375.1007. Improper claims practices. — Any of the following acts by an insurer, if committed in violation of section 375.1005, constitutes an improper claims practice:
(1) Misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;
(2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;
(3) Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies;
(4) Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear;
(5) Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;
(6) Refusing to pay claims without conducting a reasonable investigation;
(7) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed and communicated to the insurer;
(8) Attempting to settle a claim for less than the amount to which a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application;
(9) Attempting to settle claims on the basis of an application which was materially altered without notice to, or knowledge or consent of, the insured;
(10) Making a claims payment to an insured or beneficiary without indicating the coverage under which each payment is being made;
(11) Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form;
(12) Failing in the case of claims denial or offers of a compromise settlement to promptly provide a reasonable and accurate explanation of the basis for such actions;
(13) Failing to provide forms necessary to present claims within fifteen calendar days of a request with reasonable explanations regarding their use;
(14) Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by or required to be used by the insurer are performed in a workmanlike manner;
(15) Failing to promptly settle claims where liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
As a licensed public adjuster who has negotiated millions of dollars’ worth of insurance claims on behalf of policyholders who have suffered damage to their homes and commercial buildings, I have overturned many claim denials that were based on reports from engineers hired by insurance companies. Reading and contextually interpreting these reports to assist my clients, and to provide consultation and assistance to attorneys litigating such matters, has become my own specialty within my practice. Not all the errors and omissions that I have uncovered in these reports were acts of fraud, incompetency, or bias; however, many were. A few of those that were have been selected for this essay.
“Plausible deniability” is a strategy used to escape contractual duties that leave little or no evidence of wrongdoing or abuse. As it applies to the claims process, plausible deniability would allow an insurance carrier to hide behind the wrongful act of someone else that would determine on their behalf that a claim should not be paid when, in fact, it should be paid. How might this be done, and how might an engineer’s report play a part in it?
For illustration purposes, let’s say that wind or hail has damaged your roof and you have consulted with a trusted and experienced roofing contractor or other roofing professional before filing your insurance claim. Your contractor has confirmed the presence of storm damage to your roof. Your roofing professional might have decades of practical experience and training working for a century-old roofing company, spending thousands of hours per year inspecting and repairing damaged roofs exactly like yours. He may have worked with identical materials like those on your roof hundreds of times with countless numbers of expert repairs or replacements provided to hundreds of satisfied homeowners who had hail or wind damage identical or similar to yours … but your insurance company decides to ignore your expert and bring in their “expert” to look at your roof, instead.
Your insurance company’s “roofing” expert will probably be a licensed engineer who, if he is like most engineers, has never installed or supervised the installation or repair of a roof. His engineering specialty before becoming employed by the engineering company he now works for may have been geotechnical, water resources, electronics, or any other of the numerous varieties of engineering specialties that have nothing at all to do with building materials in general or roofing materials, in particular. Roofing materials are not structural and are not an engineering specialty.
When high winds or lightning have damaged the structure of the home, a licensed engineer is essential to the insurance carrier and the policyholder to determine and report on the structural integrity of the building and recommend the correct remedy to restore it. But why did your insurance company hire a licensed engineer to simply inspect your shingles?
Your policy covers damage from all perils – except for those that the policy excludes from coverage. In the absence of an exclusion, your insurance provider must pay for your covered loss.
The burden of proving that a policy exclusion applies (such as “wear and tear” or “poor workmanship”, for example) is on your insurance company. When an insurance adjuster can find an exclusion to the policy, he will usually tell you. When the adjuster cannot find an exclusion, rather than pay you, he may recommend to his company that they hire an engineer to “find” one.
The inspection of damaged roofing materials is not an engineering practice. If it were, Missouri law would prohibit anyone other than a licensed engineer from doing it, just as it prohibits non-engineers from performing work that requires an engineering license. The cost of paying an engineer (usually between $1,500.00 and $2,500.00) for a report is a large percentage of what a roof on an average size private dwelling would cost to replace. It seems extremely odd that an insurance company would not trust this routine and otherwise inexpensive process to less expensive and more experienced professionals when they are available, such as your expert or even their own adjuster. The decision to pay an engineer to inspect your shingles does not seem to be based on skill requirements or cost-effectiveness, does it?
Anyone is qualified by the State of Missouri to inspect and write a report on the damage found on a roof since the roof covering is not considered to be a part of the structure of the building. It is simply there to shed water and enhance the beauty of the home. But why an engineer? Scroll up a few paragraphs and re-read about “plausible deniability” and it becomes clearer why an engineer report, particularly those that are typically void of science (i.e. terminal velocity calculations, measurement of material impact resistance and relevant ambient factors, etc.) dovetails into a conclusion that supports an exclusion to your coverage and allows for a denial of your claim, could help the insurance company at your expense.
