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 policyholder has the burden to prove that 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:
A. “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.
B. “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.
C. “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.
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.
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.
Filing an insurance claim can be much more complicated than it first appears. To some who have never filed a claim before, there is the assumption that all they must do is notify their insurance carrier of their loss and wait to be paid. They are unaware that the burden to prove that covered property has been damaged or lost due to a covered peril rests entirely upon them. Many mistakenly believe that they are entitled to be paid unless the insurance carrier can prove otherwise, which usually results in frustration and misunderstanding.
Before deciding to file an insurance claim, a policyholder should understand two important points:
1. It is always the burden of the policyholder to prove that a covered peril caused damage to their covered property.
2. It is always the burden of the insurance provider to prove that an excluded peril caused the loss.
Often (actually, too often) a policyholder will note a symptom of damage – such as a leak in the ceiling – and file an insurance claim for damage to their roof. Without knowing the cause of the leak or whether that cause was due to a peril covered under their policy, they will ask their insurance carrier to send out an adjuster to pay their claim.
The insurance company’s adjuster, whose duty is to protect the interests of the insurance company he works for, does NOT have the duty to prove that a covered peril caused the loss. Instead, he is there to collect information and evidence to support (if necessary) his burden to prove that an excluded peril caused the loss if, indeed, it did. When he is uncertain about his observations and the possibility of an exclusion under the policy to apply to the loss, he may seek the assistance of a third party (such as an engineer, architect, or consultant) to assist him.
After his investigation, unlike the typical policyholder who has not prepared his case to prove that a covered peril caused damage to their covered property, the insurance carrier is fully prepared to argue against coverage with any proof that an excluded peril caused the loss that the adjuster may have found.
Thus – knowing that they must first prove that their covered property was damaged by a covered peril – the prudent policyholder will investigate their own claim BEFORE inviting the carrier to begin their investigation of it. Generally speaking, this is what I usually recommend:
1. Know, as best as you can, exactly what is damaged and what caused it. If you are unable to determine this on your own, seek the advice of a trusted professional skilled in the material(s) that is damaged. If your roof is leaking, for example, have a roofer find the source of the leak and the cause of that source.
2. Collect physical and/or photographic evidence of the damage and proof of its origin. Obtain a bid from a trusted contractor for the cost to restore the damage to its condition prior to the loss. (Avoid allowing your contractor to negotiate directly with the carrier. A contractor’s lack of knowledge of your coverage and his interests in profiting from the work provides the adjuster with ease in exploiting and manipulating him.)
3. Learn if that damage is covered under your policy. Read your policy, speak to your agent, or consult with your attorney or public adjuster for assistance if you are confused about your policy’s language. Sometimes, it’s tricky.
4. Provide copies of your evidence to the insurance company when you file the claim or, if more convenient when the adjuster visits to inspect the property. (If you are not confident or comfortable in doing this, hire a public adjuster to represent you with this process.)
5. If your insurance carrier does not cooperate with you after providing proof of your loss and coverage, seek the assistance of an attorney or a public adjuster.
“I have paid my premiums on time for twenty years and have never filed a claim. Now, it is difficult for me to tell who has caused me more damage — the storm or my insurance carrier.”
The above exclamation, or words similar to it, is something that I hear almost on a daily basis from Missourians who have had the misfortune of needing to file an insurance claim for damage to their homes and businesses. Do you really become “the enemy” of your insurance carrier when you file a claim? Do they really consider you more as an adversary than a customer?
I received an email today from an attorney representing an insurance carrier from out of state and who sells insurance policies in Missouri who provided a clear and convincing answer to those questions.
My client, a commercial business, had incurred extensive and obvious hail damage to multiple buildings and filed an insurance claim. Their insurance company hired an independent adjustment firm to inspect the damage who reported their observations to the carrier. The carrier, after receiving their report and photographs, decided to hire an engineer who regularly assists insurance carriers in denying coverage for hail damage to properties in Missouri.
With the hail damage being as obvious as it was, there was no legitimate reason to have an engineer look at the same dents, gouges, and tears that their independent adjuster had just seen and photographed. I suspected that the independent adjuster had actually recommended that the claim be paid against the carrier’s wishes, and I requested a copy of his report. Insurance companies almost always share their reports when their report supports a claim denial. For some reason, the carrier did not want to share this one and I was suspicious of their intention.
When I submitted a formal written request for a copy of the report from their independent adjuster that I believed supported my client’s claim for damages, I received a letter from the carrier’s attorney in response that confirmed my suspicions. In part, it read as follows:
“Under Missouri law, the relationship between an insured and the insurer with regard to first-party claims becomes adversarial when a claim is made on the policy. Therefore, the insurer is entitled to assert work product privileges to prevent access to materials found in the claim or investigative file.”
