Herb Denenberg Column for July 01, 2003


Insurance companies just donít want to pay meritorious claims, even to each other.


Hereís the latest proof of that conclusion from a Commonwealth Court judge who ordered the liquidation of another Pennsylvania Insurance Company. Listen to this sentence from the opinion of the judge ordering the liquidation: ďThe failure of the reinsurers to honor their contractual obligations is not limited to Legion Group; it is endemic to the industry.Ē


Reinsurance is insurance for insurance companies. The judge, who ought to know (she is a former general counsel of the insurance industry), is saying insurers donít pay their claims properly or promptly even when dealing with each other (through reinsurance). I would have thought there would at least be honor even among thieves, and that insurance companies would at least pay claims when due to each other. But according to the Judge of the Pennsylvania Commonwealth Court in the Legion insurance liquidation that is not the case.


This sentence in the Judge Hannah Mary Leavittís legal opinion is important, as it shows how deep and pervasive is the failure of insurance companies to pay their claims. This failure should be a high priority of insurance regulators. But unfortunately, history demonstrates the insurance regulators donít regulate the insurance companies; it is vice versa Ė that is the insurance companies regulate the commissioner.


The doctors have discovered how HMOs and other insurance companies donít like to pay claims to doctors, and make the whole process complex, cumbersome, and deadly slow. This, of course, enables them to deny more claims and keep their money invested longer due to the slow process of claims payment. Every doctor can tell you horror stories about claims handling. The HMO-insurance company handling of medical claims is just one segment of a much larger picture.


What steps can you take to make sure you will be paid in accordance with policy terms if you have a claim?


First, you have to select companies with care. Get top-rated companies by the various financial rating services such as A.M. Best and Standard and Poorís. When an insurance company gets into a financial bind, one of the first things it does is to slow down the claims payment process to hold onto cash longer. That is called claims resistance, and has long been recognized as a factor influencing claims payment among financially distressed companies.


Second, you should also check the reputation for paying claims of companies you insure with. Some states, such as California, rate the claims performance of insurance companies, as does Consumer Reports. You may sometimes get a sense of the reputation of a company by talking to friends and relatives or by those who deal with insurance companies frequently, such as personal injury lawyers.


Third, many claims problems arise because of poor insurance planning and buying. Make sure you get the right coverage, and review it annually with your agent and company.


Fourth, keep a good record of all documents and contacts relating to a claim. Try to get an insurance agent who will be your advocate when claims arise.


Fifth, insist that the company explain in writing the reason for denial of any claim or part thereof, with citation of controlling policy provisions.


Sixth, donít hesitate to ask for reconsideration of a claim denied. You can also consider a complaint to your stateís insurance commissioner or other consumer protection agency.


Finally, there is the small claims court, and even the possibility of hiring a lawyer if the size of the denied claim justifies that.


(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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