Obtaining a Successful Result on an Insurance Claim09/04/2012 | Fall 2012 Newsletter
Insurance companies are notorious for paying out as little as possible on insurance claims. Some insurers apparently hope that an insured’s immediate need for money will result in the insured’s accepting a pittance on a valid claim. Others may deny entirely what appears to be a valid claim. In a recent highly-publicized case, Progressive Insurance suffered a public relations debacle when it opposed one of its own insured’s underinsured motorist death claim on an auto policy.
Proper guidance can increase your chances of obtaining a successful result in your claim against your insurance company. It used to be the law in New York that if an insured successfully fought his first party insurer, the most the insured could recover would be what should have been paid originally plus interest. But the law changed. It now recognizes that a first party insurer can be liable for “consequential damages” for wrongfully denying a valid claim or not promptly paying. Insureds buy policies for peace of mind if a covered event occurs — proceeds will be available to return them to their former condition. The law now tries to place property, apartment and business owners in the same position they would have been in if their insurer had properly performed.
Consequential damages are damages which, by reason of special facts or circumstances known by the insurer at policy inception, are the likely result of a breach. To recover consequential damages, an insured must show that the insurer’s agent or its underwriter knew of the special facts at the time that the policy was written, or that the policy itself referenced the facts or circumstances.
The special circumstances might be obvious based on the nature of the insurance policy. For example, a property policy covering a rental apartment building presupposes landlord/tenant relationships. An individual homeowner’s policy presupposes an inhabitable residence. A business interruption policy references commercial premises generating money. A contractor’s builders risk policy references a construction project. An insurance company’s failure to pay a valid claim on these types of policies can cause consequential damages for which an insured might be able to recover, such as the costs to obtain a new tenant, lost rental income, alternative living expenses, or lost profits from delay of an ongoing construction project.
To obtain payment on a claim, the typical policy requires timely proof of a valid claim, cooperation with the insurer’s investigation, and sometimes appraisal by a third party. The insurer is not liable for damages caused by its failure to pay a claim from the date of the loss covered under the policy, but rather from the date when it should have reasonably completed its investigation and paid its insured’s claim. Unfortunately, in New York, you cannot recover your litigation costs and attorneys fees against the insurer, even if you show that the insurer wrongfully refused to pay a valid claim.
When a first party insurer wrongfully delays or refuses to pay its insured’s valid claim, an insured should look at what additional damages are caused. Did the insurer have knowledge at policy inception that this was a likely result of its breach? Armed with this information and proof of facts and damages, the insured may have a better opportunity to obtain a successful recovery against the insurance company and to be put back in the same position it would have been if the first party insurer had honored its contractual obligations.