervisor preliminary information about coverage, liability, and damages. After the initial report, the supervisor is generally required to reset the reserve to conform to the facts of the case.

After the initial report, and depending upon the claim’s seriousness, an adjuster will have anywhere from 30 to 90 days to complete further investigation. It is typically after that period that an adjuster prepares a more extensive report to the supervisor triggering yet another review and reset of the reserve.

How You Can Influence Reserves

During this 60 to 90 day period (and throughout your case), you should gather as much medical evidence as you possibly can and send it to the adjuster as you receive it. Your first letter to the adjuster is typically designed to give information to make the injuries look as onerous as possible within the confines of reasonableness.  However, you have to be prepared to send follow up records to the adjuster to back up your claims. In addition to medical records and bills, you also want to provide the adjuster information about your client’s occupation and wage loss.

In general, insurance companies like to have their reserves “set in concrete” within six months after the onset of the claim. It’s important for insurance companies to do this to comply with state regulatory obligations and to allow their actuaries to calculate premiums.

Therefore, whatever you do, do not wait until your client reaches maximum medical improvement to send an initial letter along with a settlement package, which might happen a year to a year and a half later or more!

Send the Adjuster Any Favorable Information, Even if It Would Be Inadmissible in Court

Send the adjuster any information that has any positive impact on your case, even if it is inadmissible, as it is likely to influence the evaluation of the reserve.

Keep the following in mind:

•             Don’t be afraid to send adjusters’ evidence or information even if you know it is going to be inadmissible later on if it is helpful to your case.

•             Adjusters don’t know what’s admissible and what’s not admissible.

•             If you send evidence or information to an adjuster that you know is inadmissible (e.g., copies of verdicts, polygraphs showing your client is truthful, the defendant’s driving or criminal records) even though you may not be able to get that item into evidence later on, you’re going to start prejudicing the adjuster in your favor.

•             Providing the adjuster with adverse information about his insured will cause the adjuster to start wondering whether his insured is a reliable witness. Feeding this information to the adjuster will have a subliminal influence on reserve adjustments despite admissibility at a trial.

•             If this information is in the insurance company’s file and it turns into a bad faith case, all that information goes into evidence along with the claim file!

For example, I had a situation involving a professional scuba diver with a herniated disc. The conclusions I gave the adjuster based on the diagnosis of one doctor was that this man was never going to be able to dive for the rest of his life and he was going to lose a career.

Coincidentally, I ran across a case in Jury Verdict Reporterthat had just been tried for a professional scuba diver who lost his career and it produced a multi-million dollar verdict. I sent that information to the adjuster. The minute he got that, he shot that reserve way up and when we made a demand for policy limits, that case settled for the full limits of $500,000.

The scuba diver was very fortunate. After surgery, he was able to return to his career as a scuba diver. He benefitted because his case was maxed out rather quickly before his impending surgery.

Take Advantage of Pressures on the Adjuster to Set a Proper Reserve

An adjuster or claims supervisor relies on you to some extent for information to help set reserves. The last thing an adjuster or claims supervisor wants to do is to carry a $10,000 reserve for a year and a half to two years and then suddenly jump that reserve to $500,000. It’s embarrassing. The adjuster or supervisor will generally have a lot of explaining to do.

Furthermore, it causes much closer scrutiny of the file by more people than there would be otherwise, which in turn can cause considerable delay internally.

Reserves have to be reevaluated as new information becomes known to the insurance company. The adjuster must obtain specifics throughout the life of the claim. Consequently, every time that claim file gets picked up, it’s the adjuster’ or supervisor’s job to make sure the reserves are in order. The adjusters and claims supervisors should always be looking at what their worst case scenario might be based on the information they have at hand when adjusting the reserves on a particular claim.

If you send records out piecemeal as you get them, the adjuster will be looking at and reading those records, and thinking, “I’ve got to make sure this reserve is set properly; otherwise people are going to be on my back.”

How a Proper Reserve Facilitates Settlement

When it comes time for an adjuster or claims supervisor to request settlement authority, the authority is usually limited by the reserves on the file. There are exceptions, but this is the general rule. If you have done your homework properly in providing the insurance company with new information when received, the reserve will have been set high enough to allow an adjuster to settle the claim for a sum that you are willing to accept.

It’s important to immediately notify the adjuster of changes in the client’s condition and to provide records that will likely cause an upward movement in the reserve. Likewise such letters or conversations with an adjuster might include a reminder: “You may need to look at your reserves.” Although it’s the adjuster’s and supervisor’s job to constantly review the reserve every time the file is picked up, it never hurts to include a reminder.

Avoid Delays Caused by Improperly Set Reserves

Reserves that have not been properly set cause delays in resolving cases because the adjuster has additional reporting requirements to satisfy when there is great disparity between the real value of the claim and the reserve. Many times, such delays cause plaintiff’s counsel to become impatient and file suit in a case that could or should have been settled without filing a lawsuit.

Plaintiff’s attorneys do not always take the time, pre-suit, to gather information that an adjuster needs to settle a claim. Often the reason is because the plaintiff’s attorney or paralegal does not understand what the adjuster needs to satisfy the insurance company’s requirements. Another reason is plaintiff’s counsel’s failure to have procedures in place that periodically update a file and in turn update the insurance adjuster.

Reserve revisions are made more intelligently as information is gathered through the life of the claim. Setting proper reserves as early as possible is a very important function of the claims department. Reserves are supposed to reflect the ultimate probable cost of the claim. Therefore the adjuster or claim supervisor should always be thinking worst case scenario in setting and/or re-adjusting a reserve. That is why it is important for you, the plaintiff’s attorney, to provide information regularly to the adjuster so that the reserve can be increased to a proper level.

About the Author

Joseph L. Vaccaro has over 40 years of insurance claim handling experience. He served 11 years in the claims department of one of the nation’s largest insurance companies, handling and supervising adjusters in casualty claims in all lines of both personal and commercial insurance. During the following 28 years he worked for two prominent plaintiff law firms as head of their pre-litigation departments before starting his own consulting firm.

Mr. Vaccaro maintains a current adjuster’s license, and carries the following professional designations recognized in the insurance industry:

•             Casualty Claim Law Associate (CCLA).

•             Commercial Lines Coverage Specialist (CLCS).

•             Personal Lines Coverage Specialist (PLCS).

He now consults in matters involving insurance policy disputes, insurance bad faith, mediation/negotiation strategies, and provides expert services on behalf of policyholders.

To learn more about Mr. Vaccaro, visit

Negotiating with Insurance Companies gives you an insider’s edge in dealing with adjusters.  Guidance is provided for 8 types of claims – personal auto; commercial auto/truck; general liability; big damages/bad liability; own occupation disability; non-ERISA health insurance; homeowners and commercial property; and bad faith – plus more than 40 sample forms.

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