WHEN YOUR INSURANCE COMPANY IS PREPARING ITS DEFENSE
Theft, Fire and Other Casualty Insurance Claims
By Elliott Joffe, Winter 2001
Most of us believe an insurance company is our ally when we make a claim - that the insurer is simply providing the service it is paid for, and, as the ads say, we are in its good hands. Yet, since theft, fire and casualty insurers are highly susceptible to fraud, they rigorously investigate claims, particularly large claims where the claimant seems anxious, makes repeated inquiries or plans to relocate.
The thin line between investigating a claim and preparing a defense
An adjuster may interview the claimant, inspect damaged property and research the value and/or cost of lost or stolen property. No matter how friendly an adjuster is, remember his job is to save the insurer money. Meanwhile, the insurer will contact police officers or fire officials. Since statements to these officials can form the basis for denying a claim, cooperate without making unnecessary comments. Anything you say can and will be used against you later. If the insurer retains a lawyer to take your statement, assume that you are the target of the investigation and hire an attorney to represent you. In fact, the insurer may have already decided to deny your claim.
Once the investigation is complete, the insurance company has three options: 1) pay the claim in full; 2) pay part of the claim, disallowing some of the value of the claim; or 3) deny the claim. Denials are always in writing and usually cite various reasons. Denials often cite fraud by the claimant as one reason.
Claim denial for alleged fraud
Once the claim is denied, it is up to you as claimant to file a lawsuit and prove your claim. Your award will be limited to the insured amount of your claim unless you can prove that the insurance company had no justifiable reason for denying the claim, i.e., bad faith. If you can establish that the insurer acted in bad faith, you may be entitled to additional damages. These claims are difficult to prove and are often dismissed pretrial. Then, the insurance company has little to lose by continuing the litigation.
By the time a claim has been denied, the insurance company has already thoroughly investigated the claim and taken the sworn statements of relevant witnesses, including the claimant and police officers or fire officials. Meanwhile, you have probably not started preparing for litigation. During the litigation, the insurance company’s attorneys will have an opportunity to take your sworn deposition. Since this deposition is usually taken more than a year after your initial sworn statement, there is a high likelihood that there will be some inconsistencies for the opposing attorney to use against you later at trial.
The discovery process may be your first opportunity to find out the insurer’s basis for denying your claim. While your attorney will be able to depose the various witnesses who gave sworn statements to the insurer during the investigation, unlike the insurer, this will be the only opportunity he has to question these witnesses prior to trial. Meanwhile, an insurer that has defeated a bad faith claim may successfully oppose any effort by your attorney to depose its employees. Many insurance companies will refuse to settle lawsuits in which they have alleged fraud, absent a surviving claim for bad faith.
The weapons at the insurer’s disposal.
While insurance fraud is a crime, most denied claims do not result in prosecutions. Yet, the insurer proving fraud has an arsenal of civil remedies at its disposal. One New Jersey statute entitles a defrauded insurer to its attorneys’ fees and other costs of the investigation and defense. Absent bad faith, you are not entitled to any similar remedy. Another anti-fraud statute provides for substantial fines; claims are pursued by a Deputy Attorney General, who acts as co-counsel to the insurer’s lawyer.
Learning that the investigation was merely part of the defense
Since you will not know if an investigation is really preparation for litigation, follow these rules:
1) Always tell the truth to investigators, adjusters, police and fire officials and attorneys. Some claimants feel that small, seemingly inconsequential lies, which simplify their claims, will benefit their cause. While immaterial misrepresentations will not invalidate a claim, even the most inconsequential lie can result in the dismissal of a bad faith claim and make you look dishonest if the case goes to trial.
2) Say as little as is necessary when answering questions. Many claimants are so friendly with investigators and attorneys that they forget that these people may be gathering facts to prove fraud.
3) If the insurance company hires a lawyer, so should you. No matter what the insurance company says, once the insurance company has retained a lawyer, do the same. Of course, you should not cease cooperating with the investigation; indeed, doing so may be grounds for denying the claim.
In general, to protect yourself, be cautious and seek legal advice early in the process.
