Don’t let your insurance company get away with unfairly denying your claim: Coverage Enforcement and Bad Faith Claims

Business owners now find themselves in the same position as many homeowners after Hurricane Katrina. They’re suffering huge financial losses due to no fault of their own, with the insurance company they thought was in their corner now unfairly denying claims for losses policyholders believed would be covered. 

Property damage insurance claims after Hurricane Katrina

In the wake of Katrina, many homeowners suffered devastating damage to their property as a result of the storm. They made claims for their losses to their insurers, only to find their claim denied. 

It was later discovered that, in many instances, insurers were misclassifying wind damage as flood damage to exclude the damage from coverage.  State Farm was one of the most prominent insurers to engage in this type of behavior, with reports of even changing engineering reports it disagreed with to support the denial of claims. 

In one instance, State Farm denied a homeowner’s claim. It disputed that wind had caused the damage, despite eyewitness accounts of another home being hurled through the air and into the policyholder’s property. 

Insurance companies are using the same shady tactics for Coronavirus business loss claims

Now, in the wake of the coronavirus outbreak, many businesses are suffering the most acute financial losses.  These businesses now find themselves with no revenue but still accumulating overhead and payroll costs as they attempt to keep business afloat. 

Many believed themselves to be covered for financial losses due to interruptions in their business, particularly due to a government-ordered shutdown, through a type of insurance coverage called “business interruption” coverage. 

Under this type of insurance, losses resulting from damage to the policyholder’s property or to the property of others that impact the policyholder’s business are covered. 

So, how do policyholders who have valid claims that have been denied fight the insurance company’s decision?  Unfortunately, the Department of Insurance rarely fights to overturn individual coverage decisions for policyholders. 

However, litigation provides several avenues to pursue the appropriate relief against an insurer who wrongfully denies a claim. 

How can a business recover losses due to COVID-19 from their insurance providers?

First, a claimant may file a declaratory judgment lawsuit, which is a lawsuit that does not seek monetary damages but simply requests a court’s ruling on a specific issue. 

These types of lawsuits are common in insurance disputes, and judges are frequently asked to “declare” or find that coverage does or does not exist given a specific factual scenario.  This is one way for a policyholder whose claim is wrongfully denied to obtain help from the court. 

Another option is to file a lawsuit for breach of contract.  An insurance policy is a contract, giving both parties to it certain rights and responsibilities. 

One of the obligations of the insurer under the contract is to provide the reimbursement, or indemnify its policyholder, for covered losses.  When the insurer refuses to indemnify its insured for those losses, it has breached the contract and the insured may file a breach of contract lawsuit.  This is another way to obtain a ruling from the court requiring the insurer to pay a claim. 

How much can a business recover if they’re successful?

Under either of these methods, the relief available to the insured/policyholder is restricted to the limit of the policy.  A policyholder may not obtain more than what he expected to receive when he entered into the contract with the insurance company. 

However, if the policyholder can prove that the insurer’s actions refusing the pay the claim were “vexatious and unreasonable,” the insured may be entitled to additional damages under Illinois’s bad faith statute. 

Under the Illinois statute, a plaintiff who proves vexatious and unreasonable conduct on the part of an insurance company may recover any one of:

• 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs (i.e. 60% of actual damages)
• $60,000;
• The excess of the amount which the court or jury finds such party is entitled to recover over the amount the company offered to pay in settlement of the claim prior to the action.

215 ILCS 5/155.

The maximum penalty available under this section is $60,000.  In addition, a plaintiff may recover reasonable attorneys’ fees and costs if vexatious and unreasonable conduct is found. 

Claims for bad faith under Section 155 are typically filed in conjunction with a breach of contract or declaratory judgment claim.  Thus, if successful, the aggrieved claimant will receive the amount rightfully due to them under the policy, up to the policy limit, plus attorneys’ fees, costs, and what amounts to a penalty of up to $60,000. 

Did your insurance company deny your claim? Contact us today

If you have a claim that your insurance company wrongfully denied, you should contact the attorneys at Shannon Law Group for a free consultation.