Casualty Claims: An Accountant's Day of Reckoning

by Chris Campos

In today's society, the growing number of claims is becoming increasingly complex. A claims person must address not only liability issues but also the financial interest of his company in the event damages become a factor. In molding the best possible case, he must marshal all of his talents, the talents of his company and any expert advice he deems appropriate.

One possible expert a claims person can utilize is a qualified accountant who has experience in investigating and evaluating claims for damages. This specialized experience sets him apart from other well-trained accountants. Accounting firms that have seldom been involved in damage claims are often unaware of what a claims person requires in such cases. Often, claims per sons are equally unaware of services that experienced accountants can render on their behalf. These include: a list of documents for claim verification; questions to be asked of a claimant and/or person who prepared the claim; and an audit of the claim.

If the claim goes into litigation, the accountant can also assist in the preparation of interrogatories, questions for depositions, questions for cross examination on trial and assist the attorney during certain depositions. Ultimately, the accountant may be used as an expert witness, if the attorney deems it appropriate.

From the accountant's point of view, a number of problems in his relationship with claims persons some times arise. An understanding of these problems may prevent or minimize them. One of the most common problems facing an accountant is that claims persons frequently delay engaging him until his effectiveness is compromised.

This problem is primarily caused by two factors: a desire to try all legal means at the disposal of the claims person to resolve the case, such as a denial of liability or a settlement, and a desire not to incur unnecessary experts' fees if any of the cited situations occur If appropriate, a case should be disposed before any money is spent to evaluate the damage claim.

However, there are many instances in which a claims person, while denying liability or engaging in settlement negotiations, can utilize an accountant in preliminary stages to point out weaknesses of the claim. Until the liability matter is favorably resolved the claims person should consider having an expert review the claim to determine if it is overstated Perhaps settlement can be more easily reached if the claimant knows that the company is aware of the value of the claim. Regardless of liability in the case, the claims person has then improved his posture for negotiations. He should be pragmatic, recognize the risks involved and determine the extent of his company's vulnerability.

If the claims person does not want an audit, the accountant can assist him in his request for the production of appropriate documents. He is therefore assured that the required documents are not disposed of during the ordinary course of business. Once the documents are produced, they can be held in an inactive status until the attorney or client has time to evaluate them.

Another advantage to obtaining the documents and becoming familiar with them early in the case is that the people who prepared them can ~e questioned. A delay of a few years increases the chances that important people may become unavailable through retirement, change of positions, change of residence or death.

A problem frequently facing the accountant is inadequate communication with the claims person. At the very least, the claims person should set forth the specific scope of the expert's assignment and clarify the accountant's role by setting parameters. These guidelines will prevent duplication of effort, unnecessary work and the omission of required procedures. Also, the claims person should inform him of any deadlines.

The overall strategy which a claims person plans for developing and presenting his case is one which he doesn't need to discuss with each of his experts. How ever, the claims person should advise experts not only of what he wants the expert to do but also the reasons for that action. Often an accountant, speaking from his experience in other damage suits, can offer suggestions which the claims person may not have considered.

Frequent communication will assure the claims per son that the assignment remains on target, excessive work is curtailed and procedures which could be helpful are not ignored or considered at too late a date. An awareness of the concerns of both the claims person and the accountant in damage suits should lead to greater cooperation. First, an accountant, more than any other professionals is in the best position to know what records are normally prepared by a company and what reports, tax returns and other documents need to be filed with govern mental agencies. He has worked in many organizations and assisted companies in the preparation of these forms. Therefore, he is best qualified to know which records will be helpful in challenging a claim and in developing an alternate approach, if necessary, in arriving at damages. He also knows whether or not certain records would normally be retained for federal income tax purposes.

If he has an inquisitive mind, he will request records and documents normally maintained in the business from an operating and management point-of-view. The accountant's value is especially enhanced if he has some managerial experience in a commercial or industrial company in addition to his public accounting background. Examples of such reports are those filed with trade associations, government agencies (other than tax returns), plant managers' and superintendents' reports, production reports and maintenance schedules. Although accountants are generally not experts in every industry, some are experts in evaluating claims in certain industries.

During the course of his work, an accountant is often advised that certain records or documents are non existent, are not maintained or have been discarded. An accountant experienced in evaluating damage claims should, in spite of denials made by the claimant, suggest that these documents be made part of a formal request. The claimant is then forced to take a position, in writing, as to their existence.

A poorly drawn document request is an indication to the opposing party that the requester is unfamiliar with the type of records maintained by businesses or the specific industry which is involved. On the other hand, when the opposition sees a specific request the claimant is aware that the opposition is requesting significant and meaningful documents. This often can set the stage for negotiating a reasonable settlement.

