People new to insurance claims can be confused by insurers “policies” and how that word applies to the claims process. Here is an important distinction: an insurance policy issued to an insured is different from an internal insurance company policy or protocol. This post is to untangle the two and why that is important to you.
In every state where I practice an insurance policy is considered a contract and enforced by state contract law. For the purposes of this article, I will refer to insurance policies as insurance contracts. The rules and requirements of the insurance contract are binding, enforceable in a court of law, and set the rules of the road unless state law requires different policy language. Insurance policies are legally binding documents and bind both the insurer and insured during the claims process.
Insurance company internal policies are different. An internal policy or protocol is not an authority for what an insured must do during the claims process. Sometimes aspects of an insurer’s internal policies mimic insurance contracts and are used by claims adjusters as summaries of their obligations. Yet sometimes internal policies do not reflect insurance contracts. An internal policy never delivered to an insured as part of the insurance contract is not legally binding. Insurance companies may not go to court and argue, “we are denying payment because of our internal policy”. There is no legal significance with respect to what an insured must do.
Recently some major insurance carriers are requiring a contract between a property owner and a builder to be delivered to release the insurer’s final payment. For those new to this arena, insurance companies will deliver an early actual cash value payment for a dwelling or structure early in the claim process and follow with a second payment that is referred to as a depreciation payment or the replacement cost value payment. I have yet to read an insurance contract that requires a builder’s contract to release depreciation. This requirement is an insurance company’s internal policy, and if not found in the insurance contract, it carries no legal significance.
This scenario highlights the importance of using the word “policy” correctly. This principle applies throughout the claims process. The insurance policy that matters is the insurance contract. Abiding by internal insurance company policies may help facilitate quick resolution of the claim, but internal policies may also reflect unfair and unenforceable requirements on a property owner.
When an insured allegedly fails to deliver proper notice of a claim, or allegedly fails to cooperate, the law requires the insurance company to demonstrate how the alleged failure is material and prejudicial. Material means significant or substantial to insurance company rights. Prejudice means the insurer’s ability to investigate the claim has been compromised. Materiality and prejudice should apply to all insurance contract requirements, and they should certainly apply to internal insurance policy requirements that are not legally binding anyway.
When considering insurance company requirements imposed during the claim process, remember the difference between those requirements found in an insurance contract and internal insurance policies. Be careful with throwing around that term “policy” so that internal insurance company protocol becomes more important that it ought to be.
Should you have any questions, feel free to email me at ed@beckmannlawfirm.com.