Resolving Insurance Coverage and Claims Disputes: Advocacy

In the past two columns, we’ve examined the importance and value of avoiding or preventing claim denials so we don’t have to deal with resolving them, especially with the specter of litigation hovering over us. As Dalton, the protagonist in the cinematic classic Road House, once said, “Nobody ever wins a fight.” It is far better to resolve disputes amicably and fairly than to engage in conflict in a courtroom.

The desire to avoid litigation appeals to both insurer and insured. In the event the insurer loses a court battle, a precedent for coverage will govern future claims until governing policy language is revised. At best, that can wreak havoc with the adequacy of rates if coverage was not contemplated under the insurance contract. At worst, the insurer might be compelled to revisit past claims for which denials were based on the language in question.

In the event the insured loses a court battle, financial ruin may follow. In addition, we have a precedent that can adversely impact coverage for many thousands of policyholders. An example is in legal jurisdictions where the courts have ruled faulty workmanship is not an “occurrence.” As a result, the ISO CGL exclusion L. exception for claims involving subcontractor work is never accessed since coverage under the insuring agreement is not triggered. That same is true in states where the courts have ruled the discontinuation of residency in a home results in an immediate loss of coverage for damage to the dwelling.

Unfortunately, prevention doesn’t always work. As Charles Dickens put it in David Copperfield, “Accidents will happen in the best regulated families.” Even the best agencies and most competent agents, despite their best efforts, will experience customer claim denials. But, here’s the good news: A claim denial, especially an unjustified denial, is a golden opportunity for an agent to demonstrate his/her value to the customer.

It’s said a lawyer who represents himself/herself in litigation has a fool for a client. In the case of insurance, a consumer who buys insurance without the aid of an insurance professional has a fool for an agent. This is true at the point of sale and is even more relevant at claim time.

I’ve worked directly with independent insurance agents for over 30 years. As often as possible, I drive home the point that the insured is their customer, not the insurer’s. The agent ‘owns’ the business. This potentially gives the independent agent both an incentive and an advantage over a captive agent and especially over an online or direct sales channel.

That said, the agent must walk the talk. So, if a claim has been denied that the agent feels should be covered, what is the best way to proceed without resorting to litigation? That’s what this article and those remaining in the series will address.

In the book that is the subject of this column, I provide a proven, four-step process for resolving disputed coverage claims. To summarize….

Presumably, if you’re selling or servicing insurance, you’ve read and understand the policy forms you sell or service. In Step 1, you reread the policy within the facts and circumstances of each claim, seeking the answers to several questions. For example, does the insuring agreement apply? Is the person an insured? Do any exclusionary provisions apply? The answers to questions like this form the basis for your interpretation of the meaning of those policy provisions in the context of the subject claim.

The Q&A process continues in Step 2. For example, does a policy provision cited in the denial seem ambiguous? Later in this series, I’ll provide examples of policy provisions like definitions, exclusion and conditions that are often contested or litigated. What is the apparent intent of the language and is such intent clearly expressed? If exclusions are cited, are they clear and conspicuous and relevant to the claim? What are the insured’s reasonable expectations of coverage? What often happens is the resolution process ends right here if it is clear the adjuster’s denial is correct. If there is doubt, we continue the process.

Aside from the relevant policy language, are there other coverage considerations? Is there extrinsic evidence that may conflict with policy language? Are there interpretive doctrines (discussed later in this series) that might govern?

As can happen in Step 2, any doubt about the validity of the claim denial may vanish if your research confirms the adjuster’s opinion. On the other hand, your research may convince you an alternative interpretation has merit. If so, you need to assemble the documentation gathered during your research. Is there any authoritative support for your interpretation? Are there any precedent-setting court cases that may govern? Are there any superseding statutes?

The importance and value of this step is expressed in this court decision: “An insurer bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy irrespective of the source of the information.” – Smith v. Travelers Indem. Co., 32 Cal. App. 3d 1010, 1017, 108 Cal. Rptr. 643 (Ct. App. 5th Dist. 1973)

In Step 4, you are essentially trying the case without the trappings, complexities, and cost of litigation. Imagine the proverbial scales of justice. Your goal is to tilt the scales in your direction based on a preponderance of evidence, reason and authoritative support. Legendary insurance educator Bob Smith would say, tongue in cheek, “If you can’t argue the form, argue logic; if you can’t argue logic, argue the form.” However, when you can argue form language AND logic, supported by authoritative documentation, your argument becomes too compelling to disregard.

My anecdotal experience is, if you can make a reasonably strong case for coverage, the claim denial will be reversed over 90% of the time. To their credit, most adjusters are willing to consider an alternative interpretation of a policy provision and astute insurers will pay such claims then, if warranted, revise the policy language to reflect the alleged intent.

In making your case to the adjuster, we can again learn something from that cinematic classic Road House by following the third of Dalton’s 3 Rules. Rule #1, ‘Expect the unexpected,’ might have some value, but certainly not Rule #2, ‘Take it outside,’ meaning in our case, litigation. Rule #3 is the important one when dealing with an adjuster: ‘Be nice.’ I recall a cartoon of a patient prone on a couch, asking his psychologist, “If you weren’t so stupid, you could tell me why people automatically dislike me.” Not a good approach for resolving insurance claim disputes.

My personal experience has been that the majority of claims professionals seek to do the right thing. That’s reflected in this 1983 excerpt from an insurance company claims manual: “[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.”

Sometimes doing the right thing is difficult, given the burdensome workload of most adjusters and the limited time they have to research case law and coverage authorities. Following this simple, but proven, four-step process allows you to do much of the work the adjuster would otherwise have to do. And you will get a reputation among the claims folks you deal with as a competent, fair-minded professional whose coverage opinions should not be disregarded.

On occasion, it may be necessary to appeal the claim to a more experienced local supervisor or manager. On a less frequent basis, a home office appeal may be necessary. At the end of this series of articles, we’ll discuss dispute resolution alternatives if appealing to the carrier doesn’t work with some examples that are quite interesting.

I call this a four-step process, but there is actually a quasi-Step 0. Before determining if a denied claim is valid, one should insist that the denial be carried out in a proper manner, following all relevant claim settlement practices related laws and governing case law. As the South Caroline Supreme Court put it in 2017, in Harleysville Group Insurance v. Heritage Communities, 803 S.E.2d 288, “It is axiomatic that an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage…generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient.”

In next month’s column, we’ll explore claim denial and reservation of rights letters, and unfair claim settlement practices and bad faith laws. Until then, I encourage you to become a member of Insurance Journal’s Academy of Insurance, where you can get complete access to the entire companion webinar series where we dig much deeper into all of these topics.

In the last column, I had indicated that this month, I would discuss how to distinguish between ISO and non-ISO policy forms. Because of print limitations, instead I discuss that in the April companion webinar to this article series at www.ijacademy.com.