Accountants Useful in Increasingly Complex Casualty Claims

by Chris Campos

Claims are becoming increasingly complex. A claims person must address not only the liability issues involved but also financial interest of his company in the event damages become a factor. In molding the best possible case, he may have occasion to utilize a qualified accountant who has competence and experience in investigating and evaluating claims for damages.

From the accountants point of view, a number of problems in his relationship with claims persons might arise. An understanding of the nature of these problems may serve to prevent or at least minimize them.

Cover Bases Early

One of the most common problems facing an accountant when he is hired on a damage claim is that claims persons delay the engagement of the accountants until such time that the accountant's effectiveness is compromised.

This problem is caused principally by two factors: (1) a desire to try all legal means at the disposal of the claims person to resolve the case, such as a denial of a liability or a settlement or (2) a desire not to incur unnecessary experts' fees in the event any of the situations referred to in the above materializes. If appropriate, all means of disposing of a case should be pursued before any moneys are expended 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 resolved favorably, the claims person should consider having an expert review the claim to determine if it is overstated. Perhaps settlement can 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 wish an audit in the beginning, at least the accountant can assist him in his request for the production of appropriate documents. Thus he is assured that the required documents are not disposed of in the ordinary course of business. Once the documents are produced, they can be held in an inactive status until such time as the attorney or client wishes their evaluation.

Another advantage to obtaining the documents and becoming familiar with them early in the case is that persons instrumental in their preparation can be questioned. A delay of a few years increases the chances that important persons may become unavailable through retirement, change of positions, change of residence or death.

Communication Crucial

A second 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, 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 the accountant of any deadlines.

The overall strategy which a claims person plans for presenting his case is obviously one which he need not discuss with each of his experts. However, to the extent that the strategy applies to the area in which the expert is involved, the claims person should advise him not only of what the expert wants him to do, but also the reasons for that action. Often an accountant, speaking from his back round of experience in other damage suits, can offer suggestions in his area of expertise which the claims person may not have considered.

Frequent communications will assure the claims person that the assignment remains on target, that excessive work in an area already apparent to him is curtailed and the procedures which could be helpful are not ignored or considered at a date which is too late for investigation.

An awareness of the concerns of both the claims person and the accountant in damage suits should lead to greater effort at cooperation. There are a number of substantive ways in which this can occur.

First, an accountant, more than any other professional, 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 governmental agencies. Therefore, he is best qualified to know which records will be helpful in challenging a claim and in developing an alternative approach, if necessary, in arriving at damages. He also knows whether or not certain records would normally be retained for such legal filings.

If he has an inquisitive mind, he will request records and documents not necessarily of an accounting nature, but those normally maintained in the business from an operating management point of view. The accountant's value is especially enhanced if he 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 industries.

During the course of his work, an accountant is often advised that certain records or documents are nonexistent, are not maintained or have been discarded. An accountant experienced in evaluating damage claims should, in spite of denials made by the claimant, suggest to the claims person 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 loosely or poorly drawn document request is an indication to the opposing party that the request is made by someone unfamiliar with the type of records maintained by businesses or by the specific industry which is involved. On the other hand, when the opposition sees a request that is specific as to the records maintained in general and related to the industry in particular, the claimant is aware that the opposition is requesting significant and meaningful documents. This often can set the stage for negotiations for a reasonable settlement.

Suggested questions

Quite often the documents themselves are not self-explanatory, and additional information concerning their method of preparation and their purpose is necessary to understand them fully.

Without this background , they are meaningless or 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 to 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 documents requested 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. An audit conducted in the claimant's offices often give 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 strong points and weaknesses so that he is in a position either to support the claim in its entirety or to enumerate its weaknesses.

If there are sufficient weaknesses in the claim, the accountant should ascertain whether the claims person wishes the accountant to proceed with the 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.

In the event of litigation and in the light of other factors in the case, the claims person and 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 exploit the accountant to establish values of damages that were poorly prepared and presented by the claimant.

In the event of litigation, the accountant may assist in the preparation of interrogatories.

Legal aid and comfort

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 the record-keeping for the claimant. An attorney frequently has a legal assistant to make notes and discuss strategy and questions during breaks in a deposition. Similarly, he can use the services of an accountant at the table to offer suggestions from an accounting point of view. The accountant can advise the attorney of types of questions or records which substantiate or refute statements of the deponent.

An accountant, like other experts, cannot convey to an attorney all information garnered in the course of his assignment nor in the course of his professional experience. Therefore, as a deponent is answering a question, the expert may be aware of details he has not transmitted to the attorney.

The deponent can tell by the questions posed by an attorney whether he is fully conversant with accounting or financial matters in general and the specific damage claim in particular. 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 terminology and nomenclature of records can prevent such a situation. Attendance at the deposition can also be a basis for a request for additional documents to help investigate the damage claim further and to give a basis for attacking 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.

The accountant also can be of service to the attorney by providing a list of deficiencies, errors and duplications, incorrect theories or assumptions in the claim preparation. In as much as it is the claimant's burden to prove the extent of his damages, an effective cross examination can often obviate the need for an expert accountant as a defense attorney's witness.

If it is deemed 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 or present an alternate approach. Properly displayed findings of the accountant, if presented in a graphic manner, also can be a persuasive tool in the trial.

In contemplating all of the services which an accountant may perform for a claims person, the prospects of substantial fees may seem prohibitive. In fact, however, the claims person, 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 from beginning to end will eliminate unnecessary costs and may build a strong case for the claims person. When necessary procedures are well orchestrated by the claims person, the accountant experienced in damage claims can be a valuable player that will add to the success of the claims operation.

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