Shooting Yourself in the Foot
Some policyholders will unwisely request on their own, after being told by an adjuster that he does not agree with their expert, that the insurance company hire an engineer to provide what the policyholder mistakenly believes to be an unbiased and qualified opinion about his roof. The requested engineer is then selected, hired, and paid by the insurance company to provide them (not the policyholder) with a report that the policyholder is trusting to be independent and unbiased. Whether requested on their own or at the urging of the policyholder, the engineer is being directed and paid by the insurance company.
Often, the engineer who inspects an insured’s roof will be asked to call the insurance adjuster and provide a “verbal” report before he commits his conclusions in writing. This is because the existence of a written report from the engineer that favors the insured’s claim might prove to be problematic for the insurance adjuster should it be discovered later if the claim is litigated. Verbal reports usually are provided to the insurance adjuster within a couple of weeks and, when the adjuster is confident enough to request a written report, it arrives to him about thirty days after the engineer’s inspection.
Accordingly, the insurance company’s engineer provides a report to the insurance company which contradicts the finding of the experienced roofing contractor, and the insurance company concludes from that report (while ignoring the opinion of the policyholder’s expert and preferring the opinion of their expert) that the hail damage was caused by something other than hail and something that is not covered by the policy – and your claim is denied.
This happens more often than you think and more often than it should. The last thing a policyholder should want to do is encourage his insurance company to hire their own expert with the incorrect assumption that their engineer is unbiased and objective. There are rare exceptions to this like anything else, of course, but they are exceptions … and they are rare. Don’t bet on it.
Follow the Money
Some of these companies that employ licensed engineers to provide these types of reports to insurance companies do not provide any other type of engineering service. Writing these reports for insurance companies is their major (or, in many cases, only) source of business income. Sometimes, as reported by the television news program “60 Minutes” (click here), the company’s managers may change the language in the engineer’s original report to benefit an insurance company at the expense of the homeowner. The financial incentive (usually $1,500 to $2,500 for each report, in Missouri) for future repeated business is what will often drive some of them to find creative ways to “help” the insurance company to determine that your hail (or other property damage) is not covered by the policy. Click HERE for more examples.
Here is an excerpt from a case that reached the Texas Supreme Court that resulted in a ruling against the insurance carrier and was critical of their bias. I have blocked the names of the insurance company and engineer in this essay, but you can read the full case HERE and get the full story. “Some evidence also indicates that (insurance carrier) knew, when it denied the Nicolaus’ claim for the second time, that the (engineer) report did not justify denying the claim. The (rebuttal) report, which the Nicolaus provided to (insurance carrier) after (insurance carrier) initially denied the claim, discussed the moisture content of soil samples taken from four locations within the Nicolaus’ house. (Insurance carrier) referred the (rebuttal) report, which had found that water from the leak had spread throughout the soils underlying the Nicolaus’ foundation, to the same (insurance carrier’s) engineers who had prepared the initial report. There is no indication that the (insurance carrier’s) engineers did any further testing in response to the (rebuttal) report or that (insurance carrier) conducted any further investigation before denying the claim a second time.”
As most public adjusters know from the numerous engineering reports that we read and discuss with insurance companies, many of them are simple boilerplate templates with only the beginning and ending pages unique to the applicable home, and many of them lack merit or fact that would actually support a denial of an insurance claim. Unfortunately, policyholders do not have the expertise and experience of reading enough of these reports to recognize the numerous errors, omissions, and contradictions contained within many of them and will mistakenly believe that an engineering report cannot be successfully disputed by anyone other than another engineer.
One Plus One Equals Zero
Because they don’t know better, many policyholders who have been stung by a biased, incomplete, or errant engineer’s report (or simply one they do not agree with) will insist that their insurance company “send out another engineer“. Understanding that the engineer was hired to write the controversial report in the first place, and at a considerable sum, the insurance carrier has no incentive at all to argue with itself. A second engineer’s report that differs at all from the first simply puts the disputed question in a “tie” – one for you and one against you. The second report is not definitive simply because it disagrees with the first. Requests from policyholders for the insurer to send out a second engineer for a second opinion go nowhere and even if the carrier should decide to pay for a second report, it is highly unlikely to result in the policyholder’s favor, even if the second engineer disagrees with the insurance company.
Where’s The Science?
