The cost-of-paying calculation
- Indemnity amount
- Loss adjustment expense to close
- Reinsurance recovery (offsets)
- Tax deduction (if profitable)
- No downstream costs
The cost-of-not-paying calculation
- Continued handling expense (adjuster time, admin)
- Potential supplemental claims
- Litigation risk (costs, fees, judgments, bad-faith damages)
- Reputation and regulatory exposure
- Reinsurance relationship impact
- Lost customer (retention value)
When paying is cheaper
- Well-documented claim
- Clear coverage
- Scope reasonably supported
- No bad-faith defense available
- Litigation risk high
When not paying is cheaper
- Coverage disputable
- Documentation weak
- Pattern of policyholder inconsistency
- Small claim (policyholder unlikely to litigate)
- No statutory breach on record
The statutory multiplier
Florida reform modified but didn't eliminate the bad-faith exposure:
- Attorney fees can still shift in bad-faith cases
- Consequential damages still available
- Bad-faith multiplier on underlying claim
- Reputation-level consequences
For carriers, bad-faith exposure can exceed 2-3x underlying claim value. This is why CRN filing often produces settlement.
Reinsurance dynamics
Large losses trigger reinsurance involvement:
- Cedent carrier recovers above retention
- Reinsurer may audit claim handling
- Relationship costs for egregious handling
- Attachment-point proximity affects reserve setting
Practical implications
To make paying cheaper
- Clear documentation (reduces dispute cost)
- Expert support (strengthens your position)
- Statutory citation (creates bad-faith exposure)
- Escalation readiness (raises litigation risk)
- Professional representation (signals credibility)
To understand why carrier holds positions
- Coverage genuinely disputable
- Small amount doesn't justify handling cost
- Pattern across claims creates reserve concerns
- Reinsurance attachment means pay-it-themselves