Because my client had filed a claim, he became an “adversary” to his insurance carrier and was not entitled to see documents in his file that might support his claim. In return for his annual premiums exceeding $80,000.00 per year, this is what his money bought for him. An adversarial relationship.
Of course, we’re suing. Soon, that report and all of the other documents in the file will be in the hands of his attorney. He will recover all of the money owed to him by his insurance carrier along with (most likely) punitive damages and his attorney fees. He is, indeed, an “adversary” to his insurance company – but not because he filed a claim. Rather, it was the insurance carrier that decided to vexatiously withhold money that was due to him under his contract rather than to pay him what he was entitled to. That action taken by them, and not his claim, is what made him an adversary … and a worthy one, at that.
Not everything that is unethical is illegal. There are ways of stepping right up to the line without crossing it and no one can do it better than some insurance companies with their vast financial resources and lobby power at the state government level.
375.1007. 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.
I recently read a touching and inspiring tribute written by an attorney who advocates for policyholders and who had recently lost a valuable partner and fellow advocate to cancer. Together, they would fight the good fight. There are not enough fighters like them in this arena, and in his tribute to his partner, he described her drive and enthusiasm for battling with insurance companies on behalf of their clients.
Being one who shares in the same fight (though not at such grand of a scale), I felt a great sense of personal loss. Even though I did not know her, personally, I know her heart and I have shared similar pain with the clients who had purchased insurance for peace of mind but found, when disaster came to their door, that this peace was only a temporary illusion.
Though Missouri law tasks an insurance company to provide prompt and fair assistance to its policyholders in exchange for payment of premiums, minimizing risk, and filing a claim only upon sustaining damage – some insurance companies, to protect their own financial interest, inflict more stress and financial harm upon their policyholders than the destructive event that prompted their claim, and at a time when the policyholder is most vulnerable with the least financial reserve. Instead of providing the warm professional care and assistance projected by their televised mascots, the policyholder is frequently met with fierce opposition and obstruction intended to exasperate, wear down, and break the resolve of the most committed policyholder defending his own rights under the very insurance policy he bought for “peace of mind”.
Fighting through a barrage of tactics used by insurance companies to delay, deny, and defend against the policyholder is certainly not an enjoyable experience for either the policyholder or his advocate. It is, however, something that must be done in order to receive a dollar-for-dollar payment for the incurred loss. That is the reality that is not shown on friendly and warm television commercials.
In search of an expert to provide them with a reason to deny a claim, many insurance companies will turn to the engineering profession.
There are highly respected and valued professional licensed engineers who design and build bridges and skyscrapers, who safely and efficiently channel waterways through and around large cities, who design and test the durability of aircraft and automobiles, who meet and overcome construction and building challenges around the globe – and then there are those who market themselves to insurance carriers for the purpose of providing written reports for them to use to deny insurance claims for wind and hail damage to homes and businesses. There is money in it. Insurance companies will pay them upwards of $2,500.00 per report. Most of these reports provide little more than boilerplate narratives regarding simple roofing materials and most of them contain little or no scientific or engineering data – but aside from their apparent lack of relevance, how accurate is the information that is provided?
As a public adjuster representing business and homeowner policyholders with their insurance claims, I read many of these reports and too often find errors, misrepresentations, and ambiguities salted among information intended to present a “scientific” spin on what are usually simple, routine observations that virtually anyone can make.
Much of what you will find in these reports, sometimes as much as two-thirds or more of the entire report, is a boilerplate filler of generic information that could be (but not always) relevant to their observations. It looks impressive at first glance, just as it is intended to, but is it even correct? Not always.
An engineer in several of his recent reports used by various insurance companies to deny claims includes the following language: “According to the National Roofing Contractors Association (NRCA), the lifespan of a roof is 20 years.” His report was peer-reviewed and stamped by another engineer with his firm – an engineering firm widely used by insurance carriers throughout the country. This claim by the engineer caught my attention because he was writing about a certain type of roofing material that carried a 30-year warranty and, as most people familiar with roofing materials know, various roofing materials have various lifespans – some as high as over 50 years.
I did not believe that the National Roofing Contractor’s Association would be so uninformed as to publish what he claimed they did, so I wrote to them and inquired as to where I could find the information from them that this engineer was quoting in his report used to support a denial of a cliam. The Vice President of Technical Services for the NRCA responded to me, as follows: “The 20-year figure is not from the NRCA. Lifespans vary greatly.” Thus, the engineer was not only wrong in his peer-reviewed statement of fact regarding the lifespan of a roof, but he also misrepresented the source for his errant facts.
