Steve lives in Connecticut, known as “The Premium State” in recognition of all the insurers headquartered there. OK, I’m kidding. (It’s — of all things — “The Nutmeg State.”) But where Idaho has potatoes and Texas has lone stars, Connecticut has Yale and insurance companies. Lest one think the world has changed too much since 1982 when I wrote The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know (out of print, don’t bother), Steve offers this cautionary tale:

Over the years I have had two major instances in which insurance should have immediately covered me but was either unreasonably delayed or refused.

In the first case, resolved long ago, we had just moved from one apartment to another. One of the first nights a fire broke out in the complex. We lost all our belongings and apparently we were covered by two policies: the policy for the new apartment and the 30-day overlap coverage from the old one. Needless to say the two companies fought and we didn’t see any money for years. This was my first taste of the insurance industry and helped make my decision not to take over my father’s insurance agency. The insurance industry had no sensible approach to customers.

In the case this year, we had dutifully paid liability premiums that were extremely high for most of 20 years. The details are involved, but the basic problem was that our insurance agent had arranged for financing with a different company than normal. We were sued two years after an event and found out that for a couple of months our policy had lapsed and the company had insisted our agent reapply rather than reinstate. If the company had merely reinstated immediately, we would have been covered. Instead their insistence that the agent reapply caused us to be uninsured.

The reason for the lapse was that we had paid the agent 1/3 of the policy up front and were told we would be billed as in the past for future premiums. We were never billed by the agent or finance company. We were never notified by the agent, finance company or insurance company for impending or actual cancellation. We first found out about the lapse when our agent called and said his office had just found out about the cancellation. Our first correspondence from the finance company was one week later and said we were owed a refund and didn’t even mention the cancellation. The agent reapplied to the same company after they refused a reinstatement. During the period of reapplying this incident happened, which we were to be sued over the next year.

The insurance company (Western World) refused any help or support to fight a suit that involved a 4-year-old child left alone in a back hall in an athletic club by a parent. Later the parent sued us for his child being injured. Our first feeling was that the insurance company should fight the suit on the basis that leaving a child of 4 unsupervised in a dangerous environment was irresponsible. In fact, in Connecticut it is considered child abuse to leave a child unsupervised in much safer environments. However, we were left to fend for ourselves and the suit was finally settled.

The agent has done the right thing and helped share the cost. I have heard that this treatment of customers by the insurance company is widespread and would like to initiate action to recover our loss and legal fees plus damages on our and others’ behalfs from the insurance company and finance company. The suit out of pocket was approximately $7,500, but that was minor compared to the time and anguish, especially to my wife. We could have lost our house and all our possessions. What especially is irritating is that over the years we have paid this company over $100,000 in total with no claims ever. You would think a rational company would want to retain a loyal customer. Because of their actions, we now have a much better policy with AIG for 1/3 the cost with nowhere near the amount of exclusions.

We have never sued anybody, but it looks like we will get nowhere without legal action. Are there any lawyers out there that specialize in insurance problems like this — improperly terminated, no notices, and not reinstating immediately?

There are clearly some lessons here (and yes, I referred Steve to a famous trial lawyer who loves to sue insurance companies). One is: keep track of your insurance policies and make sure they’re paid up. Another is: shop around. Look how much Steve is saving now that he’s found another carrier. A third is: when shopping, consider claims-paying reputation. It seems that Steve’s agent may not only have bobbled some of the paperwork to the finance company, it neither got him a good price nor a carrier with much of a feel for keeping customers happy. A fourth is: shop for a good agent as well. Why didn’t Steve’s agent find him the 2/3 cheaper policy in the first place? And while “helping to share the cost” is commendable, it may be that the agent should really have paid the full cost, since it appears, from Steve’s account, as though it was the agent that screwed up. The insurer was nasty and short-sighted but may not have violated any contractual obligations.

The final thing I’d mention is the phrase “bad faith.” When your insurer is mistreating you, it may help to send a certified letter explaining why you feel it is acting in bad faith, and that you are on the verge of hiring a lawyer. If that doesn’t produce a reasonable settlement promptly, you may indeed want to retain a lawyer. (But try your own letter first and save the 33% or 40% the lawyer would charge.) The phrase “bad faith” means you see the potential not just for the $2,000 or $12,000 you think the insurer owes you, but for $5 million in punitive damages as well. Insurers understand that. You’ve paid your premiums; they should deal with you in good faith. Generally, in my experience, they do. But boy are there a lot of exceptions, as Steve’s experiences remind us.



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