This publication is intended for general information purposes only and does not constitute legal advice. The reader should consult legal counsel to determine how the law may apply to specific situations.
Most of us believe an insurance company is our ally when we make a claim - that the insurer is simply providing the service it is paid for, and, as the ads say, we are in its good hands. Yet, since theft, fire and casualty insurers are highly susceptible to fraud, they rigorously investigate claims, particularly large claims where the claimant seems anxious, makes repeated inquiries or plans to relocate.
The thin line between investigating a claim and preparing a defense
An adjuster may interview the claimant, inspect damaged property and research the value and/or cost of lost or stolen property. No matter how friendly an adjuster is, remember his job is to save the insurer money. Meanwhile, the insurer will contact police officers or fire officials. Since statements to these officials can form the basis for denying a claim, cooperate without making unnecessary comments. Anything you say can and will be used against you later. If the insurer retains a lawyer to take your statement, assume that you are the target of the investigation and hire an attorney to represent you. In fact, the insurer may have already decided to deny your claim.
Once the investigation is complete, the insurance company has three options: 1) pay the claim in full; 2) pay part of the claim, disallowing some of the value of the claim; or 3) deny the claim. Denials are always in writing and usually cite various reasons. Denials often cite fraud by the claimant as one reason.
Claim denial for alleged fraud
Once the claim is denied, it is up to you as claimant to file a lawsuit and prove your claim. Your award will be limited to the insured amount of your claim unless you can prove that the insurance company had no justifiable reason for denying the claim, i.e., bad faith. If you can establish that the insurer acted in bad faith, you may be entitled to additional damages. These claims are difficult to prove and are often dismissed pretrial. Then, the insurance company has little to lose by continuing the litigation.
By the time a claim has been denied, the insurance company has already thoroughly investigated the claim and taken the sworn statements of relevant witnesses, including the claimant and police officers or fire officials. Meanwhile, you have probably not started preparing for litigation. During the litigation, the insurance company’s attorneys will have an opportunity to take your sworn deposition. Since this deposition is usually taken more than a year after your initial sworn statement, there is a high likelihood that there will be some inconsistencies for the opposing attorney to use against you later at trial.
The discovery process may be your first opportunity to find out the insurer’s basis for denying your claim. While your attorney will be able to depose the various witnesses who gave sworn statements to the insurer during the investigation, unlike the insurer, this will be the only opportunity he has to question these witnesses prior to trial. Meanwhile, an insurer that has defeated a bad faith claim may successfully oppose any effort by your attorney to depose its employees. Many insurance companies will refuse to settle lawsuits in which they have alleged fraud, absent a surviving claim for bad faith.
The weapons at the insurer’s disposal.
While insurance fraud is a crime, most denied claims do not result in prosecutions. Yet, the insurer proving fraud has an arsenal of civil remedies at its disposal. One New Jersey statute entitles a defrauded insurer to its attorneys’ fees and other costs of the investigation and defense. Absent bad faith, you are not entitled to any similar remedy. Another anti-fraud statute provides for substantial fines; claims are pursued by a Deputy Attorney General, who acts as co-counsel to the insurer’s lawyer.
Learning that the investigation was merely part of the defense
Since you will not know if an investigation is really preparation for litigation, follow these rules:
1) Always tell the truth to investigators, adjusters, police and fire officials and attorneys. Some claimants feel that small, seemingly inconsequential lies, which simplify their claims, will benefit their cause. While immaterial misrepresentations will not invalidate a claim, even the most inconsequential lie can result in the dismissal of a bad faith claim and make you look dishonest if the case goes to trial.
2) Say as little as is necessary when answering questions. Many claimants are so friendly with investigators and attorneys that they forget that these people may be gathering facts to prove fraud.
3) If the insurance company hires a lawyer, so should you. No matter what the insurance company says, once the insurance company has retained a lawyer, do the same. Of course, you should not cease cooperating with the investigation; indeed, doing so may be grounds for denying the claim.
In general, to protect yourself, be cautious and seek legal advice early in the process.
This publication is intended for general information purposes only and does not constitute legal advice. The reader should consult legal counsel to determine how the law may apply to specific situations.
