Written by Andy Gurczak

June 11, 2021

Insurance Claim Denied! What Now?

Insurance Claim Denied: Everything You Need To Know

What now, my insurance claim is denied?

Was your insurance claim denied? Are you frustrated and upset? Moreover, do you feel let down, put out, and depressed. Remember, A denied insurance claim is not the end of the world. In fact, we work with people everyday that have had their insurance claim denied. As a matter of fact, it is a pretty common occurrence. Sometimes insurance claims are denied for legitimate reasons. However, at other times it is a result of a filing error or even unknown reasons. If you suffer a property loss, and your insurance company denied your claim, there are steps you can take to challenge your homeowners insurance claim denial.

Remember after denying your insurance claim, your insurance company must send you a formal “Reservation of Rights” letter. Moreover, did you know that this is a requirement? In fact, this letter is meant to outline the specific reasons your insurer denied your insurance claim. Remember, once you receive that letter you have a deadline to appeal. Also, Insurance companies have to assist you if your policy is in good standing. In short, they can’t just say your insurance claim is denied!

An insurance claim appeal should include documents that prove losses and coverage in your insurance policy. If that fails, a lawyer can file a bad-faith lawsuit. In short, you have options.

1. Insurance claim denied? Will it stay on my insurance record against future claims?

Yes! A denied home insurance claim stays on your record for 5-7 years. The insurance company will note that the reason for the claim denial. For instance, if it was because of insurance fraud, the company may be suspicious of future insurance claims. Furthermore, a previously denied claim is also a warning sign for your insurance company that the home may have previous damage, which could cause an increase in your insurance premiums. Moreover, a claim denial also impacts your insurance score, which is similar to a credit score.

2. Understanding why your was insurance claim denied: How do you traverse

As aforementioned, your insurance company sends out a formal letter explaining their reason for denying your claim. This letter is meant to explain the specific language in your policy that justifies the claim denial. Read carefully and compare their explanation to your understanding of your policy. If there is a legitimate reason for denying your claim, there is nothing more you can do.

However, if after comparing, you still believe you’re entitled to compensation, request a discussion with your insurance claim adjuster and agent immediately. Reversing a claim denial is not easy. Regardless, don’t give up if you can prove you’re entitled to coverage. 

3. Insurance claim denied? Did you know you can file an appeal

That’s right, if the discussions with your insurance agent and claim adjuster weren’t of any use, you will want to proceed with filing an appeal. You only have a limited amount of time to do this. With this in mind, you can find the appeals process you must follow  in your homeowners insurance policy.

After you file a formal appeal, your denied claim is set up for a review process. First thing yo remember is to include in your appeal evidence and documentation that supports your claim. The more evidence you present, the better your chances of getting more than a cursory review of your denied claim.

4. Insurance claims denied have the right to be challenged by independent public adjuster?

Seeking advice from a licensed public insurance adjuster is the smartest move a homeowner can make. Public adjusters verify your coverage, document and value your losses, and negotiate the maximum settlement allowed under the terms of your homeowners insurance policy. The sooner you contact a public adjuster, the more they can do to help.

5. Consider an independent appraisal

Hiring your own appraiser allows you to get an independent estimate for the damage you’re trying to repair. Depending on how far away they are from your home, a private appraiser will cost roughly between $200 and $500. If the claim settlement is roughly equal to the cost of the independent appraisal, it may be more cost-effective just to take the settlement.

A second professional opinion of the damages will also confirm the accuracy of your insurance company’s settlement offer. As well as provide leverage in your argument for raising it.

6. File a formal complaint

The insurance industry is exceedingly regulated, For this reason, courts in every state are overrun with property claims disputes and bad faith lawsuits.
If you are a policyholder in good standing, you obligate your insurance to process your property claim fairly. If the treatment of your claim falls short, you have the option to file a formal complaint with your state’s insurance commissioner.

Reasons Insurance Companies Deny Fire Claims

The Home is Underinsured

Insurance coverage limits depend on the potential sale price of the home. However, this price does not consider construction and repair costs soaring after a local natural disaster. To avoid this, you can purchase an ordinance or law coverage endorsement. It pays for the difference between your sale price and increased construction costs.

