Critics of the industry say that when you purchase an insurance policy, all you are really buying is the right to sue. While such a cynical attitude is no doubt unfair, given the vast majority of satisfied policyholders, some lawsuits over claims rejections are inevitable. But should an insurance company be facilitating litigation against its peers? That's the question following the introduction of coverage for insureds looking to challenge denials.
That's crazy, you say? Well, I'm not making this up. Check out Managing Editor Susanne Sclafane's fascinating July 7 story, “War Chest: New Product Covers Legal Costs If Buyers Decide To Challenge Insurer Claim Denial,” by clicking here.
Su reported that “the risk that a claim wont be paida potential downside that every buyer of insurance faceswas an uninsured exposure until recently, according to the developers of a new policy to provide coverage so that risk managers can contest such rejections.”
Jason White, a managing director for the Professional Services Group of Swett & Crawford, said he didn't believe there was ever any product on the market like this recently launched Claims Dispute Insurance policy.
As Su reported, “the new coverage, available to businesses of all sizes, will pay up to $250,000 in legal expenses associated with contesting the denial of an insurance claim under a commercial policy.”
We know that wrongful coverage denials occur in our industry. Theres a reason coverage attorneys exist today, Mr. White said, explaining the impetus for the product launch.
The idea came from a law firm (big surprise!)Surdyk & Baker in Chicago. We saw a need in the marketplace, said Len Surdyk, who spent the first 19 years of his career representing insurance carriers, but who has also been representing policyholders for the last three years.
Swett & Crawford wholesales the product on behalf of NAS Insurance Services, a California-based underwriting manager that writes the coverage on behalf of syndicates at Lloyds of London.
The coverage should appeal particularly to smaller insureds, according to Mr. Surdyk, who noted that it wasnt worth it for a client to hire us to file a lawsuit against an insurance company over $50,000and insurance companies know that.
The way coverage is structured is very interesting. Su reported that “a key feature…is a coverage analysis of denied claims. Panel counsel attorneys on the product will review the claim, and advise insureds as to whether they have justified allegations of wrongful denials, or if the insurance company denying the claim made the right decision.”
Mr. White and Mr. Robin explained that “insureds who decide to go forward with litigation in situations where panel counsel attorneys advise against it, still get coverage up to the limit they purchased–but on a 50 percent co-insurance basis.”
They have to put some skin in the game if they want us to pursue a claim that we dont think is worth pursuing, Mr. Robin said.
On the other hand, insureds that move ahead to litigate in these situations and win wont be responsible for the 50 percent co-pay. We will have been proven wrong, so well end up paying the whole bill, he said.
Will independent agents sell this product? Wouldn't it be awkward to sell some commercial coverage to a client, but then add, “just in case the carrier screws you over and won't pay, take out some additional peace of mind insurance to cover your legal costs if you decide to contest a claim denial.”
But Mr. White's counterargument is that, if you want to have your head in the sand and pretend this doesnt happen, then youre never going to sell any. Its just very nave for someone to think claim denials dont happen. They do happenand theyre challenged every day by coverage attorneys.
The article also notes a potential “hidden benefit” for agents–who risk being hit with E&O lawsuits if insurers deny their client's claims. Offering “peace of mind” coverage might protect the agent from such litigation.
The coverage is fairly cheap–with premiums starting as low as $1,000, and rates coming out to be about 1 percent of the premium the policy being covered is generating.
Will agents seize on this product as great portfolio protection for clients? The product is also being offered on multiple policies, including having the agency provide it on their own dime as value-added protection for clients. That's a nice sales twist in a very competitive market.
I like the concept in theory, but in practice, I fear it will only contribute to the insurance industry's negative image.
Having insurance agents selling coverage for legal challenges in case insurers don't pay legitimate claims will only fuel the perception of carriers as generally a bunch of crooks who hide behind obtuse policy language to deny claims they should be paying, then daring their customers to sue.
We hope this product will provide an incentive [for carriers] to always do the right thing, Mr. White commented.
Bob Hunter and his friends in the consumer advocacy community will have a field day with this!
What do you folks think?
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