Honesty and Your Policy

by Mark Glodwich

In my last blog I talked about the importance of documenting your insurance claim in order to maximize your chances of success in recovering everything you are entitled to.  In that blog, I mentioned how documenting your claim properly could save your claim even if you made other mistakes along the way.
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So today I wanted to talk about just 1 common mistake people make when filing an insurance claim. And just as the documentation tips in the prior blog can be used for situations other than insurance, this mistake should also be avoided in non-insurance situations. As is often the case, really good tips, advice, and suggestions can be used in all kinds of situations, by anyone, and with consistent success.

The one common mistake I’m going to focus on today is not being honest, bending the truth, telling a little white lie, fudging, or just plain committing fraud. Needless to say, don’t do it. I’m not going to say insurance companies aren’t stupid on a global scale, but I have found that individuals who work at insurance companies can be fairly intelligent. And keep in mind; some of their best trained adjusters are those working for their “fraud” units. Sure, everyone knows lots of people rip off insurance companies and get away with it.  Sometimes their right hand doesn’t know what their left hand is doing, and they can be too overworked to notice your minor fudging on a relatively small claim. But when it comes to risk versus reward, it’s just not worth it.

We usually only hear of big fraud cases where the fraudster is greedy and dumb, which is a terrible combination. But the reality is, regular people get caught all the time, even on small claims – it just doesn’t make the evening news. And often, that’s because there is no arrest for the news media to become aware. In my experience, most would-be insurance cheats are not arrested, their claims are simply denied (sometimes just the items being inflated are denied, or sometimes the entire claim is denied), and they “get off with a warning”.

This “policy of honesty” starts from the time you fill out your application for insurance. Did you know, if you make what is called “a material misrepresentation” on an insurance application, years before a valid claim takes place, your insurance company can not only deny your claim, but they can rescind your policy entirely? When your policy is rescinded, it is as if you never had it, meaning you cannot collect on it. And just what is a “material misrepresentation?” In short, to an insurance company, it’s when you answer in such a way that they consider the answer to not only be untruthful, but that if you had told the truth, they would have never insured you to begin with.

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Now think about this…You’re sitting with an agent, and he or she is asking question after question on the insurance application, when out of the blue they ask if you had a DUI in the past 5 years. You’re embarrassed that it happened in the first place, and you can’t remember if it happened 4 years ago, or 6 years ago, but it was right around 5 years ago. So you think to yourself, that it has nothing to do with the homeowners insurance you are applying for. So you answer, “No.”

Years later, your home burns to the ground, with everything in it, and you submit a claim. To your surprise, instead of paying the claim, your adjuster tells you they need you to submit to an Examination Under Oath. “It’s no big deal,” the adjuster says, “it is very common to require this on large losses.” And besides, you know you had nothing to do with starting the fire. As you proceed with the EUO, an attorney for the insurance company introduces you to the court reporter who will be transcribing everything said. You are still not thinking about that day in the agent’s office until the attorney asks, “Have you ever been convicted or plead no contest to a DUI?” Still not putting 2 and 2 together, you answer, “Yes.” The attorney promptly follows up with, “In what year was that?” to which you reply, “I have no idea; that was nearly 10 years ago.” “Actually,” the attorney says, “our records show it was in such and such year, isn’t that correct?” Again you respond that you don’t remember, but that sounds about right. He then asks you if you remember the agent asking you the question about the DUI within the past 5 years, and he asks you to confirm your signature on the application, and the date, which you do. Now you start doing the math in your head, and your stomach starts to churn a bit, but you’re able to keep your lunch down because the attorney quickly goes on the next question, and the next…

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With all the questions over all the hours, it still hasn’t sunk in. That is, until you get a letter about a week later, explaining that your policy has been rescinded, with no payment on your claim, and only your premium is being refunded, because your DUI was only 4 ½ years prior to your insurance application.

This happens a lot more often than you would ever imagine. I call this, “denial by rescission”. If the
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insurance company can’t find another reason to deny the claim, they may look to the application for items they consider “material misrepresentations”. Sometimes this happens when the agent didn’t even ask the question, but completed the application for the client, thinking they were helping speed up the process, and maybe also being embarrassed about some of the questions, or thinking they know the answers.

This is why it’s critically important to review the policy application questions and answers before signing it. And don’t assume any answer is not relevant, or that it wouldn’t count if that’s what the agent wrote as the answer. In a situation like that, you should assume that if you sign it, they will hold you to it.

And certainly once a claim is made; stick with the policy of honesty. Even if the answer to a question is embarrassing, or if the fact that you don’t know the answer is embarrassing, be truthful anyway. If “I don’t know” is the answer, state it every bit as proudly as you would if you did know the answer. Offer to find the answer. Or, suggest they speak with the right person to get the answer.  It will be a lot better than trying to make up an answer, just to hide the fact that you didn’t know something. Remember, the penalty for not knowing something is never as harsh as the penalty for giving a bad, untruthful, or dishonest answer.

What we learned in kindergarten is still true today – honesty is the best policy.

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.


  1. Wow, what a nightmare scenario! All the more reason that if you ever have to give a deposition to an insurance company or any government agency, you need to have your attorney there with you! Never go it alone.

  2. Honestly, the insurance companies make you jump through more hoops than the NBA.