When you read them, you will find most reports written by engineers for damaged roofing materials are devoid of science and engineering, with the possible exception of boilerplate language that has been prewritten to describe commonalities that may or may not be relevant to the damage being claimed. The part of the report that is unique to your roof will represent as much as a third of the actual report and will typically include nothing more than a record of the engineer’s reported observations (as did the adjuster before him).
You may see an opinion about how the hailstones that fell on your roof lacked speed, velocity, or density to cause damage — but you will find no calculations or references to how that speed, velocity, or density of the long-ago melted hailstone was calculated. The use of these terms may sound impressive since it is intended to sound impressive – but is it true? Don’t ask the engineer who wrote it. He doesn’t really know, himself. Often, this narrative is cut and pasted into the same engineer’s roof reports on a routine basis – which would be known only to those who read several of them – like the insurance companies that hire him (and the public adjuster who has represented multiple clients who opposed him).
Examples of Bias, Fraud, and Incompetence
An engineer’s report that I received from one of these companies specified how the engineer closely examined the “clay tiles” that were chipped and found the damage to be attributed to something other than hail. He then provided a lengthy and generic boilerplate description of how “clay tiles” are made and the scientific studies of the effects of hail that strikes them. What he failed to observe was the fact that the roof was covered with eighty-year-old concrete tiles and not clay tiles. He not only missed the hail damage but incorrectly identified the material.
Another engineer’s report for a client that was used to deny an insurance claim for a church with a wind-damaged roof incorrectly described a tongue-in-groove roof covering as plywood sheathing, identified the wrong date (and the wrong windstorm) when he incorrectly reported low wind speeds and failed to identify and record the fact that the steeple had been lifted and moved by a 100-mph wind. This report was written by an engineer from a company commonly used by insurance carriers in several states to support their claim denials. Whether his errors and omissions were caused by his negligence or bias is not important since his licensing board prohibits both. When the errors that I found in the report were brought to the insurance carrier’s attention, the adjuster’s manager promptly and apologetically paid the claim to replace the steeple.
In another recent case, a different engineer from the same company went as far as to attempt to interpret the insurance policy’s coverage for the insurance carrier in his engineer report and presented that, while copper roofing material had clearly been dented by a recent hailstorm, the damage “could not be seen from the ground” and was not, in his professional opinion, “damage“. The insurance company that wrote the insurance policy and knows it better than any of its policyholders conveniently and improperly allowed this errant interpretation of coverage by the engineer to stand – knowing fully that the policy had no such exclusion for hail damage that “could not be seen from the ground“. The insurer denied payment to the policyholder, an elderly widow, for more than two years and I was hired to intercede on her behalf. I immediately challenged their action and reopened the claim. My investigation revealed that the engineering company had contracted a full-time real estate salesman with an engineer’s license to perform their inspection, which explained his unusual conclusion that damage not viewed from the ground was not worthy of coverage. The insurance company, after that disclosure from my investigation, agreed to pay the policyholder over $232,000.00 to restore the roof to its pre-damaged condition. The engineer has returned to his full-time job of selling real estate.
On a commercial roof, the insurance carrier’s engineer attempted to save the insurance carrier from the cost of replacing an entire roof by recommending an inexpensive repair that the local code officials rejected. He argued that his repair was proper, and the insurance company foolishly stood behind a repair recommendation they knew to be unlawful., simply because it was provided to them by a licensed engineer and in direct defiance with the code officials. We had to get some attorneys involved with this one but, in the end, we reached a settlement for $1,000,000.00 – without filing a lawsuit.
As you can see from just these three recent examples, not all engineer reports reflect accuracy, competency, or non-bias, and insurance companies that use these reports to deny claims are not always acting in good faith, according to the courts who have ruled against them. There are times when withholding money from you based upon reports that they know to be inaccurate have been considered vexatious and, through litigation in a federal or state court, have entitled policyholders to punitive damages in addition to the money owed to them. Your attorney can provide more details in this area.
Also worthy of note are the instances in which the engineer’s report is, by design or negligence, written in an ambiguous manner that allows facts about the damage that could benefit the policyholder’s claim to be manipulated in favor of the insurance company. Most policyholders are not trained or able to fully screen and comprehend detailed engineering reports. In one recent claim in 2019, for example, an engineer report that accurately described and reported damage to a commercial building was wrongfully interpreted by the insurance company to deny a claim that, after I reopened it and challenged their interpretation, resulted in a check to my client for over $692,000.00. Prudent policyholders will arrange to have their insurance denial letters and accompanying engineer reports reviewed by a public adjuster or attorney before walking away from their claim.
