Helpful tips to deal with insurance claims

Tactical processes and measures to settle claims

Nobody wants to go to court to decide on insurance coverage. This is demonstrated by the tiny fraction of insurance cases litigated to final judgment. Insureds don't want to go to court because of the time, complexity, and stress that could take several years to address. Insurers don't want to go to court because of the cost and the possible effect of unfavorable rulings on past and future claims in the case of suspected ambiguities. Policyholder lawyers may not be interested in low-value claims where they do not make good business sense. As a result, settling contested insurance claims without litigation is most frequently the alternative option. The courts do not always get it right. "Vacancy" is not "vacancy" in another court. The same faulty claim in one state causes the insurance policy as an "occurrence," but not in another. Burglar vandalism is protected in one case, but not in another, even in the same language.

This article aims to provide a step-by-step method to settle a coverage or claim dispute. This method requires four phases after getting a written denial.

1. Read the policy.
2. Interpret policies.
3. Explore interpretation.
4. Get a lawyer.

The first order of business (Step "0") includes obtaining written denial of the claim that clearly and sufficiently outlines the reason for rejection and acting on it promptly. The insurer must follow particular minimum legal requirements outlined in legislation or regulations, from Unfair Claims Settlement Practices and Unfair Trade Practices laws to recommended guidelines for enforceable reservations of rights letters defined by case law or statutes. Step 1 brings doing your homework to practice. All available policy forms must be thoroughly checked, concentrating on the insurer's conditions as the reason for rejection. The reasons for the adjuster are not always right. Often for reasons other than those alleged in the rejection letter, as stated later, a claim is not covered. Stage 2 happens during and after policy reading. The insurance policy should be read from the party's intention and realistic expectations to establish a general impression of coverage or lack thereof. It is essential to review the policy wording and understanding of the adjuster's rejection—step 3 reviews the adjuster's interpretation, including investigating the alternative arrangement.

That research may suggest the interpretation of the adjuster was, after all, accurate. Otherwise, this step's purpose is to gather enough supporting documentation to make a coverage case. All anyone ever wants is a fair shake. The parties pursue an advantage in carefully studied and reasoned policy type interpretation. Step 4 includes enlisting an attorney to plead to the individual refusing the argument to the case you assembled in Step 3. In many instances, this effort reverses the adjuster's initial rejection. There is a point/counterpoint exchange in some other cases, and it is accepted that the adjuster was ultimately wrong. Or an agreement can be negotiated.

If not, the rejection can be appealed to outside agencies within the insurer or, theoretically, to explore real-life examples. Step 0: Heading Off Denials After the Claim When an insured or a third party receives a claim or suit, the first course of action is to ensure that subsequent steps comply with the policy conditions. For example, timely notification to the insurer is invariably necessary;

Otherwise, if delayed and maybe prejudicial, the insurer could not be contracted to react. Please note some policies require accident or incident warning, not just claim or suit details. Some insured, especially in "fender benders," might not want to report an accident. However, suppose you are an agent informed of such an accident. In that case, you might have a duty under your agency/company arrangement (contract) or agency regulation to report the incident to one or more insurers. My wife tapped an off-ramp on another vehicle's rear bumper. There was no apparent harm, but contact information was exchanged, and I reported to my agent. The other party called a few days later and said her husband took the car to a repair shop, and the frame was bent, but not too bad. She said they would take $200 in cash and just let it go." I assured her our insurance firm would be in touch and mysteriously vaporized their claim, as I was told. These types of circumstances are predicted, and what appears to be nothing can become whiplash allegations or worse.

Also, if an umbrella or excess policy is in place, notice under that contract is likely required. For example, here is one such umbrella obligation [emphasis added]: Duties In The Event Of Occurrence, Offense, Allegation, Or Suit You must report any occurrence or offense as soon as possible, regardless of how much may result in a claim. In one scenario, the loss occurred in April 2007. A suit was filed in October 2007. When a decision on the underlying policy cap appeared in October 2010, the umbrella carrier was notified three years after the event. The umbrella carrier justifiably submitted a declination letter due to a noticeable delay. The agent owes allegiance to the insurer, his principal. However, a claims representative's opinion should not be blindly welcomed when there is cause to doubt a reduction in coverage.

