Reserving a Bodily Injury Claim With a Foggy Liability Picture
A general liability claim has been open 14 months. A subcontractor's employee fell from scaffolding at a site where your insured was the general contractor. Medicals to date are $210K; the employee alleges permanent back injury and lost earnings, with a demand of $1.4M. Liability is contested: the insured argues the subcontractor controlled the scaffold, but the insured's safety officer's notes show the insured's superintendent inspected the scaffold the morning of the fall and signed off on it. The claimant's attorney is aggressive and has retained an economist. Defense counsel estimates a 60% chance of a finding of liability, with damages if liable ranging $600K–$1.8M. Current reserve is $250K. The claim is at the 14-month mark and the insured's policy has a $1M per-occurrence limit with a $250K SIR.
1. Evaluate whether the current $250K reserve is adequate and propose a defensible reserve range with reasoning.
Read the worked answer
The $250K reserve is almost certainly inadequate, and it looks like a reserve that was set early and never revisited.
What the facts support:
- Medicals already at $210K with a permanent-injury allegation and an economist engaged - the incurred-to-date alone nearly exhausts the reserve.
- The safety officer's notes are damaging: the insured's superintendent inspected and signed off on the scaffold. That undercuts the 'subcontractor controlled it' defense and raises the probability of a liability finding.
- Defense counsel puts liability at 60%, with damages of $600K–$1.8M.
A probability-weighted view:
- Low end: 0.6 × $600K = $360K
- Midpoint: 0.6 × $1.2M = $720K
- High end: 0.6 × $1.8M = $1.08M
Add defense costs (not stated, but real) and the range is roughly $400K–$1.1M before costs. A reserve near the midpoint - say $700K–$800K - is far more defensible than $250K.
SIR interaction: The $250K SIR means the insured pays the first $250K; the carrier's exposure begins above that, up to the $1M limit. The reserve should reflect the carrier's net exposure, but the gross incurred matters for the insured relationship and for any SIR reimbursement tracking. Don't let the SIR cause the carrier to under-reserve its own layer.
Recommendation: Raise the reserve into the $650K–$800K range, document the rationale, and set a review trigger for any new medical or discovery development. A $250K reserve at this stage is not defensible if audited or if the claim goes to trial.
2. The insured's superintendent's inspection notes are the pivotal fact. How should the claims team treat this evidence operationally, and what are the risks of mishandling it?
Read the worked answer
The superintendent's sign-off is the fact that most likely converts a defensible 'subcontractor's fault' theory into a shared or primary liability finding. It must be handled deliberately.
Operational treatment:
- Preserve and protect it. Litigation hold immediately; do not let it be altered, and document chain of custody. Spoliation of this evidence would be catastrophic.
- Assess privilege carefully. Notes generated by the insured's safety officer in the ordinary course are generally discoverable, not privileged. Don't assume privilege. Counsel should advise on what is producible.
- Get counsel's read on its impact. Does the sign-off establish the insured's control of the scaffold, or only a general site-safety walk? The distinction drives liability. This is a legal judgment, not an adjuster's.
- Update the reserve and the insured conversation. The insured should understand the notes weaken its position - this affects settlement strategy and any SIR contribution discussion.
- Factor into settlement authority. With this evidence, early resolution may be cheaper than trial.
Risks of mishandling:
- Spoliation sanctions if the notes disappear or are 'cleaned up.'
- Bad faith if the carrier undervalues the claim in light of evidence it possesses and the insured later faces an excess judgment.
- Adverse inference at trial if the notes are withheld improperly.
- Damaged insured relationship if the carrier appears to hide the evidence from its own insured.
The notes should be treated as the center of gravity for both reserve and strategy.