Sometimes, what the engineer actually reported was not correctly communicated to the policyholder by his insurance adjuster. In one case, the insurance company denied coverage to a church for interior damage caused by water entering from a roof damaged by hail. The adjuster told the church that the engineer concluded that the interior damage was from “wear and tear” and not subsequent to the hail damage. The people at the church hired me to assist them.
Several weeks after demanding a copy of the report so that I could review it myself, the insurance carrier reluctantly complied with my request. The report did NOT say what they told the policyholder it said. Though the engineer did his best to present the facts in such a way to support the insurance company’s denial, his ambiguity and double-talk did not fully discount the hail damage as a source of water to the interior. The insurance company finally agreed to pay the church $59,000.00 to cover the water damage to the interior of their building.
There are many more stories that I can share but I think, by now, you get the point. There are times when neither the insurance carrier nor the engineer writing a report should have the final word.
What can you do if you are working the claim on your own?
While some state Departments of Insurance may not find biased, ambiguous, or erroneous engineer reports to be something they wish to handle or spend political capital, there are often other departments within state government that are able to act to preserve the integrity of the engineering profession and, in turn, protect the public from licensed engineers who are acting in an incompetent or biased manner.
Licensed professional engineers in Missouri are accountable for their acts of bias and/or negligence to the state board that issues their licenses. Accordingly, home insurance policyholders that believe they are victims of an improper relationship between their insurance company and an engineering company may have recourse through the Missouri Board for Architects, Professional Engineers, Professional Land Surveyors, and Professional Landscape Architects.
Formal complaints from homeowners that have merit will be investigated by the board, and action can be taken against the engineer when it is appropriate. Engineers who draft reports for insurance companies to use to deny claims that contain incorrect, partial, or biased information will have to justify their actions (if they can) to their respective licensing boards that monitor and enforce competency and impartiality. Their actions, if found to be due to incompetence or partiality, could result in sanctions up to and including fines and forfeiture of their licenses and these findings can be used by homeowners to address their denial or underpayment through the proper channels available to them … through their policies or judicial means.
Enough enforcement actions taken against licensed engineers that participate in the practice of routinely providing insurance companies with undue “plausible deniability” used in their refusal to pay legitimate claims could effectively reduce this threat to policyholders seeking to be indemnified for their losses.
[Note: Policyholders should also take care to ensure that the engineer report was actually written by a state-licensed engineer. In some cases, these damage inspections are conducted by contractors, consultants, home inspectors, and others who are not licensed engineers and the reports that they compose are subsequently sent to engineers to sign and affix their seal before forwarding them to an insurance company for their use. When you find the inevitable errors or omissions in these reports resulting from the unprofessional inspection or observation and report them to the insurance company, be certain that the insurance company is not responding to you with advice from the same unlicensed consultant rather than a licensed engineer. I have communicated with some insurance adjusters who, themselves, weree not aware of the difference.]
A leak in my roof has stained my ceiling and I am afraid that it needs to be replaced. Should I file an insurance claim for my leaky roof?
The short answer is “No”. Before deciding to file a claim for roof damage, a homeowner must gather more facts than just the evidence of a leak.
The first question that must be answered is ‘what is the source of the leak and what caused it?’ Did the leak originate from deteriorated flashing at the chimney or other maintenance related issue? If so, your insurance policy excludes coverage for wear and tear and other deferred maintenance issues. Knowing and being able to prove that the point of entry for the moisture was caused by a sudden and accidental insured event (lightning, wind, hail, falling tree limb, ice damming, etc.) should be the first step in deciding whether to file an insurance claim for roof damage.
The second question that must be answered is ‘when did the damage occur?’ Your insurance policy has a date on which coverage begins and a date for when coverage ends. Did the damage during the period of insurance coverage?
The third question that must be answered is ‘does the cost to restore my roof to its condition prior to the event that damaged it exceed my deductible, and by how much?’ Not all insurance policies provide for a full roof replacement under all circumstances. What does your policy cover and how much deductible will be applied before the insurance begins to pay? A $350,000 insurance policy with a 1% deductible will begin to pay for covered damage for amounts that exceed $3,500. A roof repair that will cost $3,000, while covered by the policy, would not result in a payment. A $5,000 repair or partial replacement would result in a payment from the insurance company of $1,5000, less depreciation when applicable.
When you know what caused the leak AND when you know that the damage that caused the leak is covered under your policy AND you know that the event that caused the leak occurred during the period which your insurance company provided coverage AND you know that the amount your insurance provider will pay you (along with the possibility of an increase in your premium rate) exceeds your costs of repair at your own expense … it is probably worthwhile to file an insurance claim.