Declination and reservation of rights

The first rule in this process is never to recognize oral coverage decline. A written rejection is not only a smart idea; it's probably the law. Not only do Unfair Claims Settlement Practices laws (or other statutes) require written denials, courts have also considered this critical in deciding the enforceability of letters of denial and reservation. Furthermore, most legal experts advise that comprehensive rejection letters should also contain policy terminology and its relation to the argument at hand. In one claim, a written rejection was sent as a letter that explained that you have no coverage for this loss. That's no more appropriate than an oral decline. All statements should follow at least three criteria:

1. Be written;
2. Cite the relevant policy language (and only that language) for this denial;
3. Explain why and how it works to exclude coverage in the argument. If the reservation of a right is included (and will almost definitely be), additional policy wording will be cited.

As mentioned below, however, the insurer does not provide a laundry list of policy language extracts similar to copying and pasting the entire insurance contract into the letter. Its weight or verbosity does not assess the enforceability and importance of letter rejection and reservation.

Insurers tend to eliminate waiver and estoppel lawsuits by providing nonwaiver agreements or reserving rights letters. These documents inform the insured of liability concerns. If the insurer undertakes complete protection, it can be avoided by essentially waiving the coverage problem from later refusing coverage. A rights reservation provides the basis for a conditional defense when publicity occurs, but that may change as the investigation continues. It can also create additional contractual grounds to reject a claim beyond those in a declination letter theoretically. An explicit reservation of rights can include a declaration such as: "We will continue to manage this claim even if a coverage issue exists. However, no company representative's act when examining or negotiating this claim's resolution or defending a lawsuit shall be construed as waiving any of our rights.

1. Policy language generalized or paraphrased;
2. Include policy language extracts misrepresenting language intent; or
3. Essentially, copying and pasting most policy exclusions, particularly those with nothing to do with the argument.
4. To highlight these points, below are five finger-wagging examples, four of which are allegation denials and a coverage investigation.

Example 1:

An insured under cybercrime policy intercepted a bank-wired transfer and stolen money. According to the declination letter, the adjuster recommended that fraud must occur physically from the insured's premises or the bank's venue, citing (with quotation marks) policy language that said the scam must be linked to the use of a device within the insured's premises or bank premises. The machine used for fraudulent transfer did not have to be located within the insured or bank premises, but that seemed to be the policy's condition based on contract language.

Example 2:

A condo owner rented the clubhouse for his child's birthday party to demonstrate a selective language denial. The property management company wanted $300,000 in liability insurance. Fortunately, this was a coverage inquiry, not a claim denial, although the agent possibly made the mistake of asking the underwriting issue, not the claims department. An underwriter replied that his homeowner's policy would not cover while his restrictions were sufficient. The agent should have an insured's special events policy. The underwriter cited an exclusion of liability in the email response relating to an insured's leased premises. The problem with this policy language quote is that it did not include the exclusion exception, which is not an insured venue. Description of the insured location involves any portion of the premises sometimes leased to an insured other than business usage. The clubhouse is an insured venue, so the exclusion does not apply. Whether this was an error or a deliberate effort to hide appropriate policy language is unclear.

Example 3:

An insured left home at 7:30 a.m. When she arrived home at 4:00 p.m., water ran from under the front door. Most of the house's first floor had flooded due to a kitchen-fitting burst water pipe. Before this incident, a reported water leak had never occurred.

In his letter of rejection, the adjuster cited over a dozen exclusions, ranging from wear and tear to pollution to birds, vermin, rats, or insects to "water damage" to failure to and on defective construction. Many citations were copied and pasted blocks of exclusions into the letter. Indeed the loss had nothing to do with birds and waste. Also, citing exclusionary clauses entirely unrelated to the allegation, essential parts of the political language were omitted. For example, in one list of eight exclusions, the adjuster failed to refer at the end of the listing to the critically necessary coverage-granting paragraph. Language should have been included that states if any of these causes water damage not otherwise excluded from plumbing, heating, air conditioning or automatic fire-protective sprinkler system or household. Besides, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered. The adjuster also cited an exception for constant or repeated seepage or leakage of water for weeks, months, or years. No proof of any water damage exceeding that occurred that day. Although the allegation was recorded the day it happened, the neglect exclusion was also cited within two hours of discovery.

