What is Allocation?
Allocation development is a core aspect of the Claims Management services that the VERTEX Environmental Insurance Support team provides for our clients. In our context, allocation is defined as the determination of which elements of costs must be paid by the insurer and which elements may be subject to reimbursement by the insured or other parties, depending on covered and noncovered elements of the claim. We frequently encounter complex claims that involve comingled contamination, multiple losses, or apportionable responsibility. These claims can span the gambit of environmental medias including soil, water, air, and manmade structures. In an appropriate case, we can develop an allocation as a value-added client tool for a reasonable cost review.
Allocation Development Process
The allocation development process begins with an assessment of the necessity for an allocation. On a typical project, potential allocation opportunities are first identified during the Claim Investigation phase of VERTEX’s involvement, which attempts to determine the cause, origin, and timing of an alleged loss. If all incurred costs can be recovered through subrogation against a third-party identified as the cause of a loss, the development of an allocation may not be necessary. However, many cases require both subrogation and allocation if only a portion of costs can be attributed to the third-party. If multiple origins or timings are identified during the Claim Investigation phase, remedial costs can be separated as such. At this point, VERTEX treats allocation development as a last resort. If apportionable costs can be discretely separated during invoice review, then the development of an allocation is redundant. If project or contractor complexities prohibit the discrete separation of apportionable costs, VERTEX will recommend that an allocation be developed to separate the costs during the review.
Once directed to develop an allocation, we work to define what portions of a loss are associated with the subject loss. By defining what portions are related or unrelated, we can explore the best ways to quantify an appropriate apportionment. Qualitative elements of a claim are utilized to determine what portions of a loss need to be quantified. Common comparisons in our work include the nature of an impacted media (soil versus groundwater), historical versus recent, or remedial activities versus unrelated concurrent activities. An endless list of parameters can be used in consideration for quantified allocation development. VERTEX considers all quantifiable claim elements to be potential tools for allocation development. Commonly utilized quantitative elements include the size of impacted areas, number of impacted areas, concentrations of contaminants, and time required for individual activities. By exploring different parameters and development methods, we work to identify the best allocation for each claim to ensure a reasonable and defensible outcome. Once developed, allocations are provided directly to our clients so they may be utilized or adjusted as they see fit.
Claim Processing and Closure
Once an allocation has been proposed and agreed upon, the percentage is applied to applicable costs during our Invoice Review phase. By working closely with our clients throughout the allocation development and subsequent costs review process, claims can be processed through closure in a smooth and mutually agreeable manner.