Most of you have insurance. You insure your autos, your homes, your health (medical insurance), your income (disability insurance) and your lives. You may also insure your businesses against damage to property used for commercial purposes and loss of income. Your insurance includes protection against lawsuits filed by a third party against you, and you expect your insurance company to defend you in that lawsuit and protect you against a judgment for money damages.
We buy insurance not because we want it but because we need it – fear of the future motivates us to protect ourselves against injury to ourselves, our families and our property. The prudent person buys as much insurance as he or she can afford – sometimes even more. We seek from our insurance company peace of mind and security against the risk of financial injury caused by the unexpected.
Your insurance company is a friend when you agree to purchase the insurance. However, often that same insurance company becomes your enemy when you make a claim. The claims process is often a hostile and difficult one with a burdensome amount of paperwork and frequent requests for more information. Usually with the goal of finding a way to turn down your claim or limit payments. Some insurance companies reward their claims handlers for keeping claim costs down by basing their compensation on how little they pay on legitimate claims.
Insurance companies are powerful financial corporate structures. They have large treasuries. While the purchase of a policy may take place at your home or business or at a local office, things are different when a claim is made. Nearly all of the time you are dealing with someone who is hundreds if not thousands of miles away. A face to face meeting is rare, except when an investigator shows up at your door unexpectedly. Indeed, your insurance company has the power and control over you in your relationship with it.
What can you do when you believe your insurance company acts unfairly? How do you combat “low-balling” or wrongful refusals to pay you what the insurance company promised to pay you for the protection that you purchased?
You can go to your state Department of Insurance. However, these state executive departments are generally ineffective. More than one-half of the states under-fund their Departments of Insurance, so they have inadequate staffs and resources to handle complaints from the public. In some states, the Department of Insurance has been graded as low as an “F” by an independent agency. Not surprisingly, when a claim is denied your insurance company will usually refer you to the state Department of Insurance if you disagree with the claims decision, knowing that you will receive little help.
What your insurance company does not tell you is that there are ways to combat its wrongful denials. For example, in nearly all states, there is an Unfair Claims Practices Act which lists 16 unfair claim practices which insurance companies cannot engage in. You are never told about this when your insurance company denies a claim.
In addition, all insurance companies must abide by a duty of “good faith and fair dealing” in their investigation, administration, and decisions regarding your claim. If your insurance company violates these duties to you, you can sue and obtain money damages for what is owed you under your policy plus damages for your worry and anxiety and in some instances attorney fees. And, in the cases of malicious and fraudulent claims handling, your insurance company may be liable to you for punitive damages based on a civil fine which you receive to punish the company for its wrongful conduct.
We can help you evaluate your claim and determine if you need to sue to get what is rightly yours under your insurance policy. You paid for protection; YOUR insurance company should provide it! — Guy O. Kornblum
Mr. Kornblum welcomes your comments at firstname.lastname@example.org.
This is the third article from Guy O. Kornblum on Uninsured/Underinsured Motorist Coverage (UM/UIM). He has discussed what it is, how it works and why you should have as much coverage as you can. As a reminder, it is our recommendation for primary policy limits of $300,000 per person and $500,000 per accident, and an excess policy above that which provides at least $1 million in additional coverage for UM/UIM. I also stressed that in order to qualify for this coverage you must purchase liability insurance (i.e. which protects you from suits by others resulting from your negligence) in the same amounts as the UM/UIM insurance that you want. Make sure you cover this with your agent when discussing your auto policy.
Now let’s discuss how the insurance company must handle a UM/UIM claim once it is presented. First of all, there is an important point to recognize: UM/UIM coverage involves a claim made by an insured to its own insurance company. Thus it is that relationship, based on the insurance policy – a contract – that is at the heart of the claim. This results in a conflict between the insurer and the insured, as the insurer “steps into the shoes” of the negligent driver. If the insurer is contesting a claim it is going to argue a) that its own insured was totally or partially at fault for that insured’s injuries.
Nonetheless, the insurer must still handle the claim in “good faith” and not act unreasonably and arbitrarily. That is, as a first party claim (i.e. the insured is making a claim to its own insurance company), the insurance company has a legal obligation (i.e. duty) to comply with the covenant of good faith and fair dealing, which is implied (even though not expressly stated) in every insurance policy in California. This means that the insurer must comply with certain obligations, including not acting unreasonably in handling, evaluating the making a decision about the claim – i.e. whether to pay or not.
As part of this “good faith” obligation, the insurance company must also comply with California’s Unfair Claims Practices Statute (Insurance Code §790.03(h)) and the accompanying regulations (10 California Code of Regulations 2695.1 et seq.) which regulate the conduct of insurers with respect to claims handling . For example, the insurer must “attempt to effectuate a prompt fair and equitable settlement after liability becomes reasonably clear.” (Cal. Ins. Code §790.03(h)(5).) It also must “diligently pursue a thorough, fair and objective investigation and shall not persist in seeking information not reasonably required for or material to the resolution of a claim dispute.” (10 Cal. Code Reg. 2695.7(d); emphasis added.). The insurance company has no choice. It is required to follow the “good faith” claims handling rules regarding their investigation, administration, and decisions regarding your claim.
If your insurance company violates these duties to you, you can sue and obtain money damages for what is owed you under your policy plus damages for your worry and anxiety and in some instances attorney fees. And, in the cases of malicious and fraudulent claims handling, your insurance company may be liable to you for punitive damages based on a civil fine which you receive to punish the company for its wrongful conduct. This “good faith” claims structure applies in cases of UM/UIM claims even though the insurance company’s responsibility is based on the question of the negligence of the third party driver who was not its insured – you are!
These “good faith” rules prohibit “low balling” (offering below value numbers in an effort to force you to accept this offer because you need the money), or unfair and unreasonable denials. When the insurance company does not live up to these rules, you have the right to seek a recovery against your insurer for failure to provide you – as the insured and purchaser of UM/UIM coverage – what the insurance company promised to pay you for the protection that you purchased?
In addition to representing our clients, Mr. Kornblum also serves as an expert witness in insurance claims and legal malpractice claims, and as a mediator. For more information contact our San Francisco office at 415-440-7800.