Contrary to popular belief, Ben Franklin (founder of my alma mater, Go Quakers!) never said, "A penny saved is a penny earned." However, had he lived to see the sneaky ways insurance companies deny or underpay claims, he very well may have.
With numbers of policyholders in the millions, insurance company windfalls from the underpayment of covered claims add up fast.
The following are five insurance carrier tactics they use to keep money in their pockets and out of yours.
#1 - Overestimating Depreciation
For policies that provide only actual cash value (ACV) coverage, the amount of depreciation applied to the total amount of the claim is the most important factor in determining how much money is actually paid out to the policyholder.
The larger the depreciation percentage, the more money the carrier gets to keep. This is why it is important to review the carrier's estimate and make sure the math on their depreciation calculation is not "fuzzy math."
In the context of replacement cost benefit policies, the ACV calculation is arguably less important since the depreciated amount is paid out after completion of repairs or replacement. However, if you decide that you do not want to repair or replace a covered item, it is equally important to keep a close eye on how your insurance carrier is applying depreciation to your claim.
#2 - Skimping on Roofing Components
Covered damage to roofing shingles oftentimes warrants total replacement of the roof. In the context of a covered wind loss, the standard homeowner's policy covers not only the damaged roofing shingles, but everything that must be repaired or replaced in the process of reshingling the roof.
For example, to put the new shingles back on, it is necessary to have nails to affix the shingles to the decking. Despite the fact that not every nail on the roof incurred covered wind damage, replacement of all the nails is necessary to put on the new shingles and is thus covered under the policy.
This same logic applies to other components of the roof.
In the process of replacing shingles, items such as flashing, drip edge, and roof vents have to be manipulated, and oftentimes damage to these items during replacement of shingles is unavoidable. Because they are damaged during the process of the roof replacement, these items must also be replaced and can properly be included as part of the "cost to repair or replace" the damaged shingles.
Carriers try to skimp on payment for these items by asserting that they were not directly damaged by a covered peril (i.e. wind or hail). However, in the example above, neither was every shingle or every nail, yet the carrier won't argue that those items are not covered. When these roofing components are damaged during the process of replacement, policyholders should insist that their carrier accept coverage to address these damages.
In part 2, I'll cover the other three tactics used by carriers to deny or underpay your insurance claim. In the meantime remember, don't take the first offer!
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