Personal Belongings Are Underinsured

Sometimes, the replacement coverage of the home’s contents is not enough to truly replace what damaged or destroyed contents. For this reason, it’s important to update your home inventory list at least once a year and add it to your insurer’s records. If your content’s value increases, increase your personal property coverage.

Premium Non-Payment

It is absolutely essential to make home insurance payments on time so that your coverage is always in effect. Insurance companies aren’t obligated to cover you if you owe them payments.

Inflating the Value of Lost Property

Insurance companies often deny claims where they feel homeowners inflate losses. Keep a running inventory of the property inside and outside the house to dispute any accusation of sorts. Always include pictures and replacement values noted where possible. Those records should not be kept in the home. Instead, keep them in cloud-based computer storage.

Insurance Claim Denied: Image of Burning down a House on Purpose

Suspicion of Arson

An insurance company may deny a fire claim after a house fire if they suspect arson. If this is the case, your claim will be subject to a criminal investigation. Investigators share results with your insurance company.

Evidence of Illegal Activities in the Home

Your insurance company can deny your insurance claim if adjusters find traces of illegal activities in the home. For instance, manufacturing illicit drugs on the property.

Electrical Work Without Permits

If fire investigators uncover evidence of electrical work done without proper permits or inspections, they will probably deny your claim. Always get permits and adhere to building codes whenever you do home improvements. In addition, get your electrical systems inspected by licensed professionals before and after. Keep those records in the cloud with your other insurance documents.

Fires in Vacant Homes

Unoccupied homes are more likely to suffer severe fire damage, since no one was home to hear the fire alarm. Most home insurance policies do not cover fire damage in a vacant home. Homeowners can buy specialized unoccupied home insurance policies if no one lives on the property.

Insurance Claim Denied: Image of a FPE Panel

What if You Have an FPE Panel?

Most insurers do not provide home insurance policies for houses with Federal Pacific Electrical (FPE ) panels. Contractors installed millions of FPE panels in homes between the 1950s and the 1980s. What contractors didn’t know was that the company lied to Underwriters Laboratories, about its safety data. Only after, it was that they revealed that these FPE panels did not meet building codes and could not balance the electrical circuits

Not filing on time:

Your insurance policy requires you to notify any loss as soon as possible. There are also time sensitive requirements for the filing and documentation of any claim.

False statements or questionable claims:

Post-disaster you can expect your insurance company to send their own adjuster to investigate your claim. If they find anything suspicious or questionable involving the original application for coverage or with the claim itself, a claim denial is possible.

Insufficient documentation of the damage:

One of your responsibilities, besides filing an insurance claim, is to prove your claim to the insurance company. Therefore, it is extremely important that you accurately document the damage. Be as detailed as possible and take as many photographs of the aftermath as you can. You will then submit the evidence to help prove your case.

Exclusion clauses:

Every property insurance policy comes with its exclusions. If the cause of your property damage is excluded from coverage in your policy, then you can expect to have your insurance claim denied.

Not taking sufficient preventative measures following a loss:

Following a property loss, it is necessary that you protect the property from further damage and to mitigate the extent of loss. Leaving the property exposed to additional loss and not taking reasonable steps to reduce the extent of the loss, could be grounds for a denial.

To Sum Up:

  • Notify your insurer promptly of any loss and understand the requirements time limits for filing a claim.
  • Make sure your home is properly insured
  • Pay your premiums on time.
  • Know what your policy covers and excludes and obtain adequate coverage if available.
  • Take all reasonable steps to protect your property and mitigate the damage.
  • Document all damage and file a detailed itemized claim to your insurer.
  • Don’t make exaggerated or false claims
  • Have home improvements done by licensed professionals
  • Keep an updated inventory

Insurance Claim Denied: Natural Disasters

Disputing Natural Disaster Claims

Most insurers handle natural disaster claims the same way as any other claim. However, disasters often lead to a huge wave of simultaneous claims. As a result, it can be challenging for insurers to respond quickly.

For this reason, state insurance departments usually set special dates for insurance companies to acknowledge a claim has been filed. Companies usually have 15 days to acknowledge a claim but extensions are common due to a natural disaster.

A higher volume of claims might also force insurance adjusters to make rough estimates in each case. In that case, the policyholder should expect a second visit from an adjuster at a later date. In fact, you should make the second appointment during the first one if you can.

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