Insurance claims are a process and are not always quick and easy. The following is an overview of the claims process and how it unfolds.
The claim
After property damage due to hail, wind, fire or water, property owners must contact their insurer to make a claim. Insurance policies have language requiring property owners to make a claim. State law requires prompt notification to insurance companies.
Wise property owners also send their insurance company written notice of the claim. The best practice is to send the insurer a detailed estimate of the damage from a reputable contractor, builder, or public adjuster to provide an understanding of what is owed.
The insurance company sends an adjuster to the property to investigate the damage followed by a written estimate, called an adjustment, that sets forth what the insurance company is willing to pay. Sometimes, the insurance company denies the claim and decides to pay nothing. Insurance companies are required to notify the property owner in writing either way.
If the property owner finds the adjustment fair, the insurance company should pay within a certain number of days of the settlement and the claim concludes.
A denial
If the insurance company denies the claim, the most likely reason, is an exclusion in the policy. Policies are divided into three basic sections: a statement of coverage, a list of exclusions, and “other conditions” that may involve how damage is valued, among other things. The statement of coverage states what the insurer covers. It’s almost always a broad statement covering causing damage. The exclusions section is usually very lengthy – it excludes from coverage certain causes of damage. Common examples of exclusions in some (but not all) policies are wear and tear on property, slow leakage, mold, and seepage over time. Finally, the valuation clause tells the property owner how the insurer will value the loss and pay. This is often called the “How We Pay” section of the policy.
If the insurance company denies the claim, property owners should order a certified copy of their policy to see how the policy reads. Excerpts from the policy are not as helpful as the actual policy, with all of its terms and conditions. Whether an insurance company should truly deny a claim can be very debatable and the subject of contention.
An adjustment too low
If an insurance company accepts the claim, but the property owner finds an adjustment too low, he or she can negotiate with the insurance company. Insurance companies might inspect property two or three times and offer increased adjustments. Sometimes they adjust claims because of building code requirements. Appraisal is the next step if property owners and their contractors or public adjusters can’t agree on the amount of the loss.
The insurance appraisal
Appraisal is how property owners and insurance companies resolve a dispute on the amount of the insurance company’s adjustment. An insurance appraisal is a process similar to arbitration. It’s an out-of-court dispute resolution process that resolves the amount of loss with finality. It is meant to be a quick, fair and inexpensive way to resolve this dispute.
In appraisal, the property owner nominates, and the insurance company selects an appraiser, and the two appraisers nominate a neutral umpire. The three people serve on an appraisal panel, visit the property and decide on the amount of the loss. They inspect the property, hear testimony and argument, review documents, and render a written decision. The insurance company should pay the award in five days, assuming there is no finding by the appraisal panel of a fact that might trigger a policy exclusion.
Appraisal panels usually just determine the amount of the loss, they but can also be asked to determine what caused the loss. If the cause of the loss is covered by the policy, then the insurer pays. If the cause of the loss is not covered by the policy, the insurer does not pay. For example, if an appraisal panel decides the visible damage is due to wear and tear of a material, that finding triggers a policy exclusion. Insurance policies almost always exclude wear and tear.
Appraisals are meant to save money vs. going to court. However, that doesn’t mean that does not mean property owners should to go to appraisals unrepresented. The insurance company will have someone knowledgeable and a good advocate.
Going to court
The final step in the claims process, and one that does not usually occur, is going to court. Court is the forum to reduce an appraisal award to an enforceable judgment if the insurer will not pay after an appraisal award. Court is also the forum for taxation of interest on an appraisal award.