In addition to denying claims, insurance companies may be sued in cases where they have failed to properly pay all benefits due. These are cases where the insured is informed that benefits are available but that portions of the claim are not owed. In the property insurance coverage context, this could be a situation where a covered peril causes damage to the home (e.g. fire), but where the insurance company has not paid for the complete repair, to place the home in its pre-loss condition. Because property insurance policies are designed to pay for “ actual physical loss” to the structure, there is often a dispute over the amount of money available to do so. This is because the insurance company may act to repair only damages they perceive as necessary, while the insured believes items should be removed rather than repaired.
How Much of a Claim Warrants Legal Attention
Disputes over the amount of coverage available are the most common. It has been reported that 90 percent of house fires result in litigation over the extent of the damage repair. These kinds of disputes have also created an entire industry of "public adjusters" who seek to act on behalf of insureds who are negotiating with their insurance companies. The most common issue to be addressed is whether a relatively smaller amount of money warrants the retention of legal counsel. Insureds often report a lack of interest to resolve the amount of repair disputes until they engage legal counsel. Note: If a lawsuit erupts over the amount of repairs, regardless of how nominal it may be, an insurance company may be liable for all of their insureds' attorney's fees. This may be true even if the insurance benefits are less than the fees recoverable by the attorney.
Disputes Over the Insured’s Calculation of Replacement Costs
It would appear the more technical the issue the more likely there is to be a dispute over the manner of repairing a home. Under most property insurance contracts, an insured is entitled to the “actual cash value” of their damages, until they conduct the repairs. For example, if a roof is damaged by fire, the insured may only be entitled to the value of the home, when you calculate its depreciated value.
If a roof is entitled to last 10 years, and the fire occurred during the fifth year, the insurance company may only owe for the remaining percentage of the value. However, once the insured actually hires a roofer to replace the roof, the value is calculated as “replacement costs,” and may entitle the insured to the full replacement cost. These kinds of issues get especially complicated in cases involving hurricane losses or sinkhole damage. This is because of the wide array of methods of repair, which creates disputes over the calculation of the insured’s replacement cost.
