CREJ - Property Management Quarterly - August 2015
Insurance fraud is illegal but, make no mistake, despite accusations from insurance industry representatives, those guilty are not limited to policyholders. - - Policyholders and their representatives, whether an attorney, public adjuster, consultant or other, must be as accurate as possible when providing information and records to insurance company representatives while obtaining coverage and while making adjustments to a property claim. The policyholder is responsible for filing, submitting and supporting a claim for damages. The claim could include costs for damages to repair a building, repair, clean or replace equipment and business personal property, and any business income loss. Claim payments issued by insurance companies can be made as advances on the claim or undisputed payments, based on a review of available records and internal authorization. Policyholders must not provide intentionally false or inaccurate information to the insurance company on any claim. On property claims, insurance company representatives often ask the policyholder to obtain multiple repair estimates. Policyholders are free to retain a contractor of choice. To cooperate with the insurance company adjuster, multiple estimates may be obtained, however, they are not required. On certain claims, the insurance company adjuster, who likely is not a contractor, may prepare an estimate, or the adjuster may have a contractor, who knows he won’t be retained by the policyholder, prepare a repair estimate; therefore, the accuracy of such estimates may be suspect. The scope and costs reflected in the estimates may vary dramatically. If the contractor who the policyholder retained estimated the cost for required loss-related repairs at twice the amount of the insurance company adjuster, you may ask, “How can the differences be so significant?” Before any accusations of fraud are made, the parties must communicate in an effort to narrow and, ultimately, resolve differences. This is done by having each party provide support for how the estimates were prepared and damages captured. Yet there is no doubt that in this scenario, which is all too common, one estimate is significantly inaccurate. When the disparity of the initial estimates approaches or exceeds 50 percent, a timely and proper adjustment of the claim is made all the more difficult. Resolving the differences delays when repairs can begin. At no time will the policyholder want to commence with repairs if proper and supported repair costs are twice the amount acknowledged by the insurance company. The delay also will impact the policyholder’s business income claim, especially if payments are limited to 12 months. Written communications from many insurance companies include the following language – “It is unlawful to knowingly provide false, incomplete or misleading facts or information to an insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include imprisonment, fines, denial of insurance and civil damages. Any insurance company or agent of an insurance company who knowingly provides false, incomplete or misleading facts or information to a policyholder or claimant for the purpose of defrauding or attempting to defraud the policyholder or claimant with regard to a settlement or award payable from insurance proceeds shall be reported to the Colorado Division of Insurance within the Department of Regulatory Agencies.” The duty and obligation to be as accurate, thorough and ethical as possible in adjusting and resolving property insurance claims in a timely manner is equally borne by the policyholder and the insurer. Any act committed with the intent to obtain a fraudulent outcome from an insurance claim is considered insurance fraud, including when an insurer knowingly attempts to limit or deny a benefit covered by the policy. The motive typically is financial and deceitful practices may be prevalent. The penalties described in the language appear rather different depending on which party committed the fraud. The penalties policyholders may face in the insurer’s admonition quoted above include imprisonment, fines, denial of insurance and civil damages. Yet should company representatives intentionally mislead an insured or wrongfully deny benefits, punishment appears reduced to informing the Division of Insurance, whose authority to reprimand the guilty is very limited. Differences of opinion in the extent of damage on each claim, differences on how repairs can be completed, equipment that may be damaged, or the amount of a business income, are accepted, and the need for dialogue is acknowledged. However, all damage must be investigated. The claim should not attempt to expand damages that have no relation to the covered cause of loss. Nor should company representatives improperly attempt to limit the damage or suggest unknown and internal adjustment guidelines or practices that prevent extending certain coverage or issuing payment for required and substantiated costs. Recently, national attention was drawn to the handling of certain Hurricane Sandy claims with allegations that company representatives intentionally altered expert engineering reports to limit or exclude damage and submitted the altered reports to the insureds. The practice of changing independent consultant and expert records is not limited to hurricane claims back east – it happens in Colorado. If your property sustains damage from a covered loss, work cooperatively with representatives of your insurance company – but hold them to the same ethical standards you are held to – and insist they attempt to accurately capture all damages and offer the indemnification provided by your policy.