Why no claim?
When I joined a public listed insurer, my branch manager handed me a mountain of claim files. I diligently reviewed them at home, working late into the night. After a month of local training, I attended another two weeks of training at the headquarters with senior underwriting and claims managers. Yet I cannot figure out why Insurer Denies Claim: Genuine Fire, No Settlement
One case caught my full attention. A genuine fire had destroyed a motorcycle repair shop, yet the insurer refused to pay a single cent to the unfortunate insured, even though there was no foul play. Why?
As a newcomer to the insurance industry, I noted the insured’s contact details, hoping to interview him and solve this puzzle. Insurance textbooks often mention that insurers deny liability, but I wanted to understand why in this case.
By pulling some strings, I managed to interview Mr. So & So.
“Another guy from the insurance company? Get out!” he yelled at me. His booming voice startled me, and I almost fled. Luckily, I had a friend with me who helped calm the situation. I took a deep breath and used a gentle, soft voice to pacify him.
“Sorry, Mr. So & So, I’m not here to rub salt in your wound. I’m trying to rectify the mistake so the public won’t face the same painful experience,” I consoled him. Here’s his story.
Insurer Denies Claim: Genuine Fire, No Settlement
The Story
When Mr. So & So purchased the shop lot under construction from a famed developer, he took a 90% margin loan from a publicly listed bank with its own insurance company. Initially, he intended to use the shop lot as his office but changed his mind due to heavy traffic jams during office hours. The shop remained vacant for two years after obtaining the CFO.
The bank auto-renewed his shop’s fire insurance each year, debiting his current account without any questions from either party. In the third year, he rented the shop to a motorcycle repair business, which included spray painting at the back. Everything went smoothly, without mishap.
On the fifth year, a night fire burned the shop to ashes. The cause was the spray painting done in the shop. The fire claim adjuster provided a detailed report to the insurer.
The insurer denied the claim, citing the change of occupation of the building. A vacant shop is less of a fire hazard compared to a motorcycle repair shop with spray painting, leading to a lower premium paid by the insured. In this case, it was hard to prove whether the bank was ignorant or the insured was cheating. However, Mr. So & So still had to pay the bank for a non-existent shop lot.
Who is at fault?
Both the bank (as the agent) and the insured share the blame. The bank should have reviewed the insurance policy upon the change in occupation, and the insured should have disclosed the change.
Is it fair to the insured?
It’s not fair to the insured, as he continued to pay premiums for a lower-risk policy while the actual risk had increased. However, the insured also had a duty to disclose the change in the shop’s use.
What About Ex Gratia Payment?
Ex gratia payments are voluntary payments made by an insurer when there is no legal obligation. In this case, considering there was no foul play and both parties shared some fault, an ex gratia payment could be a fair solution. It would indemnity to the insured without setting a precedent for claims based on incomplete information.
Absolutely, it’s a crucial lesson for the public. To help people avoid similar pitfalls, here are some important steps that should be taken:
Insurer Denies Claim: Genuine Fire, No Settlement
Educational Campaigns
- Workshops and seminars: Organize events to educate people about the principles of utmost good faith and the importance of disclosing all relevant information in insurance contracts.
- Online Resources: Develop comprehensive guides, FAQs, and videos explaining common insurance terms and scenarios.
Public Awareness Initiatives
- Social Media: Use platforms like Facebook, Twitter, and Instagram to share stories and tips about insurance best practices.
- Traditional Media: Publish articles and run radio and TV ads highlighting real-life cases and the consequences of not complying with utmost good faith.
Regulatory Measures
- Clear Communication: Ensure insurance companies write about the importance of full disclosure.
- Stricter Penalties: Implement fines for insurers and insured who fail to act in good faith.
Transparency in Policies
- Simplified Language: Make sure insurance policies are written in clear, simple language that everyone can understand.
- Pre-purchase Consultation: Offer consultations to help potential insureds understand the details and implications of their policies.
Encouraging Feedback and Reporting
- Feedback Mechanism: Provide a way for consumers to report unclear terms or unfair practices.
- Support Systems: Establish support systems to assist insureds in understanding their rights and responsibilities.
Community Engagement
- Local Events: Hold community meetings and engage local leaders to spread awareness about the importance of honest and transparent communication in insurance.
Case Studies and Examples
- Real-life Stories: Share real-life examples of positive and negative outcomes to illustrate the consequences of not acting in good faith.
- Role-Playing Exercises: Conduct role-playing exercises to simulate insurance claim scenarios, helping people understand the process and importance of transparency.
By taking these steps, we can help ensure that the public is better informed and can avoid the consequences of inadequate disclosure in insurance contracts. This way, everyone benefits from a more transparent and fair insurance system.
Conclusion
This case highlights the importance of utmost good faith in insurance contracts. Both parties must act honestly and disclose all relevant information. The bank, as an agent, should ensure that the insurance policy reflects any changes in the risk, and the insured must report any changes that might affect the policy.
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Thanks
Insurance is always tricky and they will try to get out of a claim every time. There is so much you have to prove to make sure you get your money.
Insurances are not that tricky and scarcely provided that you know the law of insurance, policy detail, exclusion clauses. I love insurance claim. Thanks for your comment and reading my article.
I have never done insurance of anything in my life. Still there is more to read about it for me. But your post has given me an insight of insurance policy. Thanks for sharing this useful information
No life or car insurance. NO student insurance as well? There is a primary student policy for us here in Malaysia. Just be careful when you receive a policy, read through all small print, you can cancel the policy within 14 days during the cooling period, and seek for the full refund of the premium that you had earlier paid. Thanks for reading my article.
I think people rarely have good experiences dealing with insurance companies, but this story is harsh.
Insurance companies need your money NOW, but when you have a claim it’s all “let’s look at everything in detail and take our time”. If they can find any way out of paying they will – and they wonder why people think badly of them.
The story is not harsh, but in the reality it is true. You come across of public grievances been highlighted in the local daily newspaper.
So we have to outsmart the insurer when dealing with a claim.The Insurer is well known for denying their liability. Thanks for the comments.