Insurance companies can deny a claim in its entirety due to a lack of cooperation during the claims process. This article reviews the basis for such a denial and how a property owner can overcome it.
Insurance policies include a cooperation clause that details what information the insured property owner must provide during the claims process. Cooperation clauses vary by insurance company. Some of the more stringent clauses may violate Minnesota state law. So, too, can claim adjusters that demand more than what the cooperation clauses allows.
PROTECTION FROM THE MINNESOTA LEGISLATURE
The Minnesota Legislature wrote language for insurance policies that must be used in all-peril policies so long as one peril is fire. Minn. Stat. § 65A.01 subd. 3. This form policy language protects insured property owners by setting minimum protections for insured property owners. Insurance policies that fail to conform to the statutory language are “reformed” to meet the statutory minimum protections. Watson v. United Services Auto Association, 566 N.W.2d 683, 691 (Minn. 1997). In my view, the cooperation clause written by the Legislature is a minimum protection too, and insurers that demand more are violating the statute.
This principle can be applied to insurer cooperation clauses. If a cooperation clause demands more than the cooperation clause in the statute, the property owner can argue the statutory cooperation clause controls. The cooperation required by statute, in addition to requiring a proof of loss and examination under oath, states:
The insured, as often as may be reasonably required, shall produce for examination all records and documents reasonably related to the loss, or certified copies thereof if originals are lost, at a reasonable time and place designated by this company or its representatives, and shall permit extracts and copies thereof to be made.
Whether an insurance company can demand more than what this clause requires is debatable. For example, can an insurance company demand a property owner answer written questions when forum to ask questions is an examination under oath? Property owners can push-back by citing to the limited scope of the Legislature’s cooperation clause.
When an insurance company alleges an insured property owner breached the cooperation clause the insurer must prove the alleged breach is material. Material in this context means something substantial. Parr v. Gonzales, 669 N.W.2d 401, 407-408 (Minn. Ct. Ap. 2003); Rieschl v. Travelers Ins. Co., 313 N.W.2d 615, 618 (Minn. 1981). This is really an old breach of contract principle: minor errors that are technically breaches are not the basis for a breach of contract action. If after a fire that levels a building (a total loss) an insurer demands to know the number of toothbrushes in the home, and the property owner refuses to cooperate, the insurer has to prove its question is material. If an insurer is unable to meet this burden there is no breach of the cooperation clause.
While this example is extreme, the principle applies elsewhere. If an insured property owner produces photos of a damaged oven rather than estimates or invoices of the original purchase, the insurer must prove the lack of estimates or invoices is material. Is it material – substantial and important – to view the original cost of the oven when photos show the same thing? Do original estimates and invoices, if even available, really give the insurer more than the photograph? The essence of materiality is importance: the insurer must prove the alleged lack of cooperation is material, and of course, the property owner is entitled to say it was not.
Juries decide whether a property owner breached a cooperation clause. Abraham v. Farmers Home Mut. Ins. Co., 439 N.W.2d 48, 49 (Minn. Ct. App. 1989). When an insurer denies a claim due to an alleged lack of cooperation, the issue need not be over. Juries decide the fact dispute of whether a property owner really breached the cooperation clause.
Insurance companies that allege a breach of the cooperation clause must prove prejudice in addition to materiality. Parr v. Gonzales, 669 N.W.2d 401, 407-408 (Minn. Ct. Ap. 2003); Rieschl v. Travelers Ins. Co., 313 N.W.2d 615, 618 (Minn. 1981). Prejudice in this context means the rights of the insurance company to investigate and adjust the claim, were seriously impaired.
If a property owner does not deliver requested documents within a set amount of time, but the documents are found later, the insurer must demonstrate the delay prejudiced its ability to investigate. For example, when a business alleges lost income, and the documentation of lost income takes several weeks or months to gather, is there a delay that prejudices the insurer? Is the insurer no longer able to accurately adjust this part of the loss? Minnesota law does not assume delivery of documents later in time prejudices the insurance compInsurance companies that allege a breach of the cooperation clause must prove prejudice in addition to materiality. any. The insurer has the burden to prove it.
Do not hesitate to contact me if an insurance company has alleged you breached a cooperation clause. You can reach me at email@example.com