Suggested Questions

Often the documents themselves are not self explanatory, and additional information concerning their method of preparation and their purpose is necessary to fully understand them Without this background, they are not as helpful as they could be. Also, explanations are sometimes needed to comprehend completely the business or other activities of the claimant. To the extent that these questions arise in the work that the accountant is performing, he can submit them for the claims person's consideration. In many instances, the claimant's personnel have been instructed not to talk to the accountant while he is conducting his audit, and one means available to have questions answered is through the claims person.

Audit of the Claim

Through use of requested documents and questioning of the claimant or the person who prepared the claim, an accountant can conduct an audit of the claim to evaluate the damages. He can conduct the audit at his office or, preferably, at the office of the claimant. Working with personnel in the claimant's office often gives a better insight of the business and the means by which the claim was prepared. Sometimes an offhand remark by subordinate personnel can be a hint to a weakness or deficiency in the claim.

The accountant, in evaluating the claim, should determine its strengths and weaknesses so that he is in a position either to support the claim in its entirety or to enumerate the magnitude of its weaknesses. Obvious duplications or errors in the claim should be brought to the attention of the claims person.

If there are sufficient weaknesses in the claim, the accountant should ascertain whether or not the claims person wishes to proceed with an alternate approach in arriving at damages. The claims person may prefer merely to attack the claim and not incur the expense of an alternate claim calculation. This strategy should obviously be the decision of the claims person and be part of his overall plan in presenting his case.

However, in the event of litigation, the accountant may assist in the preparation of interrogatories. If litigation occurs, and in light of other factors in the case, a claims person and the attorney may prefer that the accountant not appear as an expert witness armed with an alternate approach to the claim. They may fear the opposing attorney will force the accountant to establish values of damages that were poorly prepared and presented by the claimant.

Assistance in Depositions

An accountant can be helpful while the attorney is deposing the claimant's accountant, other persons who prepared or helped prepare the claim or those involved in record keeping for the claimant. An attorney frequently has a legal assistant take notes and discuss strategy and questions during breaks in a deposition. The accountant can advise the attorney of types of questions or records which substantiate or refute statements of the deponent. This advice can be used either during the deposition or can be saved for the subsequent trial, depending on the attorney's approach.

An accountant, like other experts, cannot convey to an attorney all information garnered during the course of his assignment or his professional experience. There fore, when a deponent is answering a question, the expert may be aware of details he has not transmitted to the attorney. Such information may be helpful and sometimes devastating.

The deponent can tell by the questions posed by an attorney whether he is fully versed in accounting or financial matters and in the specific damage claim. If the opposing counsel has even an inkling of a lack of knowledge, and it is conveyed to the opposing counsel, the attorney is at a disadvantage. An accountant's knowledge of the nomenclature of records can prevent such a situation. Attendance at the deposition can also lead to a request for additional documents to help investigate the damage claim and to attack its validity.

By reading a transcript of a deposition, an accountant can give similar assistance, although not as effectively. The attorney can then use the accountant's comments either in the continuation of that deposition or, ultimately, in trial.

Cross Examination

The accountant can help the attorney by providing a list of deficiencies, errors and duplications and incorrect theories or assumptions in the claim preparation. Since an accountant is oriented to detail and records, he should be able to document each deficiency, error and duplication in a manner which an astute and imaginative attorney can use with maximum effectiveness during cross examination. since it is the claimant's burden to prove the extent of damages, an effective cross examination can often obviate the need for an expert accountant as a defense attorney's witness.

If it is considered prudent by the attorney to use the accountant to testify as an expert witness, the accountant can testify as to weaknesses, errors or deficiencies in the damage claim, w present an alternate approach. An experienced, competent expert witness who has been properly prepared by an attorney can be effective. Properly displayed findings of the accountant, if presented graphically, can be a persuasive tool in the trial. Graphs, charts, slides and other visual aids can make an effective point.

In contemplating all of the services which an account ant may perform for a claims person, the prospect of substantial fees may seem prohibitive. In fact, the claims per son can limit the cost by asking for assistance in only one or more phases. Proper communication between the claims person and the accountant at all stages of the engagement will eliminate unnecessary costs and may build a strong case for the claims person. When necessary procedures are well-orchestrated by the claims per son, the accountant experienced in damage claims can be a valuable player who will add to the success of the claims person.

[Reprinted by permission from Risk Management Society Publishing, Inc., 205 East 42nd St, New York, NY 10017.]

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