Sunday, February 7, 2010

Is the "Never Pay Policy" Making a Comeback? Fight It!

by John L. Watkins

“In your policy it states quite clearly that no claim that you make will be paid. You unfortunately plucked for our Never-Pay Policy, which if you never claim is very worthwhile - but, uh, you had to claim - and there it is.”

-Mr. Devious to Reverend Morrison about the letter from the insurance company refusing to pay the Reverend’s claim for damage to his car that was hit by a lorry while standing in a garage. Monty Python and the Flying Circus, circa 1971.

It seems impossible to watch five minutes of television without being bombarded by insurance commercials, whether featuring a talking gecko, cavemen, “Flo” with the nametag, a Benji-like dog losing sleep over worries about his bone, or the dulcet tones of actor Dennis Haysbert (he does have an amazing voice) asking whether you are in good hands. Although many of these commercials focus on saving money, they also promise you will be well treated if there is ever a claim. You are told you will be treated like “a good neighbor,” will experience “concierge claim service,” or will be in the aforementioned “good hands.”

It is not surprising that insurers spend hundreds of millions of dollars portraying themselves in this manner. After all, what insurers are selling is the promise of protection. Insurance is a product that you hope never to use, but, when you need it, you expect it to be there. Please be assured that I am not anti-insurance. If you have read this blog or listened to my podcasts, you know that I encourage businesses to establish a relationship with a good insurance broker, to put a good insurance program in place, and to review that insurance program regularly. In the past, I even represented a large carrier group (fortunately, one of the better ones).

Nevertheless, a large part of my practice now involves representing policyholders (typically commercial policyholders) when insurance companies will not pay their claims. I’m talking about liability claims, not health care and other types of claims. Maybe it is just my little part of the world, but my recent experience suggests that insurers are reserving rights and contesting claims with incredible vigor. Many insurance companies, quite frankly, act as if they are in the business of selling “Never Pay” policies, and they certainly do not always act as they portray themselves in their never-ending commercials.

If my recent experience does represent a larger reality, it bodes very badly for business. In fact, it bodes very badly for society in general. Small business is the backbone of our economy, and, if we are to recover from the current economic woes, small business will lead the way. Small businesses, however, can literally be wiped out a single claim if their insurance company does not pay.

In this regard, it should be remembered that the typical liability policy makes two fundamental promises by imposing two fundamental duties on insurance companies. The first duty is the duty to defend. This means that if you or your company is sued, the insurance company must appoint and pay for a lawyer to defend the case. If the insurance company refuses this fundamental duty, the cost of paying for a defense can impose a huge burden on a small company.

The second duty is the duty to indemnify, which is the duty to pay settlements or judgments to resolve the claim. Buildings and lives cannot be rebuilt if insurance companies do not pay claims. Injured parties will not be compensated if insurance companies do not pay claims. In short, business depends on insurance companies keeping their promise of protection, and, to some significant extent, society does as well.

It is my sincere hope that one of these days a carrier will come along with a new business model. First, this carrier will write policies that ordinary people can understand that clearly state what is covered and not covered. If an insured needs additional coverage, the insured will be able to buy additional coverage for the risk, again in plain language.

This carrier will realize, finally, that its insureds are customers, not adversaries, and will treat them as such. It will deal openly and honestly and will resolve doubts in favor of the insured, as the law already says it should. It will hire claims adjusters that focus on fairly paying losses, rather than writing reservation of rights and denial letters. This carrier will have no need for a legion of insurance coverage lawyers flying around the country filing lawsuits against the company's customers seeking court permission to deny coverage.

This carrier will have no need to spend millions of dollars on endless television commercials. It will become known not for what it says it will do, but for what it actually does. Its reputation will spread like wildfire in the community and it will never want for business.

This post has defined the problem and posed a Utopian solution. Unfortunately, our mythical perfect carrier is likely to remain a myth, at least in the foreseeable future.

For now, you must remain vigilant against the Never Pay Policy, and fight it at every turn. In the next post, I will cover a few tips that will help you fight the good fight and hopefully win.

1 comment:

  1. John, your experience does, indeed, represent a larger reality (I'm certainly encountering it here in California). The pendulum does tend to swing between "we're paying too much to defend these claims, let's deny them" and "we're paying too much to defend ourselves against bad faith claims, let's accept the insured's defense and think about filing a declaratory relief action if there really is no coverage"; over the course of my 20+ years career I've experienced a number of "swings". In addition, business entities generally cannot recover the type of extracontractual damages (for emotional distress, for example) that individuals can in a bad faith action. Add to that the current economic conditions (insurers aren't making the certain returns on their investments which they were previously accustomed to, and insureds may be unable to afford the fight) and the coverage denial trend is perhaps understandable, but certainly lamentable.