Insurance Claim Denied: Steps To Ensure You Get the Protection You Think You Have

This article has been co-authored by R. Scott Wolff, CIC, CRIST and Tom Bullen, Risk Management Advisors

There are significant benefits to your business in having sound risk management strategies. However, one will not appreciate these benefits until they are tested by an event that triggers an insurance claim (e.g. fire, flood, cyber security breach etc.). Health, safety and risk management are just as important as revenue management. For example if a hotel were to have a very public event similar to that of Chipotle’s recent food safety issues or the cyber security breaches at Hilton and Trump Hotels, revenues would be impacted because such event scare away customers.

As a risk manager what scares me most is that – if risk is being transferred to insurance companies and when there is an incident – in many cases insurance companies limit ones recovery or denies coverage altogether. Yet, there are ways one can avoid running into any unwanted claim denial situations.

Insurance disputes can be avoided if proper coverage is purchased
The risks that businesses face have become increasingly complex. Most owners and executive management teams are not intimately aware of all the risks facing them and the needed coverage to properly insure their businesses. Most have little knowledge of or appreciation for the impact of exclusions and limitations contained in policies. One word in an insurance contract can be the difference between having coverage or not.

In the US, many States’ insurance brokers have no real duty to an insured to procure proper insurance; they are in essence “order takers”. This is only discovered when a suit is filed for broker malpractice and clients are surprised when they discover this reality. To prevent this, develop and demand service agreements with brokers setting forth exactly the type of relationship and service expected – services to be obtained like loss controls or safety management as well as the services from insurance carriers and even go as far as dictating claim service requirements and oversight. By creating this type of arrangement there is much better control and accountability for the insurance program and services to be provided by brokerage firms.

Most property underinsured and uninsured situations occur by using improper values for replacement/reconstruction. It is strongly recommended that formal property appraisals be done at least every three to five years. These will provide documentation of where the “numbers” come from and provide a baseline and guidance should the property suffer a loss.

Another frequent source of controversy in a claim situation is that the wrong ownership/title/interest noted on the policy. This must be reviewed carefully, perhaps by a knowledgeable third party, like a professional risk manager, before the policy is issued to ensure accuracy. The consequences of improper titling most frequently result in denied claims. Remember – the same insurance companies that write these confusing policy documents are the ones best prepared to find reasons to deny your claim – that’s one of the reasons they stay in business!

Another potential issue arises when not all property is covered properly. There are many coverage forms that exclude certain types of property or limit recovery. Some forms of coverage are standard but many are not. Endorsements or separate stand-alone policies are often needed to have all the insurable property actually insured.

Additionally, not all policies offer inclusive coverage of all perils. You may have heard the term “All Risk” coverage – there is no such form of coverage in this day and age. For example, flood and earthquake are often not covered under a standard form, but may be insured through a difference in conditions policy or could be endorsed into the current form of coverage.

Troubling trends where coverage and claims are at issue
Occupancy and Vacancy clauses must be met or losses otherwise covered may be excluded. Claim adjustors are investigating the details in these issues much more aggressively these days. Its better to have issues like these addressed up front and timelines correct right up front so there is no question.

Post loss duties have time limits with harsh penalties in some states if not timely met. Here are some suggestions to avoid these penalties:

  • Provide timely notification of a loss. A “must read” in any policy are the reporting requirements. Some policies may say to report a claim “as soon as possible” while others may say “prompt” notice. There is a difference and the insurers will make a point of pointing that out.
  • Proofs of loss time frames should be met or extended in writing.
  • Hire experts to segregate covered amounts from uncovered perils.
  • With any significant loss, consider whether the causation sequence could lead to a possible excluded loss. This analysis should be performed prior to fully submitting the claim and detail of loss. Concurrent causation clause interpretations in some states provide insurers an incentive to retain engineers and experts to opine, in an effort to get the loss excluded. Consider hiring or at least interviewing coverage counsel if the insurer starts investigating anything other than value. It was incredible how hard some insurance carriers pushed back on “Superstorm Sandy” claims!

Insurers are Starting to Place “Dispute” Clauses into Contracts. Check for:

  • Choice of law agreements – This is particularly prevalent in construction contracts. However, it is just as important for franchised operations to understand where a contract could potentially be disputed. But this is for corporate counsel review in advance and to coordinate with the insurance contracts to make sure they will respond properly.
  • Choice of forum for litigation – Dispute resolution options could call for arbitration, mediation or a hearing before a special referee.
  • Arbitration agreements – Many of these are invalid under state insurance codes. In addition, many state insurance code protections do not apply to surplus lines policies. These types of provisions are becoming very common in excess or layered policy programs. We recommend requesting that these not exist and that the request to the agent or broker be well documented.

Claims Practice lawsuits are increasingly brought by Commercial Policyholders Following Delay and Partial Denial. Check for:

  • Insurers increasingly are taking more time and denying parts of claims—no one is being spared. Again going back to “Superstorm Sandy” we were seeing this happen more often than not.
  • Document every person, activity, verbal promise, and statement made by the insurance company representative as well as the consultants they send.
  • Obtain your own independent valuations promptly. Be prepared to potentially obtain lines of credit to repair and operate because insurers may be slow to pay partial losses.

Again, if the strategy of a risk management plan is to transfer risk to an insurance company then you would want to make sure that policy will respond in the way you would want it to. That takes some strategy and frequently, retaining an outsourced Risk Manager provides a knowledgeable, objective and independent perspective which is advised if this kind of resource is not available internally within your company. One of the most important qualities of corporate leaders is that they “know what they don’t know”. The various issues that surround risk and the placement of insurance coverage risk are complicated and dynamic. It is therefore critical when mitigating risk by transferring it to an insurance company via insurance contracts, that they ensure these contracts are appropriate to address those risks and are reviewed carefully before the coverage is bound to avoid the issues outlined above.


Tom Bullen, New York
SVP - Logistics Solutions

[email protected]

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