Some engineers will provide comments and conclusions about the density or speed of hailstones as being less than required to damage roofing material and provide absolutely no information as to how they were able to measure the density or speed of the hailstone that melted away months or years before their observation. We are to simply take their word for it, like the quotations from the NRCA, perhaps.
The engineer paid by the insurance company might use ambiguous language that appears to say something but doesn’t. For instance, did the engineer say that large hailstones did not strike your roof, or did he simply say that he did not observe evidence of large hail strikes? There is a difference. Could there be evidence that he did not “see”, such as bruised indentations on weathered asphalt composite material that is soft to the touch? Did he say this, or did he leave it to the insurance company to use in the manner of their own choosing?
Insurance carriers, being corporations who have a fiduciary duty to protect the financial interests of their shareholders as well as a contractual duty to fulfill their promises to their policyholders, will often find this conflict of interest resulting in their wrongful actions of grossly underpaying or wrongfully denying their policyholders’ claims. The misuse of engineer reports is one of the ways they do this.
Often, insurance companies will knowingly allow the engineer’s errant attempts to interject policy interpretations into his report to be used to deny a policyholder’s claim. I have personally reversed an attempt by an insurer to deny an insurance claim because the engineer reported that the damage to the roof “could not be seen from the ground” when there was nothing in the policy to exclude damage for that reason, as one of many examples.
An expert witness in court must present his credentials, provide his testimony under oath, and be subjected to cross-examination, but insurance companies present biased hired guns as experts in the claims process and deprive vulnerable policyholders of necessary funds to restore their homes and businesses, with impunity.
The advice to not believe everything you read should be extended to engineer reports paid for by your insurance company to deny your insurance claim. Have them closely reviewed by your own expert for accuracy, relevancy, and truth before accepting that your claim should be denied as a result of an engineer’s report. Whatever you do, do NOT let the insurance company’s engineer be the final word on the validity of your claim.
There are two kinds of roofs on Missouri homes and business structures. There are those that have storm damage and those that will have storm damage. Understandably, the various insurance companies from all over the country that sell policies in our state will offer a wide variety of coverage options that are not always fully understood by the property owners before disaster strikes.
Learning after the roof has been damaged that you have been saving pennies per year by NOT including coverage to match replacement shingles or siding, or learning that hail dents that destroy the appearance of your metal roof is not considered “damage” by your insurance company, can result in costly out of pocket expenses that you thought were covered by insurance.
The Missouri Department of Insurance has created an informational and interactive website that helps you to understand your roofing coverage for each insurance carrier. While I recommend that you visit their site, I urge you to take the time to read and understand your insurance policy, as well. Have your agent clearly explain to you, when necessary, what it does and does not provide and ask lots of questions.
Considering that when an insurance company’s claims department is on its absolute best behavior, its job is the same as any corporation that is run by a board of directors. That job is to put the monetary interests of their shareholders (not their policyholders) at the top of their priority list. Their duty to you, as a policyholder, is not fiduciary (as it is with their shareholders) but contractual. Thus, even when you are dealing with a fair and reasonable adjuster, you need to know what your contract with them says. That contract is your insurance policy.
Your insurance company is prepared and well-practiced to fight and defend their rights under that contract. How prepared are you? Don’t let the first large claim be the first time you read it. Caveat emptor.
Shareholders or policyholders. Who matters most? Take this quiz:
The Board of Directors of my insurance company has a lawful duty to protect:
a. the financial interests of the policyholders.
b. the financial interest of the stockholders.
c. both of the above.
d. none of the above.
The answer is (b). The Board of Directors of an insurance company’s first (or fiduciary) duty is to the shareholders that elected them.
This means that the financial interests of the shareholders come before those of the insured policyholder when that corporation is an insurance provider. Profits come to a business from paying out less than what they take in. Shareholders demand this in return for their investment. Insurance companies comply. Know this as you shop.
The National Law Review has published a list of the “eleven worst insurance companies” and I encourage you to read it. Before you take too much comfort in finding that your home insurance provider did not make the list, you should consider that many that made the list are providers of health insurance. The factors that were used for the home and business insurers that made the list, however, are not unique to them but are commonly shared among smaller companies that would have at least made “dishonorable mention” if the list did not include other types of insurers.
What this list should teach those of us who buy insurance is the need for us to carefully select an insurance provider based on something other than cute or funny television commercials. Sweet talking lizards that collect your insurance premium can quickly become vicious and vexatious crocodiles defending the company against your valid claim. If you can learn this before you become vulnerable as a result of catastrophic loss, the better off you will be.
The Missouri Department of Insurance publishes a complaint index to help Missouri consumers determine how likely they may find displeasure with an insurance company’s claim handling process. Considering how few unsatisfied policyholders will actually go through the red tape to file a complaint with the State government , when an insurance company exceeds the normal rate of complaints under such circumstances – it really says something.