Sometimes, despite the best intentions, insurance policies fail to contain everything that the policyholder intended. Perhaps a company that was supposed to be listed as an additional insured was not listed, or an endorsement was not worded to provide the coverage intended. Then, a claim is made that is directly affected by the omission or mistake in the policy. After the policyholder notifies its insurer, the insurer denies coverage because the person, company, or type of claim is not covered by the wording in the policy. Can the policyholder still get its insurer to pay? In many situations, with the right help, the surprising answer is yes.
Why an Insurer Would Pay a Claim It Contends Is Not Covered
Insurers often fight like crazy to avoid paying claims, but there are a number of reasons why an insurer may pay a claim it contends is not covered, including:
- Mutual Mistake — If both the insurer and the policyholder intended to cover the situation and an error was made in the policy wording, then the policy should be reformed or corrected and the claim paid. Often, however, an insurer will need to be reminded with documentary evidence that it intended to cover the situation.
- Threat of Losing Business — Underwriters do not like to lose business, especially if the policyholder is a long-time customer or pays substantial premiums. So if the policyholder can demonstrate it really intended for the situation to be covered, and the policyholder or its broker has market power, the insurer may make a business accommodation and pay the claim despite the supposed lack of coverage.
- Threat of Lawsuit If Wording Not Entirely Clear — If there is any ambiguity in the policy language and the policyholder, represented by respected coverage counsel, makes a reasoned argument and threatens a lawsuit, sometimes an insurer will pay some or all of a claim to avoid litigation.
How an Insurer Pays a Claim It Contends Is Not Covered
Insurers have internal procedures that are not well publicized to pay supposedly uncovered claims.
For example, an insurer can pay a claim “ex gratia,” which means the claim is paid as a business accommodation. In that situation, the claim is paid by the underwriting department, which means it does not affect the policyholder’s claim history. The catch is that insurers are reluctant to do this and the amount they can pay is often limited.
Another option is that the insurer can issue a retroactive endorsement to the policy that corrects the omission or mistake. In that situation, the insurer can then pay the claim as if it were covered in the first place. Both parties need to agree to the wording of the endorsement for it to become effective.
When an insurer tells a policyholder that a claim the policyholder assumed was covered is not, that denial is not the end of the road. Competent counsel can often convince Insurers to turn around an incorrect denial by providing analysis as to why the claim is covered. If that fails, Insurers still may be willing to reconsider claims that they believe are not covered, and have little-known procedures for doing so. Creative solutions can be found to obtain coverage for “uncovered” claims, if you know what, how, and who to ask.
Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series. For additional information about this post, please call 202-760-3160.