The protection and security that a homeowners insurance policy provides is most effective—or it fails—when a policyholder files a claim. When a loss occurs, the policyholder trusts that the insurance company will process and pay the claim promptly and fairly.
Often a loss clearly is covered by the policy, the amount of loss is certain, and the company pays the claim without delay. Other times problems arise. The insurance company and the policyholder may disagree about whether the cause of loss is covered by the policy, how much of the loss is covered, or how much it will cost to repair or replace damaged property. The company may disagree about a disputed issue, make a mistake, or even act unreasonably and wrongfully. For an insurance policy to provide the protection and security it promises, the policyholder must have access to a fair, effective, and efficient process for resolving these disputes and for remedying any improper conduct by the company.
The Essential Protections for Policyholders project recommends a series of measures to give insurance consumers the tools they need to resolve disputes that arise and, when necessary, to remedy improper conduct by insurance companies. These include:
o States should adopt a mediation program for property insurance disputes.
o States should adopt an appraisal process that provides neutral parties to assess all relevant aspects of a claim.
o States should prohibit the enforcement of pre-dispute forced arbitration provisions.
o States should require insurance companies to act reasonably in resolving claims and should give policyholders the right to sue for appropriate damages if the companies do not do so.
Fourteen states prohibit forced arbitration of insurance claims.
Twenty states require insurance companies to compensate policyholders for their attorneys fees if the policyholders are forced to sue to receive what they are entitled to under a policy
When insurance companies act wrongfully:
Only ten states require insurance companies to act reasonably in the claims process and enable policyholders to sue companies for failing to do so.
More than half the states allow policyholders to sue insurance companies only if they have intentionally or recklessly denied a claim.
The other states deny consumers any remedy if insurance companies act wrongfully.
The state-by-state rankings on Consumer Remedies are based on key elements in providing homeowners insurance policyholders with effective remedies for disputed claims. These include:
- Whether forcing policyholders to arbitrate claims instead of receiving their day in court is prohibited.
- Whether policyholders who are forced to sue their insurance companies to receive coverage of their claims are entitled to recover attorneys fees so that they are fully compensated.
- Whether policyholders have a remedy if their claims are denied wrongfully, and whether policyholders are entitled to attorneys fees in those cases.