Insurance Law360
August 3, 2016
An alarming trend is emerging in the first-party insurance claims process. This new approach attempts to dispose of the traditional claims process in favor of an abbreviated process (if any) followed immediately by litigation. The intent all along is to get the claim into litigation.
This is unfortunate.
An insurance claim is intended to be a collaborative process between the policyholder and the insurance company. The policyholder promptly notifies the insurance company as soon as a loss occurs and provides information concerning its claimed loss. The insurance company then promptly investigates the claim and makes payment for the undisputed actual cash value of the claimed damage. If the policyholder disagrees with the valuation, it advises the insurance company of the disagreement. Like in any dispute, the insurance company and the policyholder thereafter work out their differences and come to a resolution of the claim. Give and take is common. If needed, one of the parties requests the appraisal process. Ultimately, the claim is amicably resolved.
Millions of claims are resolved every year across the United States through this collaborative process. In fact, historically, the property insurance industry amicably resolves over 98 percent of all claims through this process.
This collaborative process obviously fails if the policyholder enters the claims process with the preconceived intent to drive the matter into litigation. Or, worse yet, the policyholder files a lawsuit before even submitting a claim. What is there to litigate if a claim has not even been submitted?
Unfortunately the insurance industry is seeing an increase in claims where the first notice of claim is the filing of a lawsuit. Similarly, a large number of claims are first reported to the insurance company by a lawyer. One Florida insurance company reports that 40 percent of the claims it receives now involve first notice from a lawyer. In Texas, lawyers are hanging advertisements on homeowners’ doors with the message: “Hail Damage? Call us before you call your insurance company.”
Insurance policies contain various “Duties In The Event of Loss.” These duties attempt to ensure that the policyholder cooperates in the submission and adjustment of a claim, with the obvious common goal of arriving at a claim measure that accurately reflects the insured’s covered loss. These duties contemplate the insured providing information in support of its claimed damage, with the insurance company properly investigating the claim and reaching a determination of covered damage. Working cooperatively toward an agreement as to final claim measure is the common objective — indeed, the common obligation.
But this model fails when there is no adjustment process or the process is simply a sham as there is a predetermined plan to move the matter into litigation.
Lawsuits cannot replace the adjustment of an insurance claim. A lawsuit should be the last resort only after the parties are unable to resolve the claim following a complete adjustment.
Sadly, though, this appears to be where we are headed. Fortunately, courts have...
