Common myths about insurer settlement practices – Lesson 3

Excerpted from Insurance Settlements by Kevin M. Quinley

Insurer lesson, copies of old policies, adjuster training, employee, payment delay, and intentional misconduct

§1511B      Myth #11: “If I Sue the Insurance Company, It Will Teach Them a Lesson and They Will Not Do the Same Thing to Other People”

False. Most insurance companies deny claims all the time, knowing that only a very small percentage of people follow up to complain. An even smaller percentage of people sue and then pursue the lawsuit in earnest. Therefore many insurers play the percentages and know that the money they save in wrongfully denying claims can make up for the limited number of claims where they have to pay bad faith related damages. Insurers who seriously consider bad faith claims will generally settle all such claims well prior to trial, or they will try the case if they sincerely believe the correct claim decision was made.

§1512B     Myth #12: “I Lost the Insurance Policy Copies That Prove I Have Used This Insurance Company for the Last Twenty Years, and the Insurer Is Required to Have Saved Copies”

False. Very few states require insurers to save their policies for even a few years. Once your policy period expires many insurers have a practice of destroying copies of policies issued, thereby making it even harder to make a claim unless you have kept you policy copies. Amazingly, there generally are no laws prohibiting this practice.

§1513B     Myth#13: “The Adjuster Working on My Claim Is Probably Well Trained and the Insurer Would Not Use the Adjuster if the Adjuster Did Not Know What He/She Was Doing”

False. Never presume an adjuster is well trained. New adjusters often receive “on the job training” meaning they are allowed to stumble for weeks and even months on claims they know little about. It is also not unusual for adjusters to be reassigned to new types of claim such as an automobile adjuster being assigned to a house related property damage claim even if he or she knows nothing about it, and has not received training on the insurance coverage provided or how to investigate these claims to make sure the policyholders get all the coverage they are entitled to under the policy. The minimum protection insurance companies have in place to protect against these errors is that the “new” adjusters be adequately supervised by more experience adjusters or claims managers, and periodic file audits are conducted to make sure claims do not slip through the cracks. The reality is that claim supervisors and managers are usually so busy they do not have time to proactively manage experienced adjusters and usually only deal with a problem if the front line adjuster brings it to their attention. It is therefore imperative that policyholders or their attorneys ask all the questions necessary to make sure the adjuster is experienced and to immediately go to the claim manager if there is any doubt the front line adjuster is not able to perform the job.

§1514B     Myth #14: “The Adjuster Working on the Claim Is Directly Employed by My Insurance Company”

False. Never presume the adjuster assigned to your claim is an employee of the insurance company. A number of insurers employ independent adjusters and adjusting agencies to handle their claims without informing their policy holders. Some times there is no reason to suspect that the adjustor is an independent because he/she may be authorized to use the insurance company name or logo on correspondence and communications. One of the primary problems with this deceptive practice is that independent adjusters do not have the required authority to make decisions on payment of claims. They are usually used primarily as fact gatherers and messengers and report to a decision maker claim manager or supervisor at the insurance company. If the insurance company maintains this deception, policyholders are given the mistaken impression that the independent adjustor speaks for the insurance company when in fact he or she does not. As a matter of insurance industry custom and practice, the insurer is required to be honest with the policyholder and disclose the specific role an independent claim adjuster is going to play in the claim process.

§1515B     Myth #15: “My Claim Is Clearly Covered and the Insurer Has Not Asserted Any Policy Limitations, Defenses or Exclusions; Therefore, I Should Expect the Claim to Be Paid Within the 30-Day Period Prescribed by Most Insurance Regulations”

False. Insurers who are not in compliance with established insurance industry customs and practices and applicable insurance claim regulations will attempt to delay covered claim payments, especially large claim payments, for one simple reason: the time value of money. For example, if an insurer knows it owes $1,000,000 for a covered claim, it can engage in a number of delaying tactics regarding the adjustment of the claim. Typical tactics include requiring duplicative back-up documentation, ordering additional investigation or retention of consultants to evaluate the claims, or alleging that the policyholder has not cooperated or provided the requested documentation regarding the claim. These tactics are usually part of a scheme to “paper the file”: i.e., to create a phantom issue in the claim file that can later be used to justify a great delay in processing a claim payment. In addition, insurers usually will require the policyholder to make premium payments through automatic bank account withdrawals so they get their premium dollars right away, but they will use slow bulk mail to issue claim payments in order to stretch out the time they are holding the funds they owe on claims.

§1516B     Myth #16: “The Insurer Says the Policyholder’s Conduct Related to the Claim Was Intentional and Therefore They Are Justified in Denying Coverage”

 A number of insurers may improperly attempt to deny coverage if they see allegations made against their policyholder in a complaint alleging intentional misconduct or violations of laws or statutes on the basis that such conduct is not an “accident” as that term is defined in the policy. Such premature coverage determinations are almost always flawed because they fail to take into account the policyholder’s actual state of mind and intent at the time the alleged incident took place. As long as the policyholder does not intend the harmful consequence of an intended act, the insurer will usually be hard pressed to deny coverage. In the recently published decision State Farm v. Superior Court (Wright) (2008) 08 C.D.O.S. 8156, State Farm attempted to deny coverage for a pool related injury where the insured party threw a friend into a pool as part of horse play at a party. While the policyholder did not intend to harm the other person, the other person fell into a shallow part of the pool and injured himself on a step that was submerged in the pool water. State Farm denied the claim without investigation on the basis that this conduct was not an accident. The court further defined what accident meant in this instance:

“The fact that an act which causes an injury is intentional does not take the consequence of that act outside the coverage of a policy which excludes damage unless caused by accident for if the consequence that is the damage or injury is not intentional and is unexpected it is accidental in character.”

Furthermore, the court stated that State Farm’s strained interpretation of accident was not justified because it would render virtually all accident based coverage illusory simply by looking at the initial act and not its consequences. As stated by the Court:

“Taken to its logical conclusion, State Farm’s argument that we should apply “fortuity” solely to the act causing the injury without reference to the injury, would result in no coverage at all. State Farm proffers an accident as one where Lint inadvertently bumps into Wright, knocking him into the pool. Yet, in State Farm’s analysis, therecould never be a covered event because all batters deliberately seek to hit baseballs and therefore engage in intentional acts, regardless of whether the property damage, namely, breaking windows, was intended. Likewise, there would never be a covered occurrence when an injury is occasioned by a negligent driver, who obeys the laws of the road, nevertheless miscalculates a lane change and hits another car. (Cf. Meyer v. Pacific Employers Ins. Co., supra, 233 Cal.App.2d at p. 327 [“Certainly no one would contend that an injury occasioned by negligent or even reckless driving was not accidental within the meaning of a policy of accident insurance”].) Under State Farm’s analysis all accident-based automobile insurance policies would be illusory.”


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