Did you know the average American spends thousands of dollars every year on insurance? Fortunately, most Americans never have to make a claim because most never suffer the large losses that are needed to submit a claim. Those that have had to submit a claim know that it is not as easy as one would expect.
Many people don’t realize that insurance companies, like banks, earn their profits from investments, which can take on many forms. The profitability of a company depends on how much money they have available to invest. If a company owes X million to all claimants at a given point in time, it can save say 12% (or more) of that per year in investment profits by engaging in delay tactics. Other tactics like low-balling and wrongful claim denials can help insurance companies save even more.
Policyholders are often at the mercy of their insurance company. The company wrote the policy, the company interprets the policy, the company evaluates the claim and the company holds the money.
So the policyholder is really at a substantial disadvantage to the insurer. Fortunately, public adjusters exist for this very reason, to right for the homeowner who needs to deal with insurance companies.
Public adjusters know a thing or two about how to deal with insurance companies, and the tactics they use to deny and stall claims. Below are 7 things your insurance company doesn’t want you to know.
Note: This content was provided by badfaithinsurance.org
1. An insurance company must act in utmost good faith in the interpretation of their policies, and in the investigation and payment of claims.
It is unlawful for an insurer to engage in unreasonable delay; to put their financial interests ahead of the financial interests of the policyholder, or to lowball (underpay) claims. They cannot use deception or trickery in sales or claims handling. They cannot compel an insured to hire an attorney in order to be paid what they are owed. They must be fair to their policyholders. The violation of any of these standards is a violation of the duty of good faith which the law imposes on insurance companies. It exposes the carrier to potentially significant damages.
2. If an insurance company unreasonably denies a claim or breaches its duty of “Good Faith and Fair Dealing,” and you must sure them in order to recover your policy benefits, the insurance company must pay for your legal costs and attorney’s fees.
If the attorney’s fees and other damages were not available, the policyholder could not be made whole and the insurer would be able to under-settle claims merely by arguing that they are offering more to settle that than what the uninsured would net on the actual value of the claims, after payment of their legal fees. If an insurer makes this argument to you in an effort to underpay, thank them in advance for offering to pay your costs and attorney’s fees. That is exactly what they doing by engaging in such conduct.
3. If an insurance agent misrepresents the coverage being provided at the time the agent sells you your policy, the insurance company will have to honor the coverage representations made by their agent.
Insurance agents are really nice. Otherwise, they wouldn’t be able to sell you any policies. The same is true for claims adjusters. Otherwise, they wouldn’t be able to settle any claims. It is important to distinguish these nice individuals from the company itself. The purpose of an insurance company is not to be nice, but to make money for its stockholders. If it makes more money than expected, the stock goes up. If it makes less money than expected, the stock goes down. When the stock goes up, executives are given bonuses. When the stock goes down, they are given headaches. The name of the game in the home office begins with the word “profits.” Don’t ever forget this. When the home office trains agents or claims adjusters they don’t tell them to be sinister. There are no conventions at which agents are taught to misrepresent coverage and adjusters are taught low-balling techniques. What does happen, however, is that agents are told very little about the policies they are selling. They may know something about what is covered, but they know very little about what is not.
If you were to spend the rest of your life talking to insurance agents about policies they are selling, you would probably not, and a single agent who would be able to simply pull out a policy and explain it. The truth is that agents don’t understand policies. They just sell them. Most agents won’t even show you a copy of the policy they are urging you to buy. If you ever see a policy at all, it will probably be sent to you in the mail directly by the insurance company days, or weeks, after you have purchased the insurance. So at the time of sale, you don’t know what you are buying other than what the company or agent promotional or sales pitch conveys to you.
4. If the amount of your insurance coverage is not sufficient to cover your actual loss because the insurance agent recommended that you insure for less than the amount you actually needed, the insurance company may be responsible for paying your entire loss, not just the amount of the policy benefits.
For example, when an individual purchases a business property or homeowner’s insurance, they will often ask the agent what the policy limits should be before the particular property in question. Sometimes, the agent, in attempting to give you the lowest premium bid possible (in order to beat out the competition), will underinsure the property, (e.g. insuring a property for $600,000 that would cost $800,000 to replace) thus lowering the premium quoted. Perhaps the agent rationalizes that the policy contains a “replacement guarantee” anyway. The problem is that replacement coverage is useless unless you actually rebuild the property with “like, kind and quality: of what was destroyed. In the event of catastrophic loss, many policyholders decide to take their insurance payment and buy elsewhere, rather than actually rebuilding. In that case, the underinsured policyholder loses a bundle. Moreover, personal property and business property are usually insured under these policies as a percentage of the face value of the policy, not a percentage of the replacement value of the property. Therefore an underinsured policyholder is uninsured for both the building coverage and the personal or business proper coverage.
This is another good reason to take notes when you buy your policy in the first place and to keep these notes in your insurance file. If the limit which your purchased were recommended by the insurance agent and they are insufficient, you are entitled to be paid for all losses on the basis of what your limits should have been.
5. The insurance company, not the policyholder, has the obligation of providing the applicability of a “limitation” or “exclusion” in the policy.
Insurance policies typically contain a very brief “insuring clause” describing what’s covered. Dozens of paragraphs and thousands of words are then spent listing exclusions, exceptions, and limitations. When a large claim occurs, insurance companies want to be able to write a letter to their policyholder denying coverage by quoting from one or more of the “exclusions.” The bottom line will be that they sure would like to pay your claim, but golly darn, they just can’t. Many insureds will either accept what they are being told or will seek advice from someone in the insurance industry or from a lawyer who doesn’t specialize in this field. As a result, many legitimate claims go either unpaid or severely underpaid.
What you should know is that the insurance company, not you, has the burden of proving that an exclusion or limitation in the policy is (1) clear, (2) conspicuous, and (3) applicable. The shifting of this “burden” concerning exclusions – to the insurers – is contrary to the usual rule of the law that the party making the claim is the one who hears this burden. Because most policyholders are unaware of this rule, insurance companies often avoid paying legitimate claims based on exclusions that, if challenged, the exclusions, to the company.
6. In cases involving your insurance company’s duty to defend, its duty to defend is broader than its duty to indemnify.
The liability portion of every business, homeowner, auto, or similar insurance policy is the portion of the policy that protects you from lawsuits by others. It requires the insurance company to pay your legal defense costs and fees if you are sued. Sometimes an insurance company will say that it doesn’t have to defend you because you have been sued for something that is not specifically covered in the policy. It must also defend you in any situation which potentially seeks covered damages. For example, if a complaint filed against you does not see damages within the scope of your overage but is capable of being amended or modified to include such damages, your insurer must defend. Furthermore, if the insurance company learns of facts from any source which would trigger coverage (not just the complaint itself), it must also defend you. In addition, it must defend where the policyholder has a reasonable expectation that it will do so. If there are multiple causes of action in the complaint against you, let’s say that you were sued in a complaint alleging both negligence, breach of contract, and intentional misconduct, then if the insurance company must defend any of those causes of action, it must defend all of them.
If an insurance company that has a duty to defend in a particular case refuses to do so, then it may well be responsible for all resulting damages, including payment of the amount of any judgment entered against you, or of any settlement (including collusive or fraudulent.)