No one ever thinks about the terms of their insurance policy until after there is a loss or a claim to report, and even then, few insureds pull out their policy – if they can remember where they filed it – and sit down to parse the policy’s terms to determine whether the loss or the claim is actually covered. Fewer still bother to check the numerous conditions provided in the policy to make a bullet-list of duties the insured must satisfy in connection with a claim. Generally, people – even sophisticated business executives and business owners – just tend to think that as long as they are paying premiums in a timely fashion, the insurance is there to draw upon in the event of a claim or a loss.

If only things were that simple.

Every insurance policy is a contract between the insurance company and the insured – nothing more, nothing less. Under that contract, the insured has certain duties – not just the duty to pay premiums, though that is the most obvious – and the insurance company has certain duties. The most obvious of the insurance company’s duties is payment of a claim, if the claim falls within the scope of the policy’s coverage, as well as the duty to investigate the loss or claim at issue. To effectuate the performance of both the insurer’s and the insured’s duties under the policy, the policy includes a wide array of terms that range from defining the outermost scope of the insurance coverage and enumerating certain exclusions to that coverage, to specifying the amount and schedule for the insured to pay premiums and the insured’s duties in the event of a loss or a claim.

Consequently, insurance policies are complex documents that include an often-confusing variety of terms, conditions, limitations, and exclusions which are designed to define and narrow the scope of the insurance that is being provided by the insurer. The conditions provided in the policy set forth duties on the part of the insured that must be performed as conditions precedent to recovery of benefits. Failing to comply with those duties can, and often will, result in the insurer being relieved from paying a claim even when the claim otherwise falls within the policy’s coverage. Tightly regulated though the insurance industry is, the law in virtually every state recognizes that insurers have certain contractually-defined rights, and that an insured’s failure to meet its duties under a policy can violate its insurer’s rights, thereby relieving the insurer from paying a claim.

An insurance policy’s conditions are not designed to provide the insurance company with an easy out, however, allowing it to avoid payment of a claim; they are not intended to be a “gotcha” mechanism to cut the legs out from under an insured’s right of recovery. The policy’s conditions, rather, are meant to afford the insurance company the opportunity to effectively investigate the claim and, in the liability-insurance context, to mount an effective defense of the insured against a third party’s claim or lawsuit. Therefore, to ensure that the insurance company can properly exercise its rights under the policy, the policy generally sets forth a number of conditions with which the insured must comply.

Rather than enumerating a dry list of the typical duties provided under the most common property and casualty insurance policies, it may be handier – and less apt to induce narcolepsy in the reader – to set forth a list of ten things an insured should be sure to do if the insured really wants to thwart any hope it has of recovering insurance benefits for a claim. This list is meant to be general, offering some broad-spectrum recommendations for both property and liability claims. So, if you really want to destroy any hope you might have of collecting insurance benefits for your claim, we recommend the following:

