By JIM FITZGERALD
Residents of Malibu and parts of Southern California might have felt victimized twice in recent months first by nature, then by their insurance companies.
Earlier this year, dramatic news video showed local families walking through the ashes of their former homes. Many victims told the cameras they wanted to rebuild, if only their insurance companies would respond to the claim.
But insurance typically covers only part of a catastrophic loss, if any. That stark realization often fuels nightly TV news specials that pit insurer against insured a real life David vs. Goliath battle.
However, a recent MSNBC.com story, appearing after the latest Malibu wildfires, reported this: “Insurers are quick to put money in people’s pockets. Companies have doled out $1.27 billion to cover wildfire damage, more than half the total claims of $2.26 billion.”
Indeed, a lawyer for Community Assisting Recovery, a non-profit group that helps wildfire victims, praised the insurance industry, noting, “This is the fastest ever , they’re (insurance firms) writing the check and getting out of Dodge.” So, is David vs. Goliath the right spin?
As a lawyer with a large insurance company as a client, I’ve seen how people typically look to insurers to pay for their losses from these disasters. But expectations of what they believe their insurers should do for them might be at odds with what their insurers are required to do.
By law, an insurance company’s obligations are defined by the insurance policy. Most policy language is standard and, in most cases, there is no real dispute as to what it means. The reason for the discrepancy between the expectations of an insured and the coverage the policy provides is that most people do not read their insurance policies.
Doing the reading
Even after they submit a claim, insureds usually rely on their “understanding” of what the policy should cover as opposed to what it actually does. Unfortunately, reading insurance policies has never been high on most people’s priority list. Yet, the law expects that an insured will have knowledge of the terms and conditions of the policy. Moreover, an insured cannot justifiably rely on representations made by the agent or broker who sold the policy if they are different than the written terms of the insurance policy. The written word will prevail in a dispute over coverage.
An insurer will process a claim according to how the policy is written not how the insured thinks the coverage applies or would like the coverage to apply. Adjusters are there to answer questions about what the policy terms mean under the facts of the particular claim. The value of the claim and the price to repair damaged property is determined by many factors that are affected by the catastrophe itself, e.g., demand on materials, availability of contractors to do the work and, unfortunately, greed. It is therefore rare that the insured and the insurer come up with the exact same value, even when they use experts. Typically, they arrive at a compromise on the value of the claim. This is why the claims process is referred to as the “adjustment” process.
More than 95 percent of all insurance claims are amicably resolved through the claims adjustment process. Thus, most people actually don’t have a problem with their insurance claim, or their insurer. Nevertheless, a small percentage of lawsuits against insurers over their handling of claims often get much attention, especially after a catastrophe. More often than not, such lawsuits are the product of poor communication in the claims process or unreasonable expectations about the policy coverage.
Climatic phenomena have become, and are predicted to be, the norm for the future. The rise in the Earth’s temperatures has created a greenhouse gas effect that has resulted in severe weather patterns like those contributing to Hurricane Katrina. In Los Angeles, a hot and dry 2007 led to tinderbox conditions that caused, or contributed to, wildfires in Malibu and throughout Southern California. In other words, catastrophes caused by Mother Nature and fueled by climatic changes are inescapable at least for the near future.
Insurance companies provide relief to policyholders during catastrophes. What kind of relief depends on the policy’s wording. Reading and understanding your insurance policy will better prepare you for a catastrophe, and, in the long run, can mitigate some of the pain and suffering inflicted by nature.
Jim Fitzgerald is a partner at Stroock & Stroock & Lavan LLP in Los Angeles.
