It’s inexcusable when a claim is denied for no other reason than 'It’s not covered.' The insured is owed a reason for a claim denial, by contract or law. Bill Wilson shares some examples of incredulous claims (dis)service.
About five years ago, I jointly developed a seminar with a faculty member called 'How to Win Friends...and Influence Adjusters.' The seminar focuses on policy gray areas and, through case studies (actual claims and court cases), applies a methodology to convince the adjuster that the insured’s/agent’s interpretation for coverage is just as valid as the adjuster’s initial basis for claim denial.
However, sometimes a claim denial arises that defies logic and reason. Here’s a Personal Lines example of such a claim that another faculty member passed along recently:
An insured who was moving loaded clothes and personal property into her car. She placed a magnifying glass on the leather seat of her car and left it there for a few hours. When she returned, she discovered that the focused sunlight had burned a hole in the seat. The adjuster denied the claim on the premise that it wasn’t within the definition of 'accident' in the policy as 'a sudden, unexpected, and unintended occurrence.'
The policy defines a 'loss' to include 'direct and accidental loss of or damage to your car.' Under the other-than-collision (OTC) coverage, the insuring agreement says, 'We will pay for loss except loss by collision, but only for the amount of such loss in excess of the deductible.'
So, for the insuring agreement to be triggered, there must be a 'loss.' For there to be a 'loss,' we must have 'direct and accidental loss.' Note that we have a definition within a definition: 'loss' is essentially defined to be a 'loss.' These types of circular definitions don’t hold up well in court. This alone is enough to warrant redrafting the contract.
The key word is 'accidental.' Was this 'accidental,' as defined by the policy? Was this a 'sudden, unexpected, and unintended' occurrence? It’s unlikely that the insured intended to burn a hole in her car seat — which means the damage was probably unexpected. That leaves 'sudden.'
Because the loss took place over a period of time, perhaps the adjuster interpreted it as not 'sudden.' However, most courts don’t accept this interpretation. 'Sudden' usually applies to the insured’s discovery of the loss. In other words, if an insured knows that a loss has been continuing over a period of time, it’s usually not covered — and many, if not most, policies have an exclusionary provision for 'neglect.'
Dictionaries define 'sudden' to mean: (1) 'An unexpected occurrence; a surprise' (Webster’s 1998 edition), (2) 'Happening without warning; unforeseen' (American Heritage dictionary), and (3) 'Happening or coming unexpectedly' (Merriam-Webster). In other words, 'sudden' means unexpected or unforeseen, a surprise — and it appears likely that the insured did get a surprise.
Here’s another example, involving a Commercial Lines claim.
The insured cement contractor was pouring a concrete driveway at a home in a new subdivision. As nightfall approached, he inadvertently caused cement to be splattered on a nearby garage door, necessitating its replacement at a cost of $827.69. The owner of the home made a claim for his negligence. The insured received a letter from his CGL carrier’s Senior Claim Representative denying coverage, citing Exclusions 2.j.(5) and 2.j.(6). Upon receiving a response from the agent to this letter, the claim rep sent another letter citing Exclusions 2.j.(4) and 2.a.
We made these points in an attempt to convince the adjuster to pay the claim:
Exclusion 2.j.(5) — 'That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage’ arises out of those operations ...' [emphasis added]. The insured was not working on the door.
Exclusion 2.j.(6) — 'That particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it ...' [emphasis added]. The insured was not working on the door.
Exclusion 2.j.(4) — 'Personal property in the care, custody, or control of the insured ...' The door was neither personal property (ISO added this wording in 1986 and separated it from the 'real property' exclusion), nor was it in the insured’s care, custody, or control.
Exclusion 2.a. — 'Bodily injury’ or 'property damage’ expected or intended from the standpoint of the insured. This exclusion does not apply to 'bodily injury’ resulting from the use of reasonable force to protect persons or property.' Yes, believe it or not, the adjuster actually cited the intentional loss exclusion as a basis for denying the claim!
The adjuster admitted that the insured probably didn’t do this on purpose, but he should have 'expected' that the loss could happen! Interpreting the exclusion in this way would mean that insurers would never have to pay a negligence claim and policyholders’ premiums would plummet by at least two-thirds! Everybody wins!
We argued that because the insured foresaw that the door could fall on him, it was an act of self-defense, triggering the exception. We also cited the state’s bad faith settlement provision that’s triggered when a claim isn’t paid even though '... liability has become reasonably clear.'
Although we provided 39 pages of authoritative documentation to support coverage, the carrier still refused to pay this $827.69 claim. At that point, the agent turned our file over to the insurance department. Their investigator telephoned the company on April 11. In a letter dated April 12, the insurer’s claims manager stated, 'In the spirit of compromise we will send our insured a check in the amount of $827.69.'
Yes, adjusters do sometimes say the darnedest things.