The U.S. insurance industry takes in over $1 trillion in premiums annually. It has over $3.8 trillion in assets, more than the GDPs of all but two countries in the world, the U.S. and Japan. Its CEOs are among the highest-paid, with an average annual income of $1.6 million per year. How do the insurance companies amass this wealth? At your expense. “Deny, delay, defend.” The three Ds, as they are called, has become shorthand for the way insurance companies put profits over policyholders. This blog will focus on the first, “deny.”
You are driving to work one morning, stuck in traffic. All of a sudden a huge truck runs a red light and ploughs into the side of your car. Worst case scenario. You’re admitted to the hospital where you lay in a coma for two weeks, with multiple broken bones and massive internal injuries. Months of recuperative therapy are ahead for you. The driver of the truck doesn’t have nearly enough insurance to pay for the health care you need but luckily you purchased an underinsured motorist policy of your own, right? Wrong. You make a claim on the policy only to get a response from your insurance company telling you that its investigation revealed that the driver of the truck barreled into your car in a deliberate act of road rage, so the accident wasn’t really an “accident” after all! This was the experience of Ethel Adams of Seattle, Washington, who had a $2 million UIM policy with insurance giant Farmers. She was left with tens of thousands of medical bills she could not pay because she was too injured to return to work.
Was Adams’ experience unusual? Not so much. Denying claims is one way insurance companies make money. Sometimes they do this by incentivizing claim denials, sometimes they do it by tricky policy language, and sometimes they do it by outright fraud. Farmers once ran a program called “Quest for Gold,” which included pizza parties and gift certificates to claims adjusters who met low payment goals. Allstate rewarded the adjusters who met such goals with portable refrigerators. Many insurance companies pay outright money bonuses to adjusters who deny claims. With these kinds of schemes, how likely do you think it is that the adjuster will honor your claim?
After Hurricane Katrina, thousands of homeowner’s claims were denied by Allstate, who had inserted ambiguous “anti-concurrent-causation” clauses into their policies that deceived policyholders into thinking they had coverage for wind damage when actually they did not. These clauses state that wind and rain damage – damage that was covered under the policy – was excluded if significant flood damage occurs as well. Therefore, people who had purchased policies that covered wind and rain damage still had their claims denied simply because the storm caused flooding as well. These obscure policy “loopholes” are perhaps the most insidious way insurance companies make money, because you pay for, and think you have, the coverage that you actually never had.
After the 1994 Northridge earthquake, State Farm, like any “good neighbour,” forged signatures on waivers of earthquake coverage to avoid paying quake-related claims. In California, disability insurance carrier Unum was denying one in every four claims for long-term care insurance. The California Department of Insurance investigated and found widespread fraud by the company in 2005. Unum had systematically violated state insurance regulations, fraudulently denied or low-balled claims using phoney medical reports, policy misrepresentations and biased investigations.
The insurance industry is replete with these kinds of practices. Luckily legislators have stepped in to address many of these abuses but as long as insurance remains a for-profit enterprise, there will always be tension between policyholders and profits. You need an advocate. If your insurance company has engaged in any of these practices with you, contact an attorney well-versed in consumer and bad faith insurance law. Julie Johnson has devoted her career to fighting these kinds of practices, and she will put her expertise to use for you.