CLIENT ADVISORY
DISPUTED CLAIMS -
HOW TO COUNTER THE INSURER’S UNFAIR ADVANTAGE
By: Ken R. Butler, CPCU, ARM
Legacy Risk Solutions, LLC
Insurance companies sometimes take advantage of their policy holders after a claim is presented. The insurance company got what it wanted, the premium payment, up front. In some cases, insurers leverage this advantageous position with an attitude “we have the money, try and get it.”
The dirty little secret in the claims business is every day of delay in paying what is owed increases the insurance company’s investment income and lowers the net cost of a claim. This slow pay or no pay practice does not show up on any balance sheet. Nonetheless, it is believed to be a contributor to the insurance industry’s positive bottom line.
There are five strategies an insurance company may use to slow down the process and reduce their obligation for payment.
1. Stating vague arguments for why the claim would not be covered or would not be fully covered.
2. Dispute the value of the claim.
3. Allege breach of policy conditions, such as the claim notice conditions.
4. Using slow payment and the threat of further slow payment as a negotiating tool, to force the insured to accept a lower final settlement than they deserved.
5. Extra Contractual Arguments – “Extra Contractual” means the insurance company implies that its assertions for a reduced settlement are based upon their rights in the insurance policy. Actual Cash Value and denial of Diminution of Value are examples.
All of the above strategies are intended to delay the process so that the insurance company continues to hold all the money and earn income during the period of delay. An added advantage to the insurance company is slow payment can then be used as leverage, to push an insured to a settlement that is less than what should have been paid. Some use the financial pressures facing the insured, who is trying to crawl their way back into a comfortable lifestyle, as a bargaining chip!
Strategies for Policy Holders
1. Do not play into the hands of the insurance company by ignoring policy conditions.
- Follow the claim notice requirements in the policy to the letter. Send notice of lawsuits directly to the insurance company, not the agent.
- Do not fraudulently represent the value of the claim. All states have laws against misrepresentation of a claim, allowing the insurer to void the entire claim obligation if the insurer can prove the insured attempted to commit fraud.
2. Claim Defense Expenses – Demand that the insurance company and the selected law firm establish a direct fee reimbursement relationship. The insured should not allow itself to be placed in the middle of being billed by the law firm and then having to turn around and send those bills on to the insurance company for reimbursement.
3. Demand Partial Payments – Insurance companies have a good faith obligation to reimburse the insured for their expenses and loss mitigation costs soon after they are incurred. In addition, repair expenses that are likely to be completed within a short period of time should also be advanced by the insurer.
- Demand 50% of the repair expense as soon as the insured has a plausible estimate from their contracting/design team.
4. Immediately counter any arguments raised by the insurer that might be used as the basis to reduce or deny part of the claim. Engage your own counsel to pursue a Partial Summary Judgment on any insurer position that unfairly reduces the insurer’s obligations.
5. Maintain detailed minutes of every meeting with the insurance company’s adjustment team. Claim discussion meetings are very difficult to monitor. Often, there are various disciplines within the room, including attorneys, architects, contractors and company staff. Companies are encouraged to use an experienced moderator at these meetings and assign a company staff person with the duty to take the minutes of the meeting. The minutes should be distributed to all parties attending the meeting. It is suggested the communication of the minutes require an acknowledgement that the party accepts the minutes as recorded. This will reduce misunderstandings and also keep the process moving forward.
6. Require the insurer to commit to a timeline. The final document that completes the claim process is the Proof of Loss. This document requires the input of both the insured and the insurance company. Organize the timeline so that there is a commitment for progress payments as well as an end date for final negotiation of the claim.
7. Request extension of the Proof of Loss completion deadline, which is often required sixty (60) days after the loss. Ask for at least 120 days.
8. Hire the best forensic accountants to value any business income loss.
The above strategies will reduce the likelihood that a Bad Faith Claim against the insurance company would become necessary. Bad Faith Claims are not easy to prove and in some states are nearly impossible to win. Following the above strategies will reduce the time of delay in reaching a final settlement.
Sincerely,
Ken R. Butler
Ken R. Butler, CPCU, ARM
President & CEO
KRB/md
Ken R. Butler is the President & CEO of Legacy Risk Solutions, LLC. Mr. Butler is an entrepreneur and industry leader in the analysis of affluent family and business risk management needs and development of legacy preservation plans.
Fee Only – No Commissions – No Conflict of Interest
This article is a general discussion about the subject matter and should not be represented as applicable in any state in the United States of America. This document is for the exclusive use of Legacy Risk Solutions, LLC clients. It shall not be reprinted or portions reproduced in any form, by any other party, without the permission of the author. Author Contact: 330.659.6337or 330.283-0952, or KenBLegacy@aol.com. The Legacy Risk Solutions website is: www.legacyrisksolutions.com.
DisputedClaims
LEGACY RISK SOLUTIONS, LLC RISK AND INSURANCE MANAGEMENT CONSULTANTS
