# Insurance losses and claims ## Losses To determine whether a peril is covered, insurance adjusters examine the uninterrupted chain of events that flows from the first action that caused the "injury" or "damage" ("proximate cause"). - e.g., if a windstorm caused a tree to fall on a fence that damaged a car, the wind was the proximate cause. - Most of the time, the proximate cause considers everyone at fault and uses the statutory concept of "comparative negligence" to assign percentages of fault to each party responsible. - e.g., if a precariously placed rake knocks over a canister of gasoline, which then ignites from an electrical short nearby, the owners of either the rake or gas canister is at fault. - The damages will be reduced if a party willingly exposed themselves to risk ("assumption of risk"). - The damages will also be reduced if someone creates an "intervening cause" that creates an entirely different set of circumstances from the original flow from the proximate cause. Every object is treated as an extension of a person or legal entity: - e.g., if a person's dog roams freely and bites a child, that person is the proximate cause. - e.g., an accident is an extension of a person's negligence, even if it's an automotive sliding on black ice. - In practice, every event is one of 3 possibilities: 1. A person's or legal entity's liability from their [agency of choice](people-decisions.md) (meaning an insurance carrier will expect that person/entity pay for it, often by communication with *their* insurance). 2. An "act of God" (meaning damages are an "external risk"). 3. A liability that's too difficult to determine (meaning damages are either property damage or "comparative negligence"). One frequent version of this is theft. There are quite a few common perils: - Fire - Collision - Explosion - Flood - [Disease](body-health.md) - [Death](hardship-death.md) - Some perils are defined by context: - Theft is taking property from a *known* place. - Burglary is taking property through illegally entering/exiting (with some evidence of forcible entry/exit). - Robbery is taking property through threats or violence. - Mysterious disappearance is when there's no explanation for its disappearance (covered in marine policies, but not typically in standard property policies). Hazards can increase the severity or chance of a peril: - A physical hazard is an observable thing that increases the chances of a loss (e.g., slippery floors, faulty structural defects). - A morale hazard comes from reckless/careless actions or attitudes (i.e., negligence). - A moral hazard comes from deciding to do something unethical or negligent out of knowing the insurance will pay for the loss. Insurance often classifies losses as direct or indirect, and may insure one or both of them: - Direct losses are caused by the covered peril (e.g., fire damages a [home](home-maintenance.md)). - Indirect/consequential losses are caused by consequences of a direct loss (e.g., having to stay in a temporary place while repairing the effects of a fire in a home). Losses are stated as a measurable financial amount, and can be total or partial. - Total losses often involve the insurance recovering *some* value of the property by purchasing the property for the value of the claim amount (with the option for the insured to buy it back at salvage value if they want). - An abandonment provision can prohibit the insured from abandoning the property to the insurer and claiming a total loss. Health insurance makes a clear difference between mortality and morbidity. - Mortality is the complete [cessation of life](hardship-death.md) (i.e., an essential organ fails without a suitable replacement in time). - Morbidity is defined as a morbid state of quality, meaning someone is *near* death. ## Claim payments The purpose of a claim is to award "remedy" for a party's "injury" to "indemnify" them. However, without insurance, the entire event can become the basis for a court case. - Compensatory damages pay an injured party due to negligence of an insured. - Special damages are direct financial damages and lost income affected by the negligence. - General damages are non-economic, natural, necessary results of a wrongful act or occurrence. - Punitive damages are over and above the compensatory damages, typically to punish someone and typically outside the scope of insurance. In the event of a claim, an insured has quite a few responsibilities, and failing to perform *one* of those duties may void coverage: - Give prompt notice of the claim to the insurer or their producer - Prepare an inventory of damaged property showing quality, description, actual cash value, and amount of loss - Present the damage as often as reasonably required - Submit to examination under oath and a signed proof of loss within 60 days of request - Protect the property from any further damage and make reasonable repairs necessary to protect it - Keep an accurate record of expenses during the interim before the claim payout - Property claim duties: - If a crime, notify the police - If a theft, notify all affected banks - Liability claim duties: - Promptly forward every notice, demand, and summons related to the occurrence - Assist the insurer in settlement by attending hearings or trials The claims process is mostly the same no matter what: 1. The claimant calls the insurer. - The claimant is either the insured (in a property claim) or holding the insured liable (in a liability claim). - In health insurance, the claimant is technically the healthcare providers' medical billing departments. 2. A customer service representative opens up a claim with a claim number. - It includes important information like the names of everyone involved, the policy number, details of the event, etc. - Even when a claim is *absolutely* certain to not result in a payout, claims department workers are legally forbidden from "steering" a claimant away from opening a claim. - Irrespective of a payout, a claim is still reported on the insurance reports and lingers for at least 3 years. 3. A claims representative/adjuster opens a claim investigation, which often complies to a rigid, legally framed procedure. - Throughout the process, the scope of their effort is somewhat connected to the size of the expected claim and likelihood that the carrier will have to pay it. - They are typically looking for specific criteria that indicates the claim is *not* fraudulent (e.g., police report, evidence of forced entry). 