The following series of events may have contributed:

• August 19 Water loss occurred.
• August 27 State approved adjuster as an adjuster.
• September 22 Date of a rejection letter

Ultimately, the claim was compensated when the agent brought it to the insurer's claims' supervisory stage. My experience has been those denials that cite exclusions while ignoring exclusions are normal. The exception is always put at the end of a set of exclusions, so one explanation for the prevalence of these types of inappropriate denials might ignore them, not that this is a legitimate excuse.

Example 4:

Ransomware struck a dentist's office computer system, encrypting all his patient data (personal details, x-rays, insurance information, accounting reports, etc.), including backups. The dentist suffered considerable business profits, loss of added costs, and loss of receivable accounts. Exclusions are cited for everything from "wear and tear" and "mechanical breakdown" to "faulty workmanship." in the adjuster's voluminous rejection letter. None of the above exclusions applied to the allegation. What was not noticed and essential was that there was no "direct physical loss," as the policy form's insurance arrangement needed to cause coverage. So the loss wasn't covered, but not for any excuse in the letter of rejection. My experience over the years is often rightly rejected arguments, often for the wrong reason.

Example 5:

During a drill, a crane inspector overloaded a crane for failure. His CGL insurer rejected it. The written denial never really says why not cover the loss. The reservation of rights paragraph is so broad that later, possibly, divine intervention makes denial. The letter of 10 pages quotes word-for-word, Coverage A Insuring Deal, Exclusions j.(1)-(6), k., l., m., n., t. Exclusion n is for product recall, not even remotely relevant to the assertion. The letter quotes, verbatim, any term mentioned from the insurance agreement and exclusions but never again says which exclusions apply and why. It is unclear if this approach's intent originated from laziness, indecisiveness, or indifference, or if it was a technique just in case or, worse, a deliberate effort to obfuscate. The lesser evil is not reassuring.

Is this a legal letter of rejection and reservation? It is axiomatic that an insured should be provided with adequate details to understand why the insurer feels the policy does not have protection.

Unfair allegations and misrepresentation

There are also several procedural rules regulating how claims can be rejected. The model act of the National Association of Insurance Commissioners (NAIC) describes over a dozen exhibits, including:

Knowingly misrepresenting claimants and insureds relevant facts or policy clauses relating to the coverage at issue; not attempting in good faith to resolve promptly, lawfully, and fairly claims under which the responsibility has become reasonably clear; forcing insureds or beneficiaries to institute suits to recover sums due under their policies by providing significantly less.

While many written claims quote policy language, my experience was that so many do not make sufficiently clear why or how that language relates to endorse denial. Many states adopted this model act; some changed. Some states have far more strict and precise penalties for unfair settlement practices, competition methods, or dishonest actions. For example, Florida includes failure to provide the insured with a fair written description of the insurance policy basis, the facts or applicable law, to refuse a claim or propose a compromise settlement. Unfortunately, insurance companies heavily lobby state legislatures in Texas. Therefore, the laws in Texas strongly favor insurance companies.

An insurer refuses or declines a claim. It shall do so in writing in whole or in part. It shall provide the applicant with a statement listing all bases for such rejection or denial, including the factual and legal justification for each reason given such rejection or denial, which is then within the insurer's knowledge. Where, in whole or part, an insurer's refusal of a first-party claim is based on a particular statute, applicable law or policy provision, condition or exclusion, the written denial shall contain a reference to it and clarify the application of the statute, applicable law or provision, condition or exclusion to the claim.

