When faced with the prospect of increased premiums there are two issues that come to mind. One is insurance fraud and the other is the increasing costs of litigation i.e. lawyer’s fees. With respect to insurance fraud, while it certainly does occur it is not as rampant as people may think. Insurers have become more pro-active in terms of investigating and denying fraudulent claims. As in many cases involving civil fraud or the property rights of private citizens involved in a civil dispute the police are often reluctant to investigate as it is thought to be a matter more appropriate resolution in the civil courts. This means that persons without police training are put in a position where they are relied upon to investigate claims and determine if they are legitimate claims. This can be extremely problematic as the court imposes draconian consequences in cases where allegations of fraud are made and are ultimately unfounded both in terms of costs and in terms of damage awards for punitive damages and bad faith claims.
When discussing insurance fraud the type of claim that commonly comes to mind is the claimant who is advancing a false claim. Fraud however effects the insurance industry at a number of levels. For example, there can be treatment facilities and auto repair shops billing for services not rendered.
The other factor at play in curtailing fraud is the civil jury. The majority of personal injury trials take place in front of a trial of 6 individuals who have been called to Jury duty and selected to serve on the jury. While these individuals may come from a variety of backgrounds the one certainty is that they will carefully scrutinize any claimant. They will be given a great amount of information to process about the claim and the claimant from many sources including the claimant, his friends, family and co-workers and a variety of experts including medical experts, accounting experts and engineers in the case of an accident re-construction. The Jury serves a very important function in screening out claims that are potentially fraudulent.
Rising insurance costs are often attributed by the insurers to rising litigation costs, i.e. lawyer’s fees. For example, the decision of the Ontario Court of Appeal in Cornie et al is being heralded as a blow to the insurance industry mainly due to the higher costs of litigation that are anticipated due to the fact that consumers no longer have to wait for however long it takes FSCO to mediate their claim before resorting to legal process but only need to wait 60 days as prescribed by the governing legislation. The underlying message of course is that these higher litigation costs will translate into higher insurance premiums for consumers so that ironically the decision that was supposed to be a victory for consumers turns out to be a blow. The one thing that must be considered is that the insurance companies are largely in control of their own legal costs. The notion as was suggested in a recent article that the insurer’s will now have to pay $10,000.00 to litigate every denial at FSCO is somewhat surreal given that have the power to decide when they will deny treatment plans and settle claims.
The notion that insurers will be forced to settle claims in the face of increased litigation costs that they wouldn’t otherwise settle is just one side to the argument. Claimants as well are faced with cost consequences which may be awarded against them in favour of the insurer in the context of legal proceedings based upon result. More than one claimant has lost their house to pay the costs of the insurer, and cost consequences are certainly a powerful tool that can be utilized by the insurers to restrict settlements paid out.
In summary, while insurance premiums will undoubtedly go up, the reasons given for premium hikes should be carefully assessed by the consumer.
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