What happens when your insurer won’t pay?

It’s the fear every consumer has buying insurance. When it comes time to make a claim, your insurer will have some reason not to pay out.

The doomsday scenario isn’t just fantasy, it’s reality, say many people who fight insurance companies on a regular basis.

The issue was highlighted this week when a Saskatchewan judge awarded Luciano Branco $5-million, saying the actions of his insurance companies established “a pattern of abuse” — Justice Murray Acton noting he wanted to send a message to the industry.

The case could be a template for anyone paranoid about getting his or her claim cashed out.

The claimant in this case was a welder who was injured on the job. The judge noted the man, who suffered a permanent disability, was offered a “ridiculously low” settlement as the insurance companies dragged its feet for years on the claim.

While cases like this may not be the norm, Toronto lawyer Sivan Tumarkin has built a legal practice around getting insurance companies to pay up.

“I’m just getting more and more of these,” said Mr. Tumarkin, who used to work for insurance companies in a defense capacity. “I only started doing this because I had people coming to me who were having issues with insurance companies. You have a flooded home and they won’t cover. I have someone [who gets sick] in New York with travel insurance and they won’t cover.”

He says the insurance companies don’t out and out reject claims for no reason but their objections are in many cases for negligible reasons.

Mr. Tumarkin had an older couple as clients recently who put in a health claim for a fracture suffered by the wife while on vacation in the U.S. The claim was paid but the insurance company when back into their medical records and found out some of the information filled out in the application was incorrect and demanded $30,000 back.

The basis of many insurance claim rejections is something on a policy being filled out incorrectly, either on purpose or because of a misunderstanding.

You buy a life insurance policy and say you don’t smoke even though you have the occasional butt at a bar. One day you get killed in a car accident. If your insurer finds out about your occasional indulgence, there’s a good chance they’ll fight the claim.

“The law is you have to answer truthfully but it is ambiguous about the way you might answer the question as a lay person,” says Mr. Tumarkin. “They’ll look at absolutely everything they can to try and not cover you. I’m not saying in every case but a lot of them.”

He says insurance companies in property damage claims on car accidents will drag their feet on an investigation, knowing there is time limit to sue.

Out and out rejection of claims to meet some quota is probably more something you see in movies, says Mr. Tumarkin. “There is willful blindness on the part of adjusters,” he says. “There is never absolutely no reason they don’t pay. They’ll just use every excuse in the book.”

Pete Karageorgos, manager of consumer and industry relations with the Insurance Bureau of Canada which represents home and auto insurers, says there are no statistics on what percentage of claims get rejected.

But on the auto front, the industry has statistics that show in Ontario in 2010, the sector took in $9.4-billion in premiums and paid out $8.3-billion.

“It goes to show you the majority of money coming in goes right back out to pay claims,” said Mr. Karageorgos.

He adds insurance is a contract and any insurance adjuster will look at the conditions that could negate the agreement.

“Insurance companies are not just going to take your word for it,” said Mr. Karageorgos. “For any contract to be valid and effective, the conditions on both parties parts need to be satisfied.”

The issue for many people in hiring a lawyer is the up front cost. In the Saskatchewan case, the welder who sued his insurance companies had to be bailed out financial by family members.

One thing you can work out in some cases is an agreement whereby your legal bill is covered based on a contingency fee basis, your lawyer gets his bill paid from the winnings.

You can also consider taking your insurance company to Small Claims Court.

Another suggestion for consumers is buy insurance products from a broker, who is compensated by the insurance company but not employed by them. By using the broker, you have the added possibility of suing the broker if he or she gave you bad information when filling out your policy.

Some policies get reviewed by insurance companies before they are issued and people are rejected or assessed at a higher rate, such as in life insurance. But for low margin products like travel insurance, there is no investigation until a claim is submitted.

“You have the policy underwritten at the time of application not at the time of claim, so there is no surprises and it is completely on the up and up,” said certified financial planner Mark Halpern, of illnessprotection.com.

Sometimes he’ll get a client who wants to say he doesn’t smoke when he does occasionally and Mr. Halpern rejects that business because he doesn’t want to see the claim eventually dismissed.

In other cases, people make innocent mistakes about the type of medication or the maladies they have had in the past.

“It’s really important you keep a record of your medical history,” said Mr. Halpern.

He doesn’t dismiss the notion that insurance companies will reject claims for flimsy reasons and says a broker can be an important advocate on your behalf in that situation.

“If that doesn’t work, there is always [a lawyer],” said Mr. Halpern, noting in many cases the presence of lawyer leads to some type of settlement.

“The insurance don’t like to have bad press but they don’t want these things lingering if there is something [that could work against them]. In the worst case, you might get some settlement,” he says.

Alex Saltykov, founder of InsureEye Inc. which follows the industry, says there are no statistics to show what percentage of claims are paid out.

He says consumers really have to make sure they know what is covered and not because insurance policy are so complicated.

Mr. Saltykov found himself not completely covered for treatment he needed for physiotherapy because he had not read the terms of his insurance contract.

“You want it to be there in the worst moment of your life,” said Mr. Saltykov. “If you are not sure of what should be disclosed, you better disclose it even it makes your insurance go up. Otherwise you risk your company not paying.”

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