By Mark Goldwich
When you experience a fire, flood or storm, you'll find yourself traveling through another dimension -- a dimension not only of sight and sound but of insurance claims adjusters. As you try to get your insurance company to cover your damages you’ll find yourself moving into a land of both shadow and substance, full of legalese and excuses. You've just crossed into... the Denial Zone.
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We’ve all watched an episode of the classic Rod Serling series, The Twilight Zone where an unfortunate man or woman find themselves in a land where everything seems to have been turned on its head, where illogic rules and the world with which the main character was familiar has suddenly become a terrifying place. Well, any of you who have ever filed a property damage claim with an insurance company can commiserate with such a plot line. Frequently, the insurance company’s own adjusters will deny a claim for some arcane reason, or often no reason at all. What you have long thought of (and paid for) as a lifeline in time of need suddenly turned into a terrifying world where what you thought of as black and white is now suddenly a million shades of gray.
In order to keep you from being sucked into the Denial Zone, I have created a series of questions and answers to try to help you make sense of the infuriatingly obtuse world of insurance claims.
Q: I've always heard about insurance companies denying claims, but why should I be
so concerned about this “denial” business? My agent said I had an “all-risk” policy.
A: Buying such a policy does not, in the real world, protect you from having some or all of your claim denied.
Q: Realistically, what are the odds that the insurance company will deny some or all of my claim?
A: Depending on the type of loss, the odds could be very strong. They are certainly higher than most policyholders imagine when they buy a policy (especially an “all-risk” policy) or file a claim after a fire, flood, or other disaster.
Q: Why is there such a strong chance of having my claim denied if I have an “all risk” policy?
A: This is a huge question, one that’s very similar to the questions frustrated policyholders ask me when they get bad news from the insurance adjuster. Most policyholders are extremely surprised when they get word that all or part of a claim has been denied. I can tell you that they, too, want to know “why” such an outcome is possible. The short answer is that the insurance company probably didn’t broadcast what the policy didn’t cover when you bought it. The longer answer has to do with what they really meant when they sold you that so-called “all-risk” policy. Let’s delve into that longer answer now through more Q&As.
Q: Isn’t an “all-risk” policy meant to protect me against all risks?
A: Alas, no. In most cases, it’s actually structured to exclude certain risks, despite its name. Back when you bought your policy, the insurance agent was trying to sell you on a certain policy. Remember that?
Well, it’s tough to sell a policyby broadcasting to the prospective buyer that Situation A is not covered, and Situation B is only covered in a certain very narrow way, and Situation C is covered only if Situation D is not in play. So the agent will generally say something like, “This is an all-risk policy that generally covers you for all risks, subject to certain limitations and exclusions.”
Q: Did you notice what just happened?
A: The most important information sped by you. It hurtled past in that innocent-sounding word “generally,” and then it sped by again in the little addition at the end of the sentence: “limitations and exclusions.” (Or whatever similar language the insurance agent might decide to use; there are a lot of ways of sidestepping the question of what “all-risk” actually means.)
However agents decide to phrase this part about the exclusions during their discussions with you, they usually do not go into too much detail about what the exclusions are. In fact, in the average policy, there are pages and pages of exclusions and limitations. (A
recent trend in hurricane policies is particularly troubling: the items that are usually damaged first and most are, in many cases, not covered at all!)
As the insurance industry is no doubt aware, members of the general public simply do not understand what’s in all those dense pages of type. In fact, most people do not even attempt to read the policies in the first place. It’s hard to avoid the conclusion that the
industry counts on consumer ignorance about the policies they’re buying.
Q: How is that different from lying to me about what the policy actually covers?
A: I’m not an attorney, so I can’t answer that, but I can tell you that the agent and the insurance company would, if you accused them of lying, probably point to the fact that you failed to read or understand the vast oceans of complex text that outlined all the
exclusions in your policy. So to the industry (and, as a general rule, to a court of law) it’s not lying, because they gave you the fine print. You simply didn’t take the time to read or understand it. Good thing, too, because according to people who know much more about the law than I do, lying to you about what the policy actually covered would be fraud, which is a very serious matter.
Q: What kind of things am I, the policyholder, likely to think are covered … that actually aren’t?
A: The answer could fill another book this size. Just as a preliminary summary, though … and to help you get your head around the magnitude of the gap that usually exists
between what people assume is covered and what is in fact covered … here’s a thumbnail sketch of some of the “surprises” waiting for property owners after a disaster.
Assume there has been a hurricane in a given area. I can tell you with certainty that, at some point, there are going to be property owners who say … “I thought my policy covered things like trees and lawns for hurricanes.” Almost never, even though these are typically among the first things that are badly damaged in a windstorm. Result: Denial!
“I thought my policy covered fences damaged during a hurricane.” Ditto. More and more, fences are not covered in the event of damage by a hurricane. Note: restoring fencing to a property is usually extremely expensive. Result: Denial!
“I thought my policy covered exterior paint.” Normally, yes, but many companies no longer cover this for hurricanes, even though exterior paint is very vulnerable in windstorms.
“I thought my policy covered swimming pools and out buildings.” Again, it usually does, but it may not for a hurricane. Result: Ridiculously expensive denial!
And here’s the big one: “I thought I didn’t need flood insurance!” Sometimes people are told this by an insurance company. Sometimes they’re told this by a mortgage company. However it happens; if homeowners believe it, the result can be an extremely unpleasant and costly surprise: Denial!
Even if you endure all the delays, and even if you somehow work your way through the labyrinth of denials, the insurance industry may well have one more coincidence up its sleeve. This coincidence catches a lot of insurance consumers by surprise. It often
contributes to the exasperated, exhausted homeowner’s conclusion that it’s better to give up, settle for what they can get, and perhaps accept dimes, nickels, or even pennies on the dollars they are actually owed. This coincidence is known as deflection, and we'll talk about that in a future blog.
Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.