By: Peter R. Eriksen, Esq.

Over the years I have had the opportunity to litigate against many different insurance companies in several different contexts. I have concluded that insurance is becoming increasingly illusory. People believe that they have a good insurance policy, but oftentimes they discover the first thing their insurance company does is disclaim coverage. I would like to point out a few of these issues in this article. It is by no means intended to be an exhaustive or complete review of contemporary insurance issues, but it merely touches on a few of the more aggravating aspects of insurance company behavior.

Homeowner’s Insurance

Recently, there have been some profoundly disappointed people as a consequence of coverage issues with their homeowner’s insurance. Hurricanes caused significant damage to people’s homes, most of whom believed that if they had water damage to their homes, their homeowner’s policy would provide assistance. This turned out not to be true. Homeowner’s policies do not cover floods. To make matters worse, most policies exclude coverage for either ground water or surface water intrusions. This means that coverage will be provided only for water damage caused by heavy rains that get into the home through either a broken window or damage to the roof, assuming that those entry points were created by high wind. Worse still, most homeowner’s policies have a “concurrent cause” clause which means that if a covered loss is caused by two or more causes, one of which is excluded, the entire loss is excluded. Courts are a little vague as to what percentage of the loss must come from the excluded cause, but be aware that this kind of clause is lurking in most homeowner’s policies. People should protect themselves and read their policies. I say this knowing that perhaps the most boring and difficult document to read is an insurance policy. However, sit down with your insurance agent and go through the policy and find out what is excluded, what is covered and whether the policy contains a concurrent cause clause. Once you’ve found out the extent of the coverage, all the exclusions and the various clauses, you can then decide whether you should get different or additional coverage. I strongly advise eliminating concurrent cause clauses and, if you live near a body of water or stream, purchasing separate flood insurance.

Coverage and disclaimer issues are resolved in “declaratory judgment” actions in which the relief sought by the insured is a declaration by the court which sets forth the rights of each party to the insurance agreement. We have handled many such actions and they are growing in frequency.

“No-fault” Insurance

“No-fault” insurance is another very dangerous area. Your automobile insurance policy carries mandatory “personal injury protection” (PIP). This is the so-called “no-fault” coverage. It means that your economic losses (medical bills and lost income) will be paid by your insurance carrier regardless of fault. In other words, you can drive into a bridge abutment because of your own negligent driving, and your medical bills are supposed to be paid by your carrier. If you do this while you are under the influence of alcohol, the situation changes and you will not be covered. However, assuming that you have an accident without the aid of alcohol or drugs, your no-fault policy should provide coverage. However, the pitfalls are many. First, you must apply for the coverage within thirty (30) days by filing the appropriate forms in a verified fashion otherwise you lose the coverage.

Second, your insurance carrier has the right to conduct an “examination under oath” to determine whether the claim is valid. This is being done with greater frequency as insurance companies are beginning to regard certain claims as false or fraudulent.

Third, the carrier also has the right to send you to a so-called “independent medical examination”, which is neither independent nor is it truly a medical examination. Instead, it is a superficial once-over by a doctor of the insurance company’s choosing. Given that the carrier has chosen the doctor, it should come as no surprise that, in the majority of the cases the doctor will find either no injury or no need for further treatment. Once that happens, you can lose your no-fault benefits. So-called independent medical examinations take place within four to six months following the accident, so you are well advised to get as much medical care and diagnostic treatment as you can within that time period. Even then, the carriers can have the treatment subject to a “peer review” which will frequently result in a denial of payment. Your doctor then can arbitrate the peer review denial and those are sometimes reversed in arbitration. You also have a right to arbitrate the termination of benefits decision or to sue the carrier, but if you have private health insurance it is generally preferable to fall back on that.
Private health insurance, however, contains an exclusion for injuries sustained in a motor vehicle accident. Sometimes people will truthfully insist that their injuries are the result of a motor vehicle accident thereby giving the carrier the right to decline the coverage. What the insured should do is explain that there is no other coverage available and, regardless of the cause of the injuries, the health insurer should pay the medical bills.

No-fault rights are determined by either suing your carrier for breach of the policy or by filing for arbitration. We have done both for clients who have lost no-fault coverage.

Liability Insurance Coverage

Liability coverage also poses risks to the insureds. Suppose you cause a motor vehicle accident and you are sued for the damages sustained by the injured party. The insurance company will provide a defense. However, with increasing frequency, the lawyers that represent the insured defendants are employees of the insurance carrier. A lawyer is supposed to be independent and have an undivided loyalty to his client, in this case you, the insured. The defense lawyers appointed by the carrier will tell you in advance if they are employed by the insurance carrier. If so, you are advised to retain your own attorney to oversee the defense. Your personal attorney’s primary function will be to insist that the insurance company settle the case within the policy limits so that you are not exposed to a verdict in excess of the applicable policy. For example, suppose you have an automobile insurance policy which is a “50/100.” This means that you have $50,000 available to pay for a single person’s injuries and $100,000 to pay for the injuries sustained by all the people in the entire accident. Assume that there are three people injured in the accident and the injuries are quite serious. Your objective is to have your insurance company put up the entire $100,000 policy to settle the case. If it does not do so, and there is a trial, you could face a verdict higher than the $100,000 and be left to pay the balance on your own. In this instance, your insurance company may have acted in “bad faith.” If so, that would subject the insurance company to liability and not you. However, to set up the “bad faith” claim, your attorney should write a letter to the insurance company and insist that the carrier settle the case within the policy limits. It is very important that your attorney perform that task. Your interest is getting the case settled and not going to court and getting hit with an excess verdict. Bad faith litigation, while difficult, is a growth area thanks to carrier behavior.

Supplemental Underinsured Motorist (SUM) Coverage

Finally, there is SUM coverage, which is not a troublesome issue. This is “supplementary underinsured motorist” coverage. This is very valuable insurance coverage which many people do not have. Take a look at your policy and see if you have “UM” and “SUM” coverage. Assume that you are in a motor vehicle accident and you are seriously injured. Assume that the other person has a 25/50 insurance policy which is the minimum coverage in New York. This means that a single injured party can recover only $25,000. However, if you sustained a fracture or a herniated disk which requires surgery, your injuries are worth far more than that. This is when your “SUM” coverage comes into play. Once the other company has paid you its $25,000, you may then pursue your insurance company for additional coverage. If you have 100/300 in SUM coverage, you may pursue your own insurance company for an additional $75,000. SUM coverage is inexpensive and it is valuable. Everyone should look at their insurance policies and make sure that they have reasonably high limits of liability coverage and SUM coverage.
We have handled many SUM cases for our clients. They are generally resolved through arbitration before an American Arbitration Association professional. While you can also sue your carrier for benefits, arbitration is more common. It has the advantage of speed and it is generally less costly.

Remember, your insurance company is your friend when you are paying the premium. However, you become the insurance company’s enemy when you have a claim. You must think of the relationship in those terms or you will be taken by surprise.