1. Don’t be in a hurry to report a loss or a claim to the insurance company. Everyone has better things to do than calling an insurance agent or an insurance company’s claims-reporting number, especially when one has to deal with an unexpected loss to one’s property, or with being served with some nuisance lawsuit out of the blue. With bigger fish to fry, at least in the near term, it would be silly to spend your time on the phone with an agent or a claim representative going through tedious details about the loss or the claim. Wait until life calms down a bit before notifying the insurer, what’s the rush?
2. Don’t respond to emails and voicemail messages from the insurance company. Look, you have a business to run, and a life to live. You’re plenty busy enough without spending precious time exchanging emails and phone calls with some insurance adjuster who can find out whatever he wants to know through other channels. It’s more than enough that you managed to find time to let the insurance company know about the claim. The adjuster is getting paid for this, so let him earn his money by bothering someone else.
3. Withhold information from the insurance company if you think the information might not be helpful to your claim. You’ve been paying premiums to this insurance company for years, and it’s about time that the insurer has to make good on all that by paying your claim. So maybe you should have slowed down when you saw that the stop light had turned yellow, but you were already running late. You didn’t see any traffic cameras, and nobody but you and the other driver saw the collision. Why tell the insurance company the light was already red when you went through the intersection? That just can’t be good for you, right? Let the insurance company pay the damn claim and make it all go away. You’ve paid them for that.
4. Don’t bother mitigating a property loss before the insurance company gets someone out to deal with the loss. You’ve had your vacation booked for months, and it’s just rotten luck that the tree fell on your roof the same morning you had to drive to the airport to catch the flight to Europe. You definitely don’t have time to make phone calls to contractors to find somebody to come out and cover the gaping hole in the roof to keep rain from getting in, and it’s a Sunday morning so there’s no way to reach your insurance broker. If there’s some additional damage as a result of water getting in through the roof, so what – you’re going to burn through your deductible, anyway, so it really doesn’t matter if there’s some extra damage because you didn’t have time to cover that hole before you left. Just tell the insurance company everything was fine when you left on your vacation, and that you found the damage when you got back.
5. Refuse to provide the insurance company with documents and records it requests. We have precious little privacy these days as it is, so why the heck should you have to cough up financial records, maintenance records, or anything else just because some insurance adjuster has a burr up his rear end about your claim? The insurance company’s job is to pay claims, and your job is to pay premiums. Your records are none of their business.
6. Don’t show up for an examination under oath. Now, after several months of investigating your claim and asking you for all kinds of documents and information, the insurance company wants you to show up at some lawyer’s office and spend a big chunk of your day for them to conduct something called an “examination under oath.” You’re too busy for this nonsense, and besides, what right do they have to treat you like some kind of criminal by having a lawyer interrogate you for several hours with a court reporter taking down every word you say? That’s Gestapo tactics, right? You’re not dumb enough to agree to that.
7. Don’t answer any questions you don’t want to answer. It’s bad enough that you had to show up at some lawyer’s office to let him grill you for hours about every aspect of your claim, wasting a perfectly good morning in the process. Why should you answer questions about things that you regard as private, like the bankruptcy you filed a few years back, or that perjury conviction you got hit with for helping out your best friend in his divorce case a few years ago? You’ve seen enough cop shows to know that you have a Constitutional right not to say anything that might tend to incriminate you, so don’t agree to answer any questions you don’t want to answer. Assert your Fifth Amendment rights, and the insurance company will just have to live with that.
8. Don’t return calls from the attorney the insurance company hired to defend you. You have never liked lawyers anyway, and even though this guy supposedly represents you, you know that he’s really working for the insurance company. He bugs you about stuff that just can’t be relevant, and you have enough to do without spending an hour on the phone with some attorney going over the details of the case again and again. He’s already recommended settling the case, so now the insurance company just needs to pay what the other side wants. Let the lawyer deal with it, he doesn’t really need you.
9. Exaggerate the amount of your loss. Insurance companies get rich off their insureds, collecting all those premiums and paying out relatively few claims, so the company will really never miss it if you tell them that the inventory that was stolen from your warehouse included $100,000 worth of stock that hadn’t quite made its way to you from the shipper yet, right? It’s just insurance money, and everybody does it, so what’s the problem?
10. Special bonus item: Give false information in your insurance application, or withhold information requested in the application. Every year, your premiums seem to go up. You’ve been through this renewal process often enough at this point to have a pretty good idea of what factors drive up premiums, so why tell the insurance company every single thing it asks in the application when you know certain information is only going to make the insurance more expensive for you. What the insurance company doesn’t know won’t hurt it. Nobody will ever look at this application again, anyway, once they issue the new policy, so there’s really no risk. Just tell them what they obviously want to hear.

If you just follow these pointers, you can be almost certain that your insurance claim will never be paid. You might even manage to have the insurance company rescind your policy altogether, which means you can get a refund of all your insurance premiums. What could be better than that?

For more information on the do’s and don’ts of insurance claims, please contact Kevin Streit (kstreit@setlifflaw.com) at (804) 377-1270, or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.