Common Tactics Insurance Companies Use to Deny or Underpay Claims

When an insured suffers a loss, the first step toward financial recovery is to file an insurance claim. Unfortunately, it is common that the insurance company will seek to deny or underpay the claim for a variety of reasons. A denial or underpayment can further exacerbate the financial hardships that an insured has already undergone since suffering a loss.

Understanding the most common tactics employed by insurance companies can assist policyholders to advocate for themselves.

Pearson Legal, P.C. has achieved success on behalf of clients by obtaining superior compensation when insurance claims are wrongfully denied or underpaid. Contact our office to schedule a consultation with an experienced insurance claims denial attorney.

What motivates insurance companies to deny or underpay claims?

Like all businesses, profitability is a priority for insurance companies. On some level, denying or underpaying valid claims operates to increase the profit margins for the insurance company. Here are the most common tactics employed by insurance companies to deny or underpay insurance claims.

Underpaying Claims

Issuing an underpayment for a valid insurance claim is a frustrating yet common method of claim abuse employed by insurance companies.

Repair or replacement costs are frequently submitted to insurance companies for various types of damages or losses which are incurred by insured parties. Rather than accurately and fairly assessing the damage and making a settlement offer which matches the damage suffered, insurance companies frequently make settlement offers which are far less than the damage or loss incurred.

“Lowball” settlement offers such as these put an insured in a position where it is tempting to accept the low offer now rather than negotiating for an extended period. The low offer may also be an indication that the insurance company may not ever offer a fair settlement for the damages incurred.

Depreciation as a justification for underpaying claims

In some cases, insurance companies will justify their underpayment on a claim based on a theory of depreciation. For instance, in a property damage claim the insurance company may argue that the age and condition of the insured item or property requires that they drastically lower the payment towards repair or replacement.

Betterment as a bad-faith justification for underpaying a claim

Another justification for underpayment of an insurance claim which has become more common is one made in bad faith – betterment. A basic principle of insurance law is that the proper repair or replacement of the insured property should be of like kind and quality and should return the property to its pre-loss condition.  An insurance company will often argue that a particular repair or replacement of the insured property would increase the value of the property beyond its condition prior to the damage having occurred.

The insurer would therefore reduce payment on the property’s damages, based on the justification that a policyholder should not benefit to the point where their property is worth more than it was before the damage was incurred.

Denial of Claims

The financial gains of an insurance company also motivate many insurance claim denials. Denying a claim helps the insurer to drive profits ever higher. Here are some of the more frequently cited reasons for denying claims when money is the motivator:

• Insurance companies will argue that because of a technicality, the loss is allegedly not insured. Incomplete information or an incorrect answer on a form are used frequently as a pretext for a claim denial
• Insurance companies hold the purse when it comes to paying on an insurance policy. When the insurance company writes the language in their policy they can include ambiguous, vague language that they use as justification for denying a claim. Keep in mind that they also construe the language how they wish. It is up to you o advocate for your rights to prevent them from doing so.
• Policyholders must ensure that their particular policy includes language which covers the item or property for which they have a particular concern. It is common for insurance agreements to exclude certain types of losses in order to avoid paying on them in the event of a natural disaster or other loss.

Delaying the payment on an insurance claim

Deny and delay. This is a refrain sung by choirs of insurance companies throughout the country. Rather than outright denying an insurance claim, insurance companies may delay payments, thereby requiring policy holders to tread water financially until the insurance company sees fit to make payments.

• Insurance companies have a responsibility to perform basic due diligence when a claim is made. An investigation can, however, be dragged out, exceeding the point of simply being thorough.
• After suffering a loss, the insured looks to their claims adjuster as a lifeline between themselves and the insurance company.  However, the adjuster works for the insurer and may repeatedly request documentation multiple times over just to slow down the process. Additional documents which serve no purpose may also be requested by the insurance company.
• Even in the most obvious and well-documented of loss circumstances, an insured may be asked to provide even more evidence as to what occurred regarding the damage or loss. Written and oral statements under oath can be requested in good faith but they may also be a bad faith attempt to delay paying a valid insurance claim or to intimidate the policyholder. Unfortunately, these procedural delay tactics may discourage the insured from pursuing the claim.

Contact an experienced insurance claims denial attorney to defend your rights

Pearson Legal, P.C. stands toe-to-toe with insurance companies every day who deny the claims of their insureds in bad faith. Don’t allow your rights and that of your business to be pushed aside. Instead, contact our office today for a consultation. When a delayed, denied or underpaid insurance claim happens, our team of legal professionals is here to help.