Collecting on difficult claims Featured

8:00pm EDT April 25, 2007
Insurance is the type of product that you might never know how good it is until you really need it. And nothing can be more frustrating than encountering difficulty in collecting on an insurance claim, especially one that involves significant dollars. When the stakes are the highest, that’s the time when you expect, and need, your insurance carrier to step up and protect you.

“Any time our clients have a potentially big dollar claim, I get very involved,” says A. Peter Prinsen, vice president and general counsel for The Graham Company in Philadelphia.

Smart Business asked Prinsen how company owners can work with their insurance carrier to successfully resolve the most difficult claim situations.

How do you define a tough claim?

Any claim with complexity and a high dollar value can be tough to resolve. Large claims have a significant financial impact, so they tend to get everyone’s attention right away. Complex claims can be tricky, especially if the insurance carrier either reserves its rights to deny coverage or denies coverage from the very beginning.

How can insurance carriers deny coverage?

Insurance companies rely on the facts of the claim and the language in the insurance policy to determine whether they are going to pay a particular claim. The insurance policy is essentially a binding legal contract between the insured and the insurance company. In exchange for the premium paid by the insured, the insurance company agrees to pay for losses subject to the terms, conditions and definitions found in the insurance policy. If the insurance policy language does not clearly cover the facts of a particular claim, then the insurance company can deny coverage. Insurance companies don’t necessarily like to deny claims — they are merely going by their view of the language in the insurance policy.

Do larger claims get denied more frequently than smaller claims?

In the interest of maintaining a good business relationship, insurance companies usually want to make claims settlement as quick and painless for their clients as possible. As the dollars go up, however, the details of the insurance policy and the facts of the claim receive more scrutiny.

How can companies increase their odds of success in collecting on a tough claim?

There are two critical components to this process — the first is to negotiate the broadest coverage possible, and the second is to document the facts of your claim as quickly and completely as possible. By negotiating broad coverage, I mean that when it comes time to renew your insurance policies, you must pay attention to the coverage provided (or not provided) by them. The biggest mistake I see is when decision-makers only pay attention to price, without consideration for the coverage provided by their policies. If you have a flood claim but your policy includes a specific exclusion for flood, you are not going to be able to collect for your loss. Be sure that you understand the conditions, definitions and exclusions in your policies. Sometimes it’s better to know what your policy does not cover. There is no worse time to negotiate the coverage provided by your policy than after you’ve had a big loss.

Next, when you have an accident or incident that will give rise to an insurance claim, document the facts as completely as possible. If it’s an accident, have your insurance broker get the right people out to the scene of the accident as soon as possible. Take pictures, interview witnesses, hire an accident reconstructionist to put together the evidence. When the dollars get really big, moving quickly to gather the right information is critical. I’ve seen too many cases go the wrong way simply because the insured didn’t have enough evidence to support its side of the story.

How do you like working on this side of the table?

As I said before, insurance companies generally want to do the right thing and make the claims settlement process as quick and as pleasant for their customers as possible. The challenge comes when the dollars get bigger. My role used to be issuing coverage opinions, which means that insurance companies would hire me to figure out whether or not coverage should be provided (or not provided) by an insurance policy for a particular claim. If there were a few million dollars at stake, the insurance company wanted to figure out if, and to what extent, it was liable for a particular claim. Working on the insured’s side of the table is fun. It is rewarding to be part of that process and know that we’ve been able to help them keep their business running and prospering. I like knowing that we’ve been part of the solution.

A. PETER PRINSEN is vice president and general counsel for The Graham Company. Reach him at (215) 701-5284 or