Conflict Resolution|systems design

Liberty Mutual and Sandy

Ken Feinberg has been engaged by Liberty Mutual Insurance Company to design, implement and administer a dispute resolution process for the tens of thousands of home and auto policyholders who are asserting claims in the wake of Superstorm Sandy.  About forty select mediators and arbitrators were chosen to constitute the pool of neutrals for the plan, and Feinberg assembled us recently to explain the process.

There are three stages.  Policyholders who are dissatisfied with the coverage or damages decision that Liberty Mutual’s claims agent makes upon initial assessment are encouraged to challenge that decision, which will be re-examined by a different and more senior panel of adjusters within the company.

In the event that the policyholder remains dissatisfied, the policyholder may opt for mediation of the issue, at Liberty Mutual’s expense, and using a mediator that Feinberg’s office has independently selected.  The policyholder is not obligated to mediate, but if she chooses to do so then Liberty Mutual is obligated to participate in the mediation.

If the mediation process still fails to satisfy the policyholder, then arbitration is available to render a final, binding and unappealable result.  In this case, however, Liberty Mutual is not obligated to participate — both parties must agree to arbitrate in order for the process to take place.  Again, the arbitrator is selected by Feinberg, not Liberty Mutual.

In overview, this is a three-step tiered structure, of which the first is in-house and all but the last are non-adjudicatory.  There are no costs to the policyholder choosing to avail herself of any of the sequential stages in the process unless she chooses to engage a consultant, representative or expert.  It is clearly designed to encourage policyholders to enter the process.

Why?  The answer was given by Feinberg by reference to an almost identical procedure that Liberty Mutual had used following Hurricane Katrina.  There, about 20,000 claimants availed themselves of the dispute resolution process by seeking review of the claims decision in the first instance.  Yet there were only 175 mediations.  And the arbitrations?  Zero.

Now, one can’t assume that the policyholders were all satisfied and that’s why there were so few mediations.  And it is of course possible that parties who declined to arbitrate did so because they preferred to litigate instead.

Nevertheless, one is compelled to conclude that an overwhelming batch of claims was addressed individually and to the satisfaction of an overwhelming number of stakeholders — including the courts who would otherwise have been required to hear the disputes. 

And this is the sort of thing that puts a smile on the face of a student of business conflict management.  It is, at heart, a managerial rather than legal approach to a business challenge.  Being a mutual company, Liberty thrives not only on its premium flow but on its relationship with its policyholder/owners.  Open claims files are expensive claims files.  Every business consideration counseled addressing and closing these claims expediently and efficiently.  One assumes that, somewhere embedded in those claims, is the homeowner from Tulsa who seeks coverage for the storm in New Jersey, or the company adjuster who denied coverage for roof damages on the ground that it was flood-related, or the homeowner who insisted that his basement was flooded because of the wind.

The most admirable attribute to this process (details available at is that it is driven by long-term business considerations and a healthy respect for the customer, rather than a desire to pay as little as possible as late as possible and only when required.  It seems to be a paradigmatic example of commercial dispute resolution that reflects and serves the business plan of the company, and not just the legal advice of the attorneys.  Bravo.

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