Insurance claims for property damage can be a complicated process and avoiding mistakes can be a challenge. It requires proper documentation and timely submission of relevant paperwork. Any mistake in filing the claim could result in delayed or denied coverage, leaving the policyholder to bear the entire cost of the damage. Therefore, it is essential to understand the do’s and don’ts of filing an insurance claim for property damage and to know when to get help. In this essay, we will discuss the mistakes that policyholders should avoid when filing an insurance claim for property damage.
Failing to Document the Damage:
The first and most common mistake that policyholders make is failing to document the damage properly. It is essential to take pictures and videos of the damaged property as soon as possible after the incident occurs. This documentation will serve as evidence for the insurance company to determine the extent of the damage and the amount of coverage required. Without proper documentation, it can be challenging to prove the damage, and the insurance company may deny the claim.
Photographs or video of the hailstones that struck the property, for example, are valuable evidence since some weather reports might report the nearest hailstorm to have been miles away on the date of loss. Photographs of interior water damage taken before clean-up measures began help preserve evidence of fresh damage. Proving your claim is YOUR responsibility. Leave it up to the insurance company to prove it for you and you are likely to be disappointed in the result of their half-hearted efforts.
Waiting Too Long to File the Claim:
Another common mistake that policyholders make is waiting too long to file the claim. It is crucial to report the damage to the insurance company as soon as possible after the incident occurs. Most insurance policies have a specific timeframe within which the policyholder must report the damage. Failing to report the damage within this timeframe could result in a denied claim. Additionally, waiting too long to file the claim could result in delays in the claims process, which could cause further damage to the property.
Failing to Provide Accurate Information:
When filing an insurance claim for property damage, it is essential to provide accurate and detailed information about the incident. This includes the date and time of the incident, the cause of the damage, and the extent of the damage. Providing inaccurate or incomplete information could result in delays or denials of the claim. Additionally, it could result in the policyholder being accused of insurance fraud, which could result in legal consequences.
Not Reviewing the Insurance Policy:
Before filing an insurance claim for property damage, it is essential to review the insurance policy to understand the coverage and exclusions. Many policyholders make the mistake of assuming that their insurance policy covers all types of damage, only to realize later that the damage is excluded from the policy. Therefore, it is essential to review the policy and understand the coverage and exclusions before filing the claim. Your insurance policy is a contract worth hundreds of thousands (sometimes millions) of dollars. READ IT.
Attempting to Repair the Damage Before Filing the Claim:
Some policyholders make the mistake of attempting to repair the damage before filing the claim. It is essential to notify the insurance company before making any repairs to the property. The insurance company will likely send a claims adjuster to assess the damage and determine the amount of coverage required. Failing to notify the insurance company before making repairs could result in a denied claim, as the insurance company will not have the opportunity to assess the damage.
Failing to Mitigate Further Damage:
When property damage occurs, it is essential to take steps to mitigate further damage. This includes taking steps to prevent water damage or securing the property from further damage. Failing to take steps to mitigate further damage could result in a denied claim, as the insurance company may view the policyholder as negligent in protecting the property.
Not Understanding the Claims Process:
Filing an insurance claim for property damage can be a complicated process. It is essential to understand the claims process and follow the guidelines provided by the insurance company. Failure to understand the claims process could result in delays or denials of the claim. If you need help with this, contact a licensed public adjuster or attorney for advice or assistance.
Not Following Up on the Claim:
After filing an insurance claim for property damage, it is essential to follow up with the insurance company regularly. This includes following up on the status of the claim and providing any additional documentation required.
Not Seeking Assistance from Unbiased Sources:
When you find your insurance provider putting more effort into denying your claim than paying it or you feel that you are getting unfair resistance or treatment, consult a licensed public adjuster or an attorney to assist you.
Will a public adjuster get me extra money from my claim? The short answer is “no”. You are not entitled to receive any more from your insurance carrier than what is required to restore you to your condition prior to your loss, and a public adjuster cannot obtain for you more money than what you are entitled to under your contract with your insurance provider.
What the public adjuster does, however, is represent your claim to your insurance company to ensure that you properly claim all that you are entitled to receive. This is something that most policyholders are not able to do on their own and, because they cannot, are vulnerable to being exploited by their insurance company’s duty to show a profit to its stockholders.
Unknown to the typical policyholder is the fact that it is their burden to prove to the insurance company (a) they have a covered loss, and (b) the actual cost to restore them to their pre-loss condition. Because they do not know this, most of them will simply notify their insurance company of their loss and wait for the insurance adjuster to tell them if they are covered and how much they are willing to pay.
