Denying A Claim

After a fair and thorough analysis of a claim, the loss adjuster may have to deliver bad news to the insured. In this article, we will discuss some important factors to keep in mind when denying a claim to the insured and skills you can use to relieve tense situations.

Deliver the bad news that a claim is not covered promptly and professionally to the insured. Use specific and clear language to explain why the claim was not covered. Insurance jargon should not be used unless absolutely necessary and then only when an adequate explanation regarding the terminology has been provided. Policy entitlements must be stated as clearly and simply as possible.

The loss adjuster should be aware brokers may face allegations from the insured that they failed to provide appropriate coverage. In situations where the insured did not purchase an available coverage, the loss adjuster may want to substantiate the insured’s refusal to buy the product when offered.

Be prepared to explain the options available to the insured when he or she is not satisfied with the claim denial. For example, the insured may be referred to a supervisor, manager, or the designated ombudsman for the company. Although a claim does not need to be denied in writing, usually a letter is sent to confirm the denial. A copy of such a letter would be sent to the broker.

Why a claim is denied

In most cases, a claim is denied because the loss does not fall within the terms of the policy. If the insured lies about a material aspect of the claim perpetrating a fraud — the entire claim could declared invalid. If an insured has misrepresented material information about certain property insured, the policy contract could be declared void for that property. For example, a claim for contents would not be affected by a misrepresentation made on the building portion of the policy.

When fraud is an issue, adjusters should get advice from legal counsel. In fact, when any significant claim must be denied, adjusters may seek legal counsel as a precaution. Ultimately, the responsibility for the decision to deny a claim rests with the insurer.

The file should contain a fully completed sworn proof of loss. If it is not complete, the deficiencies in it should be itemized in writing to the insured. Once the insured is notified that his or her claim has been denied, he or she no longer has to comply with policy conditions. For example, if the insurer had not yet received a sworn proof of loss or other claim documentation — the loss adjuster would no longer be entitled to them.

If the insured fails to provide requested documentation such as receipts, tax returns or bank statements, document this in writing to the insured. Should the insured offer a reasonable explanation for not complying, the decision to deny may need to be reevaluated. For example, the insured may be unable to supply documentation because it was lost in a fire.

Conflict management

Conflict management skills will come in handy to calm a volatile situation during the denial of a claim. Faced with the prospect of an uninsured loss, the insured may become aggressive and direct unfair criticism or verbal abuse towards the adjuster. The insured may allege he or she was treated unfairly. In managing the potential for conflict, consider the following:

• maintain a calm demeanor

• express sympathy for the insured’s loss; presumably a financial loss is looming for the insured

• acknowledge the insured’s feelings

• based on the claim and the personality of the insured, consider what will aggravate and what will appease this particular insured

• be aware of your own personal anger

• be innovative with what may bring the incident to a polite and positive close (for example, what can the adjuster do to relieve any tension)

Example

Bill was angry his automobile policy did not have the loss of use endorsement. Rick, the adjuster knew of a preferred autobody repair shop that offered “loaner” cars at a very reasonable cost. Rick explained to Bill he could not promise a vehicle could be made available to him but he would speak to the repair shop and try his best to get Bill the best deal possible. Bill was impressed that the adjuster would take such action to help him out.

There are dangers in denying a claim that should have been paid, or completing the denial process incorrectly. The insurer and the adjuster are vulnerable to allegations of bad faith when they make mistakes or when they do not act fairly and reasonably. Alternatively, an error in the denial process could result in the insurer having to pay a claim that should have been avoided. Use the knowledge and techniques noted in this article to help you when you have to deny a claim.

This article is based on excerpts from the study material in the Claims Professional Series of applied courses — a core of the CIP Program that helps adjusters learn the functional knowledge and skills required of their profession.