4. If needed, a special investigations unit (SIU) makes initial contact with all affiliated parties, and gather whatever information they can to determine liability. - The investigation will determine the proximate cause for the event. - Generally, the longer they actually devote to the investigation, the more [fair](morality-justice.md) the outcome will be. - If there's a legal complaint, then it triggers a "discovery" as well to gain more documentation. - Nobody is legally required to provide documents without a court order or subpoena, which can *really* slow down the process. - At the same time, the insurance companies may acquire a statement from the claimants by using leading questions to make the person [confess to something they didn't mean to](legal-safety.md). 5. In the case of health insurance, the claims department may request access to claimants' *complete* medical information. - They may find pre-existing conditions, though that may or may not apply depending on the law. 6. If it's property and casualty, they'll also perform a damage inspection to determine how much the damages will be (and sometimes arrange for repairs) while they're determining liability. 7. Once they've determined liability (when applicable), the coverage limits apply to determine the amount(s) of the claim. - The only way a claims investigator will pay is if the conditions on the policy document are met, which may include canceling the policy, filing a proof of loss, or protecting the property from further loss. - The insured is responsible to submit a signed sworn proof of loss within 60 days of the request (which is the insured's demand for payment), and the insurer has 30 days to respond to it. 8. The adjuster must then determine *whom* to pay. - The payment for a loss will go to an insurable interest or contractor, who is often *not* the insured (e.g., [lienholder](money-2_debt.md), collision center, construction company). - In a total loss, the payment may be a check for the entire balance minus the deductible, payable to the insured or lienholder. - Sometimes, a contractor may require a direction to pay form, which can direct the *entire* claim payout to them. 9. The adjuster may deny the claim outright. - The contract may clearly state the situation is not covered (e.g., an event was excluded). - There may be differing criteria for different conditions (e.g., a medication taken orally may have different requirements than the same medication taken rectally). - The law is framed in a way that the rejection *must* be a legitimate reason, and everyone is entitled to know why their claim is denied. - However, in all cases, the capacity to appeal the decision is *very* limited, and the claimant will typically need to [file a lawsuit](legal-safety.md) to get a denied claim paid. 10. The claims adjuster gives an offer to the claimant. - They'll sometimes make absurdly low initial offers, *far* below the value of a claimant's case. 11. Depending on the policy, the claim payment also triggers other expenses which may apply: - Rental vehicle reimbursement - Additional living expenses (ALE) 12. Key details of the claim investigation are reported to insurance reports (e.g., CLUE), which nearly the entire insurance industry will track for future premium rating. - The date and cause of the event - Claim payment amounts (with thresholds defined at $1,000) - Whether an accident was the insured's fault 13. The insurer is entitled to "subrogate" against third parties whose negligence caused the insurer to pay a claim (transfer of rights of recovery). - In other words, if a liable party does *not* have insurance, but the claimant does, the insurance company can send their lawyers to sue on behalf of the claimant to get back the claim money they paid. 14. If the insurer suspects fraud, they *will* report it to the government. - Fraudulent conduct can involve a fine or up to 10-15 years' imprisonment, along with civil penalties if an Attorney General is involved. While not all the parts are expressed, insurance claims use the same framework every time: 1. The insurance company expects the insured to self-insure up to the deductible. - A deductible is often $500 or $1000, or not mentioned because it's $0 (which is frequent for liability claims). - Sometimes, that deductible is a calculated percentage of the loss amount, property value, or limit (e.g., some property perils like earthquake or windstorm). - Sometimes, a time deductible mandates a certain number of hours/days before a claim payout. 2. Up to a certain point past the deductible, both the insurance and insured will provide a copay. - Most insurance beyond health insurance doesn't have a copay. - The co-payment is often 50% (e.g., $100 is 50% paid by insurance and the insured pays the other $50). 3. Beyond the deductible/copay, the insurance carrier covers losses all the way up to the predefined limit. - Some professional liability policies include a consent to settle provision that requires the insurer to have the potentially liable professional to agree to a settlement before payment (to protect the professional's reputation if that professional doesn't want to be held responsible). 4. If the insured and insurer can't agree on the value of damaged property, either one can make a demand for an appraisal. - Each party will select an appraiser who will each select an impartial umpire, then submit their estimate of damage, and any 2 of them agreeing creates a final decision. - This specific process promotes claim settlement and cuts down on expenses by requiring each party to split the costs equally for their appraiser instead of hiring attorneys. - If the insured and insurer *still* can't agree on the amount for the loss, anyone can demand [arbitration](people-contracts.md), each with an appointed arbitrator who selects an impartial umpire, and any 2 of them agreeing creates a final decision. 5. The insurance carrier pays. - Typically, the payment will be to a service provider to fix things. - If the damages are too significant and the insurance company can take the asset, they'll purchase the asset for the value minus the deductible/copay. 6. To recuperate some losses, the carrier will sell the salvaged property in its salvage condition. Most claims departments, to some small effect, take advantage of people who are not aware of their rights: - They may imply retaining legal representation (i.e., an attorney) will void their claim. - The statements they gather may provide leading questions that may invoke an insured to confess to something they don't mean to. - They may delay claims for the claimants' bills to pile up, meaning they'll [settle for less](people-conflicts.md). - Finally, they may simply rush the case as fast as possible before claimants can understand their rights.