Navigating Insurance Claims By Thinking Like a Lawyer
Homeowners and property managers often approach our firm asking whether an insurance company is acting in bad faith by delaying payment or refusing to pay on a property loss claim. Most of the time, the root cause of the problem is a miscommunication break-down between the insured and the insurance carrier that is often misinterpreted as bad faith. While some insurance carriers do act unreasonably in delaying or denying claims, many issues can be resolved by employing simple techniques that we as lawyers use every day. By communicating effectively, property managers and board members can at least ensure that they have done their part to move the adjustment process along.
Why the Adjustment Process Gets Bogged Down —Miscommunication
Attorneys who represent insureds are typically called long after the property loss occurred and the claim is tendered to the insurance carrier. Most owners only call an attorney as a last resort after both sides have reached a stalemate or the process has dragged on with no end in sight. This gives attorneys a unique perspective to comment on how miscommunication hinders the adjustment process.
Communication in the insurance context requires more than simply picking up the phone and notifying your insurance carrier. Effective communication requires that both sides provide each other with the information necessary to evaluate the loss and make an informed decision. Owners are responsible for making sure that the insurance carrier has all of the information necessary to evaluate the loss. On the other hand, it is incumbent on the insurance company to take reasonable steps to investigate the loss and provide a reasonable explanation for its ultimate decision regarding coverage. While the need to communicate is a matter of common sense, it is also required by the insurance contracts and governed by Colorado law.
Common Areas of Miscommunication in Insurance Claim Adjustment
Communication break downs usually relate to the scope of repairs and/or coverage as defined by the insurance contracts. With respect to scope of repairs, both sides often provide estimates from restoration contractors that provide little explanation of how the quantities and scope of repairs were estimated. For example, our firm has seen countless instances where each side submitted competing estimates for large multi-family communities that contain lump-sum bids without explaining how each side arrived at the respective number. If the insurance company cannot understand how the insured arrived at its proof of loss, most adjusters will simply ignore the bid and adjust the claim using its own adjuster’s bid. On the other hand, it is equally difficult for an insured to evaluate whether an insurance company’s offer is fair without understanding how the insurance company arrived at their numbers. The lack of detail in the estimates also contributes to delay in the adjustment process and usually leads to the predictable situation where neither side actually understands what issues are disputed.
To make matters more confusing, insurance companies often deny all or part of a claim based on coverage, meaning that the policy purchased does not provide coverage for the damage that the insured suffered. There are hundreds of reasons why an insurance company could deny coverage for all or part of a claim. Many of the reasons are dictated by the type of policies purchased and the endorsements accompanying those policies. The denial could be because a particular type of damage was excluded under the policy (flooding or mold for example). However, the denial could also be because the insurance company did not have sufficient information to evaluate the damage claim and simply denied it as a result. Without detailed information from both sides regarding the nature of the damage, it is difficult to understand whether a disagreement even exists.
It is critical that both sides provide each other with the information necessary to make an informed decision. When the communication process fails, the adjustment process fails. When the adjustment process fails, everyone loses. The owners go months or years without money to repair the property; the restoration contractor loses out on the repair work; and the insurance carrier is often looking at the risk of a lawsuit.
Thinking and Communicating Like a Lawyer in the Adjustment Process
Thinking like a lawyer can help property managers and board members avoid many of the problems that plague the adjustment process. In the most basic sense, lawyers (1) investigate and gather evidence, (2) evaluate their client’s legal rights and obligations, and (3) communicate their client’s position with supporting evidence. However, good lawyers take it one step further by navigating the entire process with an eye towards the “end game” whether that is settlement or trial. Good lawyers understand that all of the facts and circumstances of a case will be heard and scrutinized later by a judge or jury who was not present and who is hearing the evidence for the first time. This means being deliberate in our communications and memorializing all relevant information that may be useful later, even if a lawsuit is never filed.
Similarly, communicating effectively and documenting your communications should be the goal throughout the insurance claim process. All parties to the adjustment process should be mindful of how your actions could be perceived by a third party in the future. This requires diligent investigation, copious documentation, and deliberate and clear communication with each other.
How To Communicate More Effectively and Document
Owners can employ simple techniques to communicate more effectively. This starts with the investigation phase, where owners should hire competent contractors and professionals to diligently investigate, document and explain the basis for their findings. If the loss is limited to specific buildings or components, the loss estimate should contain more detail regarding locations of damage and quantities instead of broad lump-sum estimates. The insured should also obtain a copy of the insurance policy and consult a lawyer or insurance professional to understand the notification and disclosure obligations in the policy.
In communicating with the insurance company, try to document most of the important interactions in writing. If you have an important telephone call or discussion on site, follow up with an email memorializing the conversation, especially verbal agreements. By following up with an email, you can confirm the agreement in writing just in case there is a dispute later.
At some point after submitting the proof of loss, the insurance company is obligated by Colorado law to promptly conduct an investigation and provide a reasonable basis for its coverage position in response. See C.R.S. § 10-3-1104(1)(h). In short, the insurance company must explain why it is denying all or part of the insurance claim. Here are some potential scenarios:
- If the response from the insurance company is unclear or incomplete, respond in writing asking for more clarification.
- If the insurance company is denying a portion of the claim based on lack of damage, ask your engineer or contractor to respond with a report explaining their position.
- If the insurance carrier is denying a portion of the claim because it believes the cost of repair is lower than what the insured is stating it is, ask your contractor to explain in writing why their bid is coming in higher.
- If the insurance carrier is denying a portion of the claim because the insurance policy does not cover the loss, consult an attorney to evaluate the denial and have them write a letter explaining exactly why the insurance policy does cover the loss.
At the very least, communicating effectively and documenting your communications will help owners evaluate whether an insurance carrier is acting unreasonably. If you take the necessary steps to document the evidence and provide the necessary information, it is far more difficult for insurance companies to play games and exploit the process. On the other hand, if the entire process is rife with miscommunication, it is difficult to separate from the good actors from the bad actors and virtually impossible to determine who acted unreasonably.
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