It’s the fear of most insurance agents and brokers – being sued by an insured because a claim is being denied by the insurance carrier.
You, as the insurance agent, have exhausted your negotiations with the carrier on behalf of your insured. The frustration level for your insured is at critical mass and they felt they had no other option but to sue. Sadly, though, they are suing the wrong party.
Before you panic and call your E&O carrier, the fact is you, as the agent, generally have little exposure when a peril is not covered and a carrier is denying an insured’s claim. The right course of action is to encourage your client to engage with an attorney who focuses its practice in Insurance Contract Law to sue the insurance carrier directly. This removes you from the battle and in many cases will make you the hero, solidifying the relationship with your insured for years to come.
Some things you, as the insurance agent, should keep in mind:
Statute of Limitations. In the state of Illinois, the statute of limitations to sue an insurance broker for negligence is 2 years from the time the policy is delivered to the insured, not from when the claim was denied.
Most Common reasons a Carrier will deny a claim. In general, we see the following reasons being cited most often by insurance carriers in denying a claim:
Bad Faith Denial: It happens. A carrier doesn’t want to pay out on a claim – and the reasons they give are not justifiable in the eyes of the insured, and often the law.
Lack of Coverage: The carrier may say the claim isn’t covered by the insured’s insurance policy. Go back to the policy and look at all the fine print and exclusions. Note that most ambiguities in policies favor the policy holder, not the carrier.
Application Error: The carrier may argue that the insured made a misrepresentation on the original application that will nullify the coverage of the policy. Keeping detailed time stamped records in a digital agent management system is key.
Claim Error: This often happens when there is a time lapse in reporting the claim. Some timelines are as short as 24 hours.
Fraud: If the insured lied about the claim to wrongfully collect money from a carrier, then it’s cut and dry. But there have been instances where carriers have flagged legitimate claims as fraudulent.
Illinois Insurance Code fine print. Section 155 of the Illinois Insurance Code provides that, where the insurance company’s delay or failure to pay has been “vexatious and unreasonable”, the insured has the right to recover reasonable attorney fees, other costs, and an amount not to exceed: (a) 60% of actual damages; (b) $60,000; or (c) the excess of the amount which the court or jury finds the insured is entitled to recover over the amount which the company offered to pay.
Stay in your lane. Contract law is complex – referring your insured to a Law Firm that focuses its practice in Insurance Contract Litigation and one deeply understands both the agent and the carrier side of the house is the winning solution for everyone involved.
If you know your insured is in the right and you’ve exhausted all measures, our Insurance Contract Litigation team at Mag Mile Law is here to help. We work on a contingency basis, so your client doesn’t pay until we win the case for their denied insurance claim. Give us a call today at 708-576-1624.