Your public adjuster, on the other hand, presents to the insurance company proof of your covered loss and the amount of money that you will require to recover from the covered loss. He is not “asking” – he’s proving the coverage, the damage, and the costs to restore you to your pre-loss condition.
The difference between allowing the insurance company’s adjuster to find the proof of a covered loss on his own and to “estimate” the amount of money necessary to restore it – and the public adjuster’s proof of the loss and presentation of the actual damages – can and has resulted in differences amounting to hundreds of thousands of dollars in a single claim.
These differences in settlements derived from the use of a public adjuster are not “extra money”; rather, it is the exact amount of money that the policyholder requires and is entitled to restore them to their pre-loss condition.
It is probable that, at the time it was built, your older building met all the building code requirements at the time it was originally constructed. In the absence of any recent renovations requiring upgrades to current building standards, it is also probable that your older building does not meet modern building standards and will not be required to meet them until such time that major restoration or renovation are made or become necessary.
Unknown to many commercial building insurance policyholders is an exclusion in their property insurance policy that allows the insurance company to refuse to pay the additional costs associated with performing required building code upgrade requirements at the time of loss.
For example, should lightning strike the older building and cause damage to a small part of the original electrical system, local building code ordinances and regulations may demand that a repair to that damage requires complete electrical re-wiring of the entire building to bring it up to the current standard. The exclusion in the business property insurance policy that denies coverage for complying with local ordinances and building codes would allow the insurance company to pay only for the repair of the damaged wiring and leave the more expensive code upgrade expenses to the policyholder.
If you own a commercial building that is twenty or more years old, I strongly suggest that you consult with your insurance agent or broker to determine if you have (or need to purchase) an endorsement to your policy that provides for the additional expense of enforced code upgrades to protect yourself from this added and significant expense to your loss.
After considering the adversarial posture of an insurance company toward its policyholder in the event of a claim and assuming the best – that you would be successful in recovering the most that your policy provides to restore your property after a catastrophic loss – did you buy enough insurance to actually restore your property?
Some people will negotiate a terrific deal when purchasing a commercial building or residential dwelling and then will insure that building for the amount of money they paid for it. The mortgage lender is certainly happy with that amount of insurance for it fully protects their financial investment, but is the market value of a structure sufficient to rebuild it if it were destroyed? Most likely, it would be significantly less, and it is probably not your plan after a major loss to simply pay off your loan, remove the rubble at your own expense, and live or conduct business on an empty lot.
Even before the current exponential increase in costs for building materials, the market value of a structure did not reflect the cost of replacing all or most of it which, in the event of a major fire or storm, would be the purpose of an insurance policy.
A general contractor or builder in your immediate area will be able to tell you what an average cost per square foot would be to replace all or most of your building today if it were significantly damaged. Take that cost and multiply it by the square footage of the building you are insuring and then add a few dollars for next year’s inflation. This will tell you whether or not your home or business structure is insured for a sufficient amount of money.
Believe it or not, many policyholders will help their insurance company withhold money from them that they might have otherwise been paid. Of course, they don’t mean to sabotage their own insurance claim – but the denial will often rest more upon their actions than those of their insurance carrier.
To better understand how insurance companies allow their policyholders to defeat themselves, it is important to understand three basic points:
1. The policyholders must prove they have a covered loss.
2. The insurance company has no duty or obligation to assist the policyholder in their efforts to prove that they have a covered loss.
3. The insurance company has the duty to pay the claim for a covered loss unless they can prove that an exclusion named in the open peril policy applies to the claim. The burden of proof that the exclusion exists rests upon the insurance company.
If you have incurred damage to your home or business, you must present proof of the loss and proof that it is covered under your policy, and you must do it without counting on your insurance company to assist you. It is your duty to prove your claim. If you do, they pay you – unless there is an exclusion in your policy that disallows payment for your particular loss. If there is such an exclusion, the burden of proof is theirs to prove that the condition excluding coverage exists. If they cannot prove this, they must pay you.
Refer to these basic points as you read the following few ways that policyholders I have recently spoken to have assisted their insurance companies with the denial of their claim:
1. “A hailstorm struck my neighborhood recently and everyone within a quarter of a mile of my house had their roofs replaced by their insurance companies, so I filed a claim, too,” said the policyholder to the claims adjuster.
This is a common insurance claim which is just as commonly denied by insurance companies. The policyholder, when reporting a “claim” such as this has no idea whether there is any hail damage to their property and, accordingly, has no proof to provide to the insurance carrier.