Any insurer refusing or rejecting a third-party allegation, in whole or in part, or disputing liability or loss shall do so in writing. NAIC model law has a similar clause but lacks the crucial requirement to clarify how the above policy terms apply to remove coverage. And again, several states have legislative provisions for resolving policy language or claims procedures. For example, New York Law 3420(d)(2) includes written disclaimers (no rights reservations) in cases involving bodily injury and death. Failure to implement mandatory language into insurance contracts or obey statutory procedures can adversely affect a claim denial, resulting in significant statutory penalties against the insurer.

Often unfair settlement practices may reach bad faith. One court upheld a judgment that included bad faith damages after the insurer consistently refused to justify the reason for denying the claim to the insured. According to the court, another found bad faith was demonstrated by the insurer's failure to examine the allegation adequately. When investigating a claim, an insurance provider must vigorously pursue proof supporting the claim of its insured. If it tries to discover only the facts that defeat the argument, it is beyond the insured's interest. Even if it does not reach bad faith status, an insurer must properly investigate a request from its and its insured parts. Insurers will be well served to provide legislative and case law prescriptions on what constitutes fair claims mediation procedures and good faith in their procedural manuals. Such laws' spirit should also be instilled in all claims workers at any opportunity.

"The Devil Made Me Do It" Denial

One of the most frustrating denials is when the adjuster decides that the insured is not liable to an applicant on the grounds of negligence or any other civil liability premise protected by the policy. For example, a giant icicle dropped from the insured's building and destroyed a customer's car at $958. The CGL adjuster dismissed the allegation because it was an act of God. Is that valid, or was the business owner incompetent in failing to maintain the premises? What the insured did is a matter of truth and statute. Suppose the adjuster cannot be convinced that the property owner had a legal duty to keep invitees secure. In that scenario, the only remedy may be the court, potentially costing the insurer more than $958. A woman walked down the street, knocking her down and biting her. She needed stitches and lost a tooth. Her medical costs were $3,000. The dog owner's homeowners adjuster gave the $1,000 medical payout cap, but otherwise, his insured wasn't negligent, and the injured party had to provoke the dog.

A car wash customer's SUV was battered by fishing line sinkers stuck in the brushes, seemingly in front of a pickup truck's cab. The car wash owner's insurer rejected the claim that their insured was not legally liable because it was an accident. A storage trailer blew off a business owner's lot and crashed across the street through the plate glass windows in a massive windstorm. The adjuster denied guilt, citing this as an act of God. The damaged building owner argued that the trailer owner had no adequate tie-downs as required by law. Note that the defense is owed on claims and that the carrier must have a fair investigation. A tree crashed into a neighbor's yard, destroying two luxury cars. The adjuster said it was an act of God, but the neighbor said the insured told him a year ago that the tree was sick and dead and had to be taken down. A diabetic driver went by, sideswiping multiple parked cars on the street before reaching a car at the intersection. The adjuster dismissed all allegations that the insured was not incompetent and a victim himself. Whether the driver is responsible is a matter of fact. Has the driver had similar previous encounters or been warned of driving without proper medication? Refusing to pay claimants without performing a reasonable inquiry, according to NAIC, may be bad faith. Bear in mind that if the policy contains the claimant files suit and some of the allegations that the policy potentially excludes the claimant files suit and some of the allegations, the insurer must provide protection. Judicial responsibility is also less about legislative interpretation and more about the law-related facts of the case.

Declaratory decisions

As juries decide evidence, judges interpret (and contract) law. Possibly, litigation to the point of judicial settlement is most common when facts are at the core of a coverage dispute. If the conflict depends solely on the interpretation of the language in a policy form, either party can request a declaratory judgment and, if necessary, an appeal of that decision.

In a declaratory judgment action, the insurer or insured can bring the coverage dispute to the jurisdictional court, asking the court to determine the coverage issue and each party's rights under the contract. The court typically responds in three ways if the argument is denied:

1. It relieves the insurer if coverage does not exist;
2. It guides the insurer to pay or protect whether coverage exists; or
3. It determines that the case must go to trial to determine whether coverage occurs based on the case's circumstances and characteristics

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