banner ad
Experts Logo


Arbitration and Insurance Litigation: Beware of Retrospective Premium Adjustments

By: Jane Downey, M.Ed., ARM
Insurance Expert and Mediator

Email Ms. Downey
Telephone: 610-825-3705

View Profile on

In three litigated or arbitrated cases, I have been retained as an Insurance Expert or Insurance Arbitrator to confirm the proper calculation of insurance premiums, based on actual exposures, completed by the insurer at audit. In the first case, a large Hotel bought out their partner and inherited a large Wrap-Up Program of Insurance. A Construction Wrap-up is designed for large construction projects to ensure that everyone from the contractor to all sub-contractors is properly insured in the same insurance program. The subcontractors are instructed to remove their payroll, sales, and other exposure bases from their primary insurance program premium calculations and to pay for that insurance in the Wrap-up.

Acquisition of Loss Sensitive Wrap-Up Construction Insurance Program

The financial team at the Hotel did not understand the billing and reached out to me through counsel at Anderson Kill to audit the retrospective premium calculation. This is where my expertise in Workers Compensation Claims Management and Risk Management Information Systems (RMIS) supported by my degree in Risk Management and Accounting came into play. The first thing I asked when I was assigned as Party Arbitrator for the hotel, is “Has anyone looked at the premium financing agreement?”.

Now, I was new to Arbitration at the time and quickly learned that any document that I received had to be shared with the other party’s arbitrator and the Umpire. Arbitrators are committed to be impartial so to keep the flow of information equitable, the panel requests to all look at identical information and documents produced in discovery, at the same time. As I recently learned in my extensive training with the American Reinsurance and Insurance Arbitration Society (ARIAS), the way the ARIAS arbitration process works is that the ARIAS certified arbitrators follow a methodical rules process in Arbitration:

  1. Each side selects a Party Arbitrator, based on the arbitration clause in the policy.
  2. Then, the Party Arbitrators present 3 or 5 potential Umpires to each party’s counsel wherein each Party Arbitrator gets to strike suggested candidates until they agree on one Umpire.
  3. The attorneys mutually appoint an Umpire.
  4. An Organizational Meeting is held to discuss the issues at hand and the content and extent of the discovery that will be reviewed and shared by all five parties to the Arbitration. (Three Arbitrators and 2 Attorneys is known as a Five-Party Arbitration)
  5. The Parties select an Arbitration meeting time and place that is convenient to all five parties.
  6. The attorneys then argue their respective cases to the three arbitrators.
  7. The three arbitrators convene and meet privately, without counsel, and to review, analyze and argue through all the discovery.
  8. The three arbitrators then deliberate and hopefully come to a mutual decision.
  9. If the decision is not unanimous, the Umpire makes the final decision by breaking the tie.

Other alternative dispute organizations may follow different rules and procedures for mediation and arbitration.

Review of Losses in Lieu of Arbitration

Therefore, it was premature of me to ask for documents and I agreed to “step down” as Party Arbitrator and become an expert on premium auditing for the Hotel. Expert reports can be submitted in the discovery phase in arbitration. I received access to the RMIS claims system that had a record of each one of the claims paid and open in the Wrap-up; I reviewed each of the open claim files. The Wrap-Up program contained both Workers Compensation and General Liability insurance programs. After combing through the open claims, I quickly found three issues:

  1. A General Liability “Third Party Over” claim remained unsettled with a massive reserve. This was a claim for injuries from one of the subcontractors on the construction project who was injured when scaffolding collapsed. It was very odd for this claim to remain open because there had been over $100,000 spent in defense and the claim was 13-years old. When I reached out to the insurer’s claims adjuster, I was advised that defense counsel had trouble locating the claimant and learned that the adjuster had recently assigned this case to new defense counsel.

  2. A Workers Compensation claim from the above subcontracted employee was completely paid with a large incurred; it remained open to collect subrogation from the Hotel’s liability policy because it was deemed that the hotel somehow caused the accident as owner of the scaffolding. Therefore, the open Workers Compensation claim was owed money from the General Liability claim file. Thus, I knew immediately, the retrospective premium rating was wrong and overstated the premium due.

  3. A duplicated General Liability file on the Worker’s GL claim was also overstating open reserves and the billing because the insurance premiums on the program rated on Total Incurred; this is the sum of paid money on the claim plus forecasted future payments, known as reserves.

Successful Resolution of the Billing

At this point, defense counsel advised the insurer’s plaintiff’s counsel of our findings and asked them to push the insurer’s claim adjuster to settle and close the GL claim, lower the reserves on the GL claims and pay the subrogation recovery into the Workers Compensation claim. By the time I completed the project, we reduced the retrospective premium billing from $500,000 to a fraction of that. We also saved the expensive costs of arbitration. The irony is to obtain ARIAS certification as an Arbitrator, I need to sit as an arbitrator; I gave up that opportunity to commit to the most effective and ethical way to solve this client’s issue. The second case in which I was assigned as an arbitrator is currently on hold as they are taking the same approach to resolve the billing. I will write about the third case when the matter settles.

Jane Downey, M.Ed., ARM has 35 years of experience in Risk Management and Property, Casualty, and Professional Liability Insurance. A well-known risk management consultant, leadership trainer, and frequent public speaker, she provides risk consulting, insurance broker management, outsourced risk management, insurance arbitration, as well as leadership and team training. Ms. Downey has provided expert opinions on policy language, coverage disputes, brokerage E&O and standard of care, risk control and risk management standard. She has successfully provided litigation support, testimony, depositions, certifcates of merit and expert opinions in over 60 legal actions. Ms. Downey Jane has represented both insureds and insurers and clients and brokers.

©Copyright - All Rights Reserved


Related articles


8/30/2017· Insurance

Using Experts or Consultants at Mediation

By: Guy O. Kornblum

One of the best techniques for settling cases at mediation is to take a consultant or expert witness with you to the session or at least have them available by telephone. I have used this approach in many cases with considerable success. The manner in which this is done varies depending on the complexity of the case, the extent of the consultant's or expert's involvement and what disputes or unresolved issues depend on expert testimony.


10/2/2019· Insurance

Soaring Insurance Deductibles and High Drug Prices Hit Sick Americans with a Double Whammy

By: Lindsay Malzone

In the national debate over health insurance, the Affordable Care Act gets the spotlight. However, most Americans don’t get their health insurance on the ACA's exchanges. They have insurance through their employers.


11/20/2014· Insurance

Construction Risk Management: Claim Auditing

By: Frederick Fisher, JD, CCP

The claims audit is the anathema of day-to-day claim operations. Nothing is more disruptive. Yet, if properly defined, nothing is more informative and helpful in improving a claim management program. This article will examine the need for a regular auditing program and provide a recipe for a three-dimensional approach to the process in order to maximize the accuracy of the audit results.

; broker Movie Ad

Follow us

linkedin logo youtube logo rss feed logo