United States: Five Things You Need To Know About D&O Insurance: 3) Improper Claim Denials Are Common (Video Content)

Last Updated: June 7 2016
Article by Mark Miller

We continue our series, Five Things You Need To Know About D&O Insurance with part three, Improper Claims Denials. We raise this point to illustrate some of the ways that insurance carriers improperly deny D&O insurance claims. Miller Friel attorneys are quite passionate about improper claims denials because insurers routinely deny valid claims, but mask the validity of claims by way of long letters, quoting pages and pages of policy language excerpts, legalese, and insurance-speak, all in an effort to convince policyholders that the claim denial is proper. We've even seen a situation where an insurer denied coverage by citing to policy language from an earlier policy, even though the policy at issue had broader coverage language on the very issue in dispute. It is simply in the insurance carriers' best interest to deny a claim and hope that the policyholder will go away.

In this video, we highlight some of the common ways that insurers improperly deny D&O insurance claims, including:

  • alleging that the policyholder should have given notice earlier;
  • alleging that the policyholder gave notice too soon;
  • alleging that the policyholder failed to disclose something material on the application;
  • alleging that a retroactive date exclusions applies; and
  • alleging that a contractual liability exclusion applies.

These are but a few ways that insurers improperly deny D&O insurance claims. Insurance carriers have teams of lawyers behind them helping them with every step they take. Behind the scenes, these lawyers formulate information requests, write demands for documents, review documents, and look for reasons to deny claims, no matter how suspect those reasons may be. They also comb through policy applications, emails, and letters, all in a concerted effort to draft a believable denial letter for the insurance adjuster to sign.

D&O claims denials are simply part of the landscape for insurance carriers. When insurance carriers ask for information, they are doing so for a reason, and that reason is to deny a claim. There is no other reason to request information. Insurance companies factor the cost of lawyers into their business model, and routinely deny claims with the hope that policyholders will lose their desire to pursue their insurers. Many do. Others are persistent, and that persistence pays off.

Policyholders that recognize how insurance carriers operate have an advantage when it comes to claims. Claims denials may be improper, but correspondence from the insurance carrier is often so well drafted that it can be difficult to tell that the denial is incorrect. In reality, claims denials are nothing more than a shot across the bow. A claim denial is part of the claim process, which should be the beginning of a dialogue for getting paid. It is the starting point in a negotiation, that has nowhere to go but up.

At Miller Friel, we have decades of experience fighting, winning, and otherwise resolving these kinds of matters for corporate clients. Insurance coverage law is the sole focus of our practice. We would be happy to help if you suspect that a business insurance claim has been improperly denied.

We have included the transcript of this video below.

The 3rd point is improper claims denials are quite common. If you tender the claims to the insurance company and the insurance company has it, you are expecting them to come to your side and pay for your lawyers and defend you.

You may be burning $200,000 a month, you maybe burning $500,000, a million dollars a month with some of these clients. But you are spending a lot of money and certainly need that money to be reimbursed. You have tendered it and the insurance company comes back and has a lot of ways, basically they have a lot of ways that they have come up with that they can deny a claim. For example, there may be a contract claim in there for example you get it for some somebody you have done business with sues you, could be a securities related client, could be any sort of business dealings claim with a tort that is thrown in with it.

Well, the insurance company is not harder for them to come back and say, "I got you that's a contract, its contract claim, there are contract damages, we are not going to cover that, it's not allowed it's excluded under the policy." It's the improper analysis but it's very often used.

Second they may come back and say, "You know what, we have looked at this pretty closely and it looks like you are doing bad things before the policy is accepted and we are going exclude it because of right act of day." Now what does that mean?

For example, company got sued for wrong for advertising for example. The company is been advertising for the life of the company they have been advertising before the policy was issued for sure. But then the insurance company comes in and says, "Look you got sued for wrong for advertising, the reference all this bad things in advertising that happened during the policy through it you get that, but you know what, you have been advertising for years so we are going to cut the claim we are not going to pay it."

It's another example. Now think about notice that lets go back to that a tiny bit. So, you are looking at your documents you say, "Okay I got a supreme hearing, I have got a letter here or I got a lawsuit hear, you are looking at it and you are trying to say, "What should I do with it, should I give it to the insurance company or not."

Let's say you got a letter and the letter says, "I want you to produce and give me all this documents, quite frankly I am not happy with you, I am a lawyer at this big law firm and unless I get what I want you are going to have trouble lots of trouble."

Could be worded in any way you want but a rational person might look at that letter and say, "That's not lawsuit, that's not claim." It's just some lawyer trying to push things forward a little bit, but it haven't reached to the point of being a lawsuit, so I am not going to tender it.

You may be right, maybe you don't have to tender, it would depend on policy language but I can guarantee this, if you don't tender it the insurance company it's going to come back and say, "Wait a minute, would have paid this if you would have tendered that back then when you first got it but you know what? You didn't , so, we are kind of a lot luckier we wish you would have done it but we would have paid it, would have paid all of it but we are not going to pay it now."

So, it's sort of a catch 22, if you do it, they say it's not covered because it's not a claim yet. If you don't do it then they come back after the fact and say, "Wow, hey you should have done it sooner, if you would have done it sooner, we would have been friends working together on this but so sorry we can't do that now, because you made a mistake. The insurance company will get their lawyers to take really close look at everything and what I will do is I will look at all the application you filled out."

They will now scrutinize that application every single number, every single statement. There might be a question in the application, the last question in the application, it says, "Do you know of any reason why we should and not insure you or any reason why this insuring you would be bad for us?" I am just sort of putting a spin on the language to make it more colorful.

But there is a question like that basically says, "Tell us everything you know that could be harmful about us and that's it, tell us everything you know that could be harmful about us, well, I don't know what's harmful to you, how do I know what you care about. I'm not an insurance company, I don't know what you care about. So mostly folks leave that blank."

And then the insurance company says, "Well, I hired my lawyers to look at this and my lawyers they found that there was an email to you, you know, before you signed that application that email said that I am not happy with the way you are doing business and you know what? We cared, you should have told us."

You should have given us that email, they don't want the email, they just want to deny the claim after the fact and they had a basis to do it. My point is, looking at this claims denials, there are so many of them and 90 to 95% of them that we see are improper so you should not assume that a claim denial is not proper just because the insurance company said so.

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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