Recent dealings with certain insurance companies have really emphasized just how good they can have it in their dealings with policyholders. In terms of the exchange of
performance, they get that they want everything up front, when the policyholder pays its premiums.
The risk transfer is the point of the entire deal, of course, so that is fair enough. What isn’t so fair is what happens when a policyholder does have a claim. If the insurance company is intent upon leveraging its advantageous position, there is much it can do.
First, the insurance company can almost always come up with some vaguely plausible argument for why the claim is not covered. During the time it takes to sort that out, the insurance company holds all the money.
Second, even for undisputed claims, or portions of claims, the insurance company can argue about the value of the claim. During the time it takes to sort that out, the insurance
company holds all the money.
Third, while arguing over the value of the claim, but not paying the undisputed amount, the insurance company essentially acts as if the dispute is between whether the claims is worth $0 or $100, while in reality it is between $50 and $100. In doing so, it not only gets to hold the money and earn income during that period, but it also uses its failure to pay on a timely basis as a bargaining chip.
Fourth, even though the policyholder performed its most important act (paying premiums) up front, the insurance company will use any imperfection in the policyholder’s ongoing obligations as an excuse not to pay, whether it relates to notice, cooperation, or settlement of an underlying claim.
Yes, it’s good to be the insurance company. Nevertheless, there are options for policyholders in these situations. It can take litigation, but some courts are demonstrating a will to push companies to pay undisputed claim amounts while litigation over disputed amounts continues. This can make a big difference. Early success on a motion for partial summary judgment, and more importantly an early partial payment, can make a big difference in how both sides view the overall litigation. Especially in situations where a bad faith claim might be hard to prove, one of the best ways for a policyholder to regain some of the insurance company’s leverage is through an early victory on a limited but important point.