The What and Why of Claims Resolution Facilities

Claims resolution facility is a generic term used to describe a wide range of entities that process and resolve claims made against a potential funding source. In the context of a natural disaster, for example, there might be facilities to process claims based upon insurance policies, federal or state statutory or administrative rights, international relief efforts, contractual obligations, or any other basis for receiving economic or noneconomic benefits. These facilities are generally characterized by a large number of claims that are in need of rapid and efficient resolution. In certain instances, however, the positive connotations of the term have been expropriated to describe a facility that desires to appear quick and efficient while acting slowly and expensively. In the context of alternatives to the litigation system, claims resolution facilities function to enable the disaggregation of liability from damages in the determination of legal entitlements either individually or collectively, in settlement or as a precursor to litigation. The facilities operate under the assumption that there is at least some liability, and their role is to focus on any residual damage issues not resolved through litigation or settlement. These facilities vary considerably in form, from qualified settlement funds recognized by the federal tax code to ad hoc efforts to resolve disputes prior to any invocation of the legal system. In the context of a man-made disaster, for example, there might be facilities either by defendants or their insurance carriers to settle claims prior to the intervention of attorneys, to evaluate and/or settle claims individually or in groups after the retention of counsel either before or after the initiation of litigation, to determine individual or collective damages, or to allocate damages among claimants. Part I attempts to identify the critical variables that are integral to the claims resolution facilities that have become alternatives to traditional litigation. These variables include all the essential elements, with particular attention to the criteria and methodology used by claims resolution facilities to evaluate, process, and pay claims. In Part II, there is an analysis of the strategy for designing a claims resolution facility that takes advantage of the multiplicity of options in order to accommodate the particular needs associated with a given claims resolution facility. Parts III and IV consider the assets and defects of claims resolution facilities, including rationales for their recent popularity. Finally, Part V assesses the future by focusing on common failure modes for claims resolution facilities and then proposes possible substantive standards and procedural rules that may increase the legitimacy of claims resolution facilities