Owners Get the Runaround on Insurance Claim
Question: I live in a condominium in Los Angeles that has 42 units. Our condo suffered damage because of common area problems. The board told us the insurance company requires originals and to give them all our receipts and documents relating to our claim and they would handle it.
After ignoring our calls and letters for seven months, the board told us they or the management company lost all our evidence. Since we hired a management company three years ago, not one homeowner has been able to file a claim.
We don’t understand why this is happening. What can we do about this?
Answer: One reason your claim may not be getting to the insurance company is because of something called “contingent commissions.” Briefly, if the dollar amount of claims is less than a specified percentage of the amount of the premium paid, the broker or agent gets a percentage of that difference as a contingent commission. The fewer claims filed, the more commission the agent makes.
In part, the difficulty arises if your policy requires that all claims be forwarded to the insurer and the failure to do so may be a breach of the insurance contract, possibly resulting in cancellation. Also, preventing claims from being filed may result in lawsuits costing much more in the long run than the payment of any claim.
A more dangerous reason why your claim is not being filed goes back to the due diligence your board was supposed to do before switching insurance companies. Due diligence needs to take place before any contractual agreement is entered into by the board.
In assessing the insurance risk of their clients, and because the insurance companies require it, brokers ask several questions, the answers to which help determine the underwriting risk. A form produced by the Assn. for Cooperative Operations Research and Development, and known in the industry as “ACORD forms,” lists the questions. Homeowners can take steps to protect themselves by calling the Department of Insurance Consumer Help Hotline, (800) 927-HELP, for information:
* Verify that your agent is licensed, and check the status of the companies underwriting your homeowners association insurance.
* Confirm whether the agent had/has any disciplinary actions taken against him or whether any are pending.
* Find out whether this same agent was in business before under a different name and why that business closed.
* Obtain the ratings of the companies proposed to issue your insurance (do not automatically rely on the ratings provided by your agent, broker or board).
* Verify that the companies are licensed to sell insurance in California along with the names and addresses of the company’s offices and local agents.
* Make sure that all board members, not just the broker, receive “individual notice” of any insurance cancellation.
* Make sure that there will be no gaps in the coverage when the old insurance is canceled and new insurance is in place.
* Verify that the proposed new companies have regularly paid claims for many years, act promptly in responding to claims and are participants in the National Insurance Crime Bureau insurance fraud prevention program. All major insurance carriers are members of the bureau, so if your proposed new insurance company is not, that may be all the due diligence you need to do before making your decision about changing carriers.
If you suspect fraud, report it to the bureau at (800) TEL-NICB.
“In some cases if fraud is proven, you may be eligible for a financial reward,” said Michael Erwin, media relations director for the bureau headquartered in Arlington, Va.
This list is by no means all-inclusive but begins to address the due diligence issues. Always get a copy of the policy and never rely on a “binder” number or form, even if it has policy numbers on it, or a “certificate of insurance.” When the policy is received, always follow up with the agent or, if necessary, the company itself.
Even in the world of insurance, the adage “buyer beware” holds true. Insurance serves no purpose until you make a claim, but if you can’t do that, even the best coverage is worthless.
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Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and arbitrator and manages commercial property. Both live in common interest developments and have served on various association boards. Please send questions to: Common Interest Living, P.O. Box 451278, Los Angeles, CA 90045 or e-mail your queries to: CIDCommonSense@aol.com.