Their argument that their claim is based upon the condition of neighboring properties is not only inconsistent with their insurance policy but is just as irrelevant and illogical as if their carrier were to tell them “We are not going to accept your insurance claim for hail damage since no one within a quarter of a mile from you reported damage.” The fact that neighboring structures are damaged does not prove that yours is.
It is possible, by chance, that the adjuster might find hail damage to your property although you did not, but don’t bet on it. The damage he might find could possibly exceed your deductible and you might receive some money for that loss. The future adjustment to your insurance premium, however, might be greater than your settlement if your carrier decides that you are a risk to file a claim against your policy with no actual knowledge of damage. Re-read Basic Point #1, above. Know that you have incurred damage from a storm before you file your claim.
2. “I have water leaking through my ceiling. I filed a claim for damage to my roof,” said the policyholder to the claims adjuster.
In Missouri, it has been an extremely rare event for a hailstone to be large enough to strike roofing material with enough force to create a hole in the roof. A roof leak is rarely associated with damage from hail. More commonly, a roof leak is the result of a maintenance issue related to the deterioration of flashing, aged repairs, or other roofing materials. Before filing a claim for roof damage, you (or a trusted roofing professional at your request) should determine the source of the leak and its cause.
If the cause was sudden and accidental (i.e. wind damage or fallen tree limb, for example), photographs of the damage and cause should be included with the insurance claim you file. If the cause was due to wear and tear of aging materials or other maintenance-related issues, however, your claim will be denied because you failed to prove that you incurred damage from a covered loss. It is better for you (and your future premiums) to know this before you decide to file a claim.
Know where the leak is coming from and what sudden and accidental event caused it. If the leak was caused by a covered peril, prove it to yourself first. When you file your claim, describe the damage and the cause and, when the adjuster comes out to inspect the damage, be prepared with your evidence to prove your covered loss to your insurance company.
3. “We had heavy rain for three days. There is six inches of water flooding my basement. I filed an insurance claim.”
Missouri home insurance policies do not cover “flood” damage. Unless you have an endorsement added to your policy for sump pump failure or backup damage, it is probable that water that enters a home from outside of the home (as opposed to a broken water service line inside the house) is not covered under a home insurance policy.
Before filing a claim, know (and gather physical or photographic evidence) where the water came from. When reporting the claim to the insurance company, don’t describe your damage as “flood” damage when it is water damage caused by a broken line or backed up drain from within the home. If you are counting on the insurance adjuster to investigate and prove your loss for you, it is highly probable that you will be disappointed in his results.
After you have presented proof of your covered loss to your insurance carrier, they should pay you – unless they can prove that your loss is specifically excluded by your policy. To assist them with their proof, the insurance company will sometimes hire people who they have worked with and who they know to be skilled in assisting them with finding such proof (i.e. engineers and consultants). Often, the professionals they hire to assist them will go beyond the scope of PROVING an exclusion and go out in search of one. When this happens, the likelihood exists that the forthcoming denial is based on something less than objective facts.
Since the insurance company hires and pays engineers and consultants to assist them with proving that there is an exclusion to the coverage that removes their obligation to pay you, it is clear to see how a policyholder sabotages his own claim by insisting that the adjuster he disagrees with hire an engineer to inspect the damage – as if the engineer will somehow decide to support the policyholder rather than the insurance company paying him.
Other ways to forfeit your loss is to refuse to provide your insurance carrier with documentation or access to the site they request in a timely manner. Some documents they provide will require responses within certain deadlines which you must meet. Both you and your insurance company have duties to each other under your contract (aka “policy”) that both must meet. Proving your loss is up to you to do. Not your insurance company.
If you are not comfortable preparing your own claim and presenting your proof to your insurance company, a licensed public adjuster can help you. When you present your own claim and are not convinced that the insurance company’s denial or underpayment is fair, have your claim reviewed by your attorney or a licensed public adjuster to determine the next best step.
Once there was a maintenance man who worked in a famous art museum and was directed by his supervisor to touch up the white paint on the wall of a certain gallery within the museum. As he was ascending his ladder he accidentally tipped over his gallon of white paint and it splashed across the surface of a 550-year-old painting from a world-famous artist that hung in the gallery.
Of course, the painting was insured and the curator immediately filed a claim. The insurance adjuster took a few photos and shared them with his boss who said “We need to send out an engineer.”
