One of the most common issues that our law firm faces is a Client whose insurance claim was denied. Often, those cases are the ones that face the longest odds. How do you convince a large insurance company to suddenly change its mind and write a check?
Sometimes a letter from a law firm catches their attention. Often, however, the insurer won’t budge until a judge or a jury tells them to pay.
State law will usually govern an insurance dispute. There are some key principles of “interpretation” that guide a court, including the following:
- We read insurance “exclusions” narrowly by giving the insurer “the burden of proving that the exclusion applies. This burden is satisfied when the insurer shows the claim clearly falls outside of policy coverage.”[1]
- If the policy language is “ambiguous,” we give the benefit of the doubt to the insured, not the insurer. An ambiguity arises when there is “a genuine uncertainty as to which of two or more meanings is correct.”[2] Ambiguity “is determined with reference to the policy as a whole [as well as] the plain meaning and effect of its words.”[3]
- We read the Policy as a whole,[4] giving undefined terms “their plain and ordinary meaning,” while seeking a “reasonable interpretation, in the context of the risks insured, without stretching terminology.”[5]
Insurance companies have a financial incentive to ignore these rules, because every dollar that an insurer refuses to pay is a dollar that improves their bottom line. Indeed, this financial incentive is so powerful that there is an entire area of the law devoted to putting a stop to wrongful claim practices. These types of cases are often referred to as “insurance bad faith cases” or “extra-contractual insurance claims” or “unfair trade practice cases.” Countless insurance companies have been exposed for providing bonuses to its managers and claims handlers which have the effect of encouraging the claims department to seek profits instead of proper claims handling.
There are numerous ways in which an insurer can “deny” a claim, and some of them are quite clever. Sometimes, the claim process is delayed for an unreasonable period of time, which allows the insurer to hang onto its money longer, and which puts the insured in an increasingly desperate position (and more willing to settle for less than they are owed). Sometimes, the insurance company performs a very minimal investigation and then denies the claim based upon limited information, which allows the insurer to save money on employees who do investigations, and which also provides the insurer with a seemingly good alibi later (i.e, “Oops! We wish you would have told us this information earlier when we were investigating.”) Sometimes, the insurance company adds new hoops and requirements after the fact, to frustrate the claims process. And, sometimes the insurance company will appear to act with amazing speed, and tell you that it can get a check to you that same week, as long as you sign a complete waiver for your claims (which allows the insurance company to pay a fraction of what they really owe, in exchange for your immediate silence.)
How does an insured party fight back against an insurance company? By holding their feet to the fire. All insurance companies are required to place the interests of their insureds on at least the same level as the company’s own interests. Failure to do so leaves the company exposed to a judgment for damages and punitive damages.
All insurance companies are also required to follow a series of fair, standard claims handling practices:
For example, an insurer:
- Must treat its insured’s interests with equal regard as it does its own interests.
- Should assist the insured with the claim.
- Must acknowledge and act reasonably promptly to communications with respect to claims of its insured.
- Must adopt and implement reasonable standards for the prompt investigation of claims.
- Must fully, promptly, and fairly investigate and evaluate the claim, and must not refuse to pay a claim without conducting a reasonable investigation.
- Must attempt to pay those claims when liability is reasonably clear and amounts are known to be owed.
- Must pay all amounts not in dispute promptly.
- Must disclose to the insured all benefits, coverages, coverage issues, and time limits that might apply to the claim.
- May not deny or delay a claim, or any part of a claim, based on insufficient information, speculation, or biased information.
- May not misrepresent facts or policy provisions.
- Must provide a reasonable explanation for a denial, delay, or compromise offer of benefits.
- Must document its file sufficiently to record all pertinent activities and events so a reasonable understanding of file activity can be recreated.
- May not make unreasonably low offers of benefits.
These basic rules all trace their roots back to something very simple: the law requires an insurance company to treat its insured honestly, fairly and evenhandedly. The insurer’s duty of good faith and fair dealing prohibits the company from preventing or injuring your right to receive the benefits of the insurance contract.[6].
Insurance companies know they cannot take advantage of their insured. Their lawyers have read all of these cases we cite here, and hundreds more just like them. Even so, insurance companies don’t always follow the rules. Their profit motive is sometimes just too strong. Or, the company gets too large and becomes reckless with the claims process.
If you face a situation where you think your insurance company is not following the rules, ask an attorney to review the claim….and make sure that attorney has a track-record of success in two, key aspects: (i) in successfully finding coverage, and, (ii) in successfully pursuing damages against insurers who violate the rules.
CITES:
[1] Owners Ins. Co. v. Tibke Constr., Inc., 2017 S.D. 51, ¶ 10.
[2] Cornelius v. Nat’l Cas. Co., 2012 S.D. 29, ¶ 6.
[3] Batiz v. Fire Ins. Exch. 2011 S.d. 35 ¶ 10
[4] Helmbolt v. LeMars Mut. Ins. Co., Inc., 404 N.W.2d 55, 59 (S.D.1987).
[5] Opperman v. Heritage Mut. Ins. Co., 1997 S.D. 85, ¶ 4, 566 N.W.2d 487
[6] Trouten v. Heritage Mut. Ins. Co., 632 N.W.2d 856, 862 (S.D. 2001); Kunkel v. United Security Ins. Co. of New Jersey, 168 N.W.2d 723, 726 (S.D. 1969),
