How to successfully prepare, file and negotiate a claim

Previous posts in this series have discussed insurance coverage issues that directly relate to wildfire claims, but we have not yet addressed how to proceed after a loss. In this post in the bushfire insurance coverage blog series, we discuss the preparation, submission and negotiation of an insurance claim.

Drafting a claim

Since different policies provide different deadlines, when possible, it is advisable to file the claim as soon as possible. Insurers typically cite late filing as grounds for denial, with jurisdictions varying as to what “late” filing means.

Insurers are entitled to reasonable claim documentation prior to payment. They often refuse to consider a claim on the merits until such documentation is provided. The policy will specify whether to send a hard copy or a file online, but in either case it is recommended that you maintain a copy online or at a remote geographic location.

The level of detail required will depend on the insurer. Provide as much information as possible at the time of the claim, including details of items destroyed or damaged (photos and videos are helpful), appraisals and other documentation.

While some add-ons can be expected, unfortunately, the back-and-forth associated with the insurer’s repeated requests for more information can be time-consuming. The sooner the insurer has the information, the really the faster the policyholder will be able to resolve the claim and receive payment. In certain situations, the insurer may be amenable to staged payments – when it has sufficient information while the policyholder gathers additional information on other areas.

While the insurance company must comply with certain obligations, settling claims is a negotiation. In general, trust is vital to getting the best possible settlement, so the policyholder should only claim what they are reasonably entitled to.

Proof of loss

Policies may contain a “Proof of Loss” provision that requires the policyholder to submit detailed information in a form it certifies within a certain number of days after the event giving rise to the claim. Some insurance companies argue that this is a prerequisite to making a claim for coverage, and jurisdictions vary as to the viability of this argument. In California, the policyholder has 60 days to provide proof of loss, and to the extent there is concern that this deadline cannot be met (as is often the case with wildfire claims), requests to the insurer for an extension of deadline are routine granted.

California adheres to what is called the “notice-prejudice” rule, the Supreme Court holding that while an insurer may assert a defense based on a breach of a policy term, “the breach cannot be a valid defense unless the insurer materially prejudiced thereby.’[1] This principle was considered in the context of the Southern California Station Wildfire, where the policyholders’ failure to file the required forms within the prescribed period allegedly impaired the insurer’s ability to investigate smoke and soot damage.[2] The court denied the insurer’s motion for summary judgment, holding that it was not prejudiced because the insured cooperated and that the insurer had the opportunity to conduct its own testing.

Dealing with regulators after a claim

Insurers say they want to be partners in the process, and often are. Policyholders should assume the best of intentions and give insurers a chance to do the right thing, but should not mistake their friendly attitude for having the policyholder’s best interests at heart (regardless of the requirement, that insurers must put the interests of the policyholder before their own).

Claims administrators will try to help, but even the best are dealing with thousands of claims from individuals and businesses facing the same devastating situation. It can also be fuzzy for them, so it is advisable to take careful notes of each communication and/or communicate in writing via email or letter to maintain a record rather than relying on phone calls. To build and support the relationship with the adjuster, the policyholder is best served by being empathetic and treating adjusters with respect, understanding the number of claims they handle. Respond to reasonable requests for information as quickly as possible.

Some actions can’t wait. Businesses will want to start up again by hiring contractors and starting renovations or remodeling. Insurers usually understand and reimburse the amount as required by the policy.

But when it comes to immediate action, it is desirable to give insurers a reasonable opportunity to participate in the process. It is more than just a matter of politeness, partnership or strategies; many policies state that the insured must seek the insurer’s approval to repair or replace something. And if the policyholder does not attempt to secure the insurer’s prior consent, the insurer may refuse to pay “voluntarily” incurred expenses.

Reliance on the insurer’s coverage position

After the insured has submitted the claim, the insurer will usually provide an acknowledgment of receipt of the claim. Shortly thereafter, the insurer will provide a longer response outlining any additional information it needs to further assess the claim and/or its position as to whether the claim is covered. Please read this communication carefully. What does the insurer agree to pay and what does it refuse? Will it advance payment on negotiated claims while other matters are discussed/investigated? Does it leave the door open for further payment when more information is received?

The policyholder should try to provide as much of the requested information as possible. However, some insurers may ask for more information than they legally need. It is recommended that you attempt to contact us to discuss these requests and the burdens associated with compliance. All communications and agreements must be confirmed in writing.

If the insurer denies coverage for the claim or doesn’t pay what the policyholder thinks it should, the policyholder may want to seek the opinion of an attorney who specializes in insurance recovery. A lawyer can review the insurer’s position, advise on rights and assist in negotiations with the insurer.

At some point in the claims process, the adjuster will make an offer. Sometimes this will fully compensate the policyholder for the loss. Other times, the insurer will offer less, whether because they missed something or required more details; when available, the requested information should be provided or an explanation given as to why it is not available. And in other cases, he may offer less, hoping the policyholder will take his word for the value of the claim or accept the offer because the policyholder needs the money. Although it may seem out of place, recognize that this is part of the process for many insurers. As hard as it is, think of it as a business negotiation – which it is for them. Actions driven by anger can be counterproductive. Insurance attorneys can be helpful in this process.

* * *

This is the seventh post in the Fire Insurance Coverage series on the blog.

*This post is an excerpt from an article written by Scott DeVries and Yosef Itkin that originally appeared in Journal of Emerging Issues in Litigation published by Fastcase Full Court Press, Volume 2, Number 3 (Summer 2022), pp. 213-222 (a comprehensive list of all references is provided in the published version of the journal).

[1] Campbell v. Allstate Ins. Co. 60 Cal.2d 303, 305 (1963).

[2] Henderson v. Farmers Group, Inc. 210 Cal.App.4th 459 (2012).

Copyright © 2022, Hunton Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 194

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