It seems it should be a given that property insurance policies are written with a high level of confidence that the coverage limits sufficiently handle possible losses. Well, that just isn’t a realistic assumption. For various reasons, insurance limits may frequently be a mismatch with property values. Unfortunately, the point of discovery is often post-loss!

In our featured court case, the difference between limits and valuation of the covered buildings was severe. The insurer argued that their payment obligation was controlled by the structure value assessment made by initial appraisers rather than the assigned policy limits. The policyholder and insurer agreed to arbitration (though in this case, an appraisal situation). The insurer went to the courts after they were unhappy with its results.

Despite the insurance company’s argument regarding actual property value, the court ended up focusing on another area. Click below to see the latter’s stance on the dispute:

Please click on the link to get more details on the court case.

In first party claim disputes, both policyholders and insurers have expectations of how an applicable loss is resolved. Both complexity and cost become greater the longer that the parties disagree. A lawsuit should be a last resort, rather there is a high degree of merit to try alternative dispute resolution methods such as arbitration or appraisal. An alternative was attempted in the above case.

Although it did not prevent the insurer from filing a lawsuit, alternative methods can be successful. It can provide some needed distance between the disputing parties since proxies with expertise are involved. Relying on disinterested persons to examine the situation can eliminate bias and reduce emotion that are elements that are barriers to resolution.

Click here to see information on the mechanics of dispute resolution. It is from the Commercial Property Section of PF&M found in Advantage Plus.

The two parties in the property valuation dispute held positions that were substantially different. What should be obvious is that the situation should NOT have occurred. The initial assessment of the property revealed several concerns, including that the structural property’s value did not justify the policy limits. The insurer was unlucky that the court based its decision on adhering to the results of a policy condition rather than whether the results were reasonable.

Though this example is an extreme situation, which normally would have resulted in a rejected application, valuation concerns can be handled after coverage is written. While a policy might be able to rely on its loss settlement wording to avoid payments that enrich rather than indemnify, a policy endorsement could have been the answer.

Click here to see an article discussing a form that may be used to reduce the chance of overpayment. It is from Emarketing for Agencies found in Advantage Plus.

It’s likely you are well aware that insurance agencies can find themselves squarely in the midst of policyholder versus insurer issues. Of course, because long-standing law usually place agents as insurer representatives, some entanglements are inevitable. However, that doesn’t mean that they can’t be largely avoided.

The key is to establish and maintain solid practices that stay clear of producing reasons for clients to lay blame for unpaid or underpaid losses. You may find it useful to take a look at some tips to assist with these objectives.

Click here to see an article excerpt on how agencies may avoid errors that could trigger lawsuits. It is from the 07/22 of Rough Notes Magazine found in Advantage Plus.