Avoid buying unreliable — or fraudulent — Insurance Coverage

Posted on May 4, 2021May 4, 2021 by CCG

Bad faith denials of claims by insurers are illegal, but some dishonest companies or agents attempt them anyway. It’s possible that just when you have the greatest need, you’ll find yourself out in the cold. Unfortunately, there aren’t a lot of great legal remedies. So it’s critical to avoid bad and fraudulent insurance in the first place.

Legal contract

An insurance policy is a contract. The insured agrees to pay premiums and take reasonable steps to prevent injury or damage, and the insurer agrees to settle legitimate claims according to the policy’s terms. Not only is it good business practice for insurers to cover legitimate claims, but it’s illegal for them to deny them.

There may be times when you and your insurer disagree about what’s covered or what constitutes a reasonable delay or amount in settlement. But errors in judgment and offers of compromise don’t necessarily equal bad faith. Bad faith arises when the insurer sacrifices its insured customers’ interests to enhance its own bottom line — and that can involve fraud.

Bad faith practices

Outright denial of legitimate claims is only one bad faith practice that indicates fraudulent insurance practices. Shady operators may also unreasonably delay investigating a claim or attempt to settle a claim for less than the amount specified by your policy.

Another bad faith tactic is to slow down the claim process by requiring multiple, duplicative proof of loss forms. Or an insurer might fail to settle one portion of a claim to induce you to accept a lesser settlement under another section of the policy. In many cases, fraudulent insurers misrepresent policy provisions related to claims.

Trouble with arbitration

When a claim is denied, one way to avoid legal action is arbitration. But a bad faith insurer might threaten to appeal arbitration awards to pressure you to settle for less than the awarded arbitration amount.

Defending against such practices can be difficult. One problem is that there’s no federal — only state — regulation of the insurance industry. Penalties imposed by states typically aren’t stiff enough to deter fraudulent practices, and they generally do nothing to compensate claimants who were wrongfully denied.

It’s important, therefore, to deal with only reputable insurance companies. Before you buy, check with industry rating services such as A.M. Best or your state’s department of insurance. Ask advisors and colleagues for their recommendations as well. And if you have a claim, be sure to file it promptly and document all correspondence and communication relating to it.

Risk management

Adequate insurance coverage is a cornerstone of an effective risk management plan. If you’re not sure you have the right insurance by a trustworthy carrier, contact us for help.

Rioting damage at your business? You may be able to claim casualty loss deductions

Posted on June 17, 2020June 17, 2020 by CCG

The recent riots around the country have resulted in many storefronts, office buildings and business properties being destroyed. In the case of stores or other businesses with inventory, some of these businesses lost products after looters ransacked their property. Windows were smashed, property was vandalized, and some buildings were burned to the ground. This damage was especially devastating because businesses were reopening after the COVID-19 pandemic eased.

A commercial insurance property policy should generally cover some, or all, of the losses. (You may also have a business interruption policy that covers losses for the time you need to close or limit hours due to rioting and vandalism.) But a business may also be able to claim casualty property loss or theft deductions on its tax return. Here’s how a loss is figured for tax purposes:

Your adjusted basis in the property
MINUS
Any salvage value
MINUS
Any insurance or other reimbursement you receive (or expect to receive).

Losses that qualify

A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. It includes natural disasters, such as hurricanes and earthquakes, and man-made events, such as vandalism and terrorist attacks. It does not include events that are gradual or progressive, such as a drought.

For insurance and tax purposes, it’s important to have proof of losses. You’ll need to provide information including a description, the cost or adjusted basis as well as the fair market value before and after the casualty. It’s a good time to gather documentation of any losses including receipts, photos, videos, sales records and police reports.

Finally, be aware that the tax code imposes limits on casualty loss deductions for personal property that are not imposed on business property. Contact us for more information about your situation.

Adjust your expectations of business interruption coverage

Posted on May 1, 2020May 1, 2020 by CCG

A natural place to turn when disaster strikes is insurance. The very reason you pay premiums and deal with the paperwork is to have these risk management policies in place when necessary. But, when it comes to business interruption coverage, you may have to adjust your expectations if you intend to file a claim because of the novel coronavirus (COVID-19) pandemic.

Differing views

Business interruption insurance generally provides cash flow to cover revenues lost and expenses incurred while normal operations are suspended because of an applicable event. So, many business owners are now asking an unavoidable question: Is the COVID-19 pandemic an applicable event?

Many insurers are saying no, claiming the “force majeure” legal defense. This refers to situations in which unexpected external circumstances prevent a party to a contract — in this case, the insurance company — from meeting its obligations.

Insurers are also citing policy language that stipulates coverage applies only when a policyholder suffers a loss of income as a result of physical loss or damage to covered property. COVID-19 doesn’t qualify as a physical loss, they argue. In addition, insurers contend their policies don’t cover loss of income because of market conditions or an economic slowdown.

Lawsuits have already been filed challenging the insurance companies. Attorneys, representing business owners, are arguing that the recent rise of SARS, MERS and the Avian flu have given insurance companies ample opportunity to anticipate a global pandemic.

Attorneys have additionally pointed out that the virus can attach itself to physical surfaces. Thus, they contend, it does result in a physical loss as businesses are losing revenue and incurring expenses for disinfection and prevention.

Preparatory steps

As these lawsuits play out, you may wonder whether it’s worth your time to file a business interruption claim related to the pandemic. The answer depends on your policy’s language, as well as the facts and circumstances of your company’s situation.

To decide whether and how to proceed, review your policy carefully. Look at the type of losses covered, as well as exclusions and limitations. You may want to consult an attorney, as insurance policy language and structure can be confusing.

If you decide to move ahead with a claim, you’ll need to document the adverse financial impact of the pandemic, including:

Loss of income, as defined under your policy,
Customer attrition rates, and
Incremental expenses incurred, such as site security or cleaning services.

Many policies require policyholders to notify the insurer of a loss within a certain period, so you may need to move quickly.

No easier

Even before the COVID-19 crisis, receiving a payout for a business interruption claim was typically not a cut-and-dried affair. Suffice to say, doing so hasn’t gotten any easier. We can help you assess and document financial losses and expenses before deciding whether to file a claim.