The engineer arrived to examine the painting and noted that the framed canvas was designed and intended to hold paint of various colors. Since the canvas and frame were still intact, he recorded that the painting was still “functional”. The painted surface had white paint splashed across the smiling face of a woman named “Lisa” or something, but he reported the damage was “cosmetic” in that it did not interfere with the “function” of the canvas to hold paint. It was, after all, covered with paint … and the gallery was filled with various paintings with random splashes and colors. He concluded that there was no “functional” damage and the insurance company denied the claim.
This story is fictional, of course … but the actions described represent those that are quite common with home and business property insurance claims.
Let’s look at the shingles on your roof, for example. The manufacturer of your shingles produces them in a wide variety of colors, shapes, and styles. When you selected them (or selected the house that already had them), you noted their color and design in context with the features of the rest of the structure, didn’t you? Of course, their designed purpose is to protect the roof from wear and water intrusion but they also were carefully and creatively designed to enhance the beauty of the home.
When a sudden storm pounds them with hail, along with the metal appurtenances, gutters, downspouts, and other surrounding materials, they will often be damaged. When they are damaged, you might contact your insurance carrier to file a claim for direct physical damage or loss to your roofing materials. The insurance adjuster will arrive, take a few photographs, and return to speak to his boss. When the boss does not want to pay you for your damage … he will send an engineer.
The engineer will often look at your shingles and surrounding metals for gaping holes. Finding none, he declares that the shingles and metals are still shedding water as they were designed to do, and the damage to them is not “functional” but merely “cosmetic”. Based on this report, the manager will deny the claim – for this is the very reason the engineer was hired.
When you believe that your insurance carrier is trying harder to deny your claim than pay your claim, you may be the victim of improper claim handling, bad faith, or vexatious actions on the part of your carrier. When this happens, seek the advice of your attorney or a licensed public adjuster.
Insurance fraud is an affirmative defense used by insurance companies to deny claims. The burden of proving fraud to deny an insurance claim is not as stringent as it is to prove insurance fraud for a criminal conviction. This post is intended only to generally inform the reader of the statute that governs the Class E and Class D felonies of insurance fraud in the State of Missouri and describe how insurance companies use this defense to deny insurance claims. It is not to be construed as legal advice.
According to the Missouri Revised Statutes:
375.991. 1. As used in sections 375.991 to 375.994, the term “statement” means any communication, notice statement, proof of loss, bill of lading, receipt for payment, invoice, account, an estimate of damages, bills for services, diagnosis, prescription, hospital or doctor records, x-rays, test results or other evidence of loss, injury or expense.
2. For the purposes of sections 375.991 to 375.994, a person commits a “fraudulent insurance act” if such person knowingly presents, causes to be presented, or prepares with knowledge or belief that it will be presented, to or by an insurer, purported insurer, broker, or any agent thereof, any oral or written statement including computer-generated documents as part of, or in support of, an application for the issuance of, or the rating of, an insurance policy for commercial or personal insurance, or a claim for payment or other benefits pursuant to an insurance policy for commercial or personal insurance, which such person knows to contain materially false information concerning any fact material thereto or if such person conceals, for the purpose of misleading another, information concerning any fact material thereto.
6. A fraudulent insurance act for a first offense is a class E felony. Any person who is found guilty of a fraudulent insurance act who has previously been found guilty of a fraudulent insurance act shall be guilty of a class D felony.
7. Any person who pleads guilty or is found guilty of a fraudulent insurance act shall be ordered by the court to make restitution to any person or insurer for any financial loss sustained as a result of such violation. The court shall determine the extent and method of restitution.
8. Nothing in this section shall limit the power of the state to punish any person for any conduct that constitutes a crime by any other state statute.
Be reminded that acts of fraud, both civil and criminal, include the application for the insurance policy as well as the filing of an insurance claim.
When the policyholder makes false statements or conceals material facts or evidence when applying for insurance coverage or during the course of a claims investigation with the intent to deceive the insurance carrier, it is not necessary for the insurer to actually pay the claim for the act of fraud to be committed. Courts have held that fraud attempted, even when the policyholder argues that he was merely using negotiation tactics, is still fraud.
As for the claim, fraud in any aspect of a claim is a bar to coverage for the entire claim. This means if a policyholder made a material misrepresentation about his loss from fire of personal property but made no misrepresentation about damage to his house, the claim can be denied for BOTH the personal property and the house.
If you are handling your claim on your own and without the assistance of an attorney or public adjuster, it is important to be aware and understand that your words matter. Since misrepresentation and fraud are defenses that allow the insurance carrier to deny a claim, there is a significant financial incentive for the adjuster conducting the investigation to discover or interpret certain acts and information, accordingly. Be truthful, precise, and present to the insurance company only what you know to be true.