Can an Insurance Company Refuse to Pay a Claim?

As with any business, insurance companies exist to make a profit. One of the ways they do this is by collecting premiums from their policyholders and paying out claims when those policyholders experience a covered loss. However, there are times when an insurance company may refuse to pay a claim, leaving the policyholder to foot the bill.

In this article, we will explore the circumstances under which an insurance company can refuse to pay a claim and what policyholders can do if they find themselves in this situation.

Policy Exclusions

One of the most common reasons for an insurance company to deny a claim is if the loss is not covered under the policy. Insurance policies typically have a list of exclusions that spell out what is not covered. For example, a homeowners insurance policy may not cover damage caused by floods or earthquakes. A health insurance policy may not cover cosmetic surgery or experimental treatments. If the policyholder experiences a loss that falls outside of the coverage provided by the policy, the insurance company has the right to deny the claim.

Failure to Pay Premiums

Insurance policies are contracts between the policyholder and the insurance company. As with any contract, both parties have obligations they must fulfill. The policyholder is obligated to pay premiums in exchange for coverage. If the policyholder fails to pay the premiums, the insurance company may cancel the policy, leaving the policyholder without coverage. In this case, if the policyholder experiences a loss, the insurance company has the right to deny the claim.

Misrepresentation on the Application

When a policyholder applies for insurance, they are required to answer a series of questions about themselves and their property. If the policyholder makes a misrepresentation or omits information that would have affected the insurance company's decision to issue the policy, the insurance company may deny a claim. For example, if a homeowner fails to disclose that they have a dog that has a history of aggressive behavior, and that dog bites someone on the property, the insurance company may deny the claim.

Intentional or Criminal Acts

Insurance policies typically do not cover losses that are caused by intentional or criminal acts. For example, if a policyholder sets fire to their own property to collect the insurance money, the insurance company will not pay the claim. Similarly, if a policyholder causes an accident while driving under the influence of drugs or alcohol, the insurance company may deny the claim.

Failure to Cooperate with the Insurance Company

When a policyholder files a claim, the insurance company will investigate the claim to determine whether it is covered under the policy. The insurance company may require the policyholder to provide additional information or documentation to support the claim. If the policyholder fails to cooperate with the insurance company's investigation, the insurance company may deny the claim.

What to do if an Insurance Company Refuses to Pay a Claim

If an insurance company refuses to pay a claim, the policyholder should first review their policy to determine whether the claim is covered. If the policyholder believes that the claim is covered and the insurance company has wrongfully denied the claim, the policyholder can take the following steps:

Review the Denial Letter

The insurance company will send a letter explaining why the claim was denied. The policyholder should review this letter carefully to understand the reason for the denial.

Appeal the Denial

Most insurance policies have a process for appealing a denial. The policyholder should follow this process, providing any additional information or documentation that supports the claim.

File a Complaint

If the insurance company does not change its decision after the appeal, the policyholder can file a complaint with the state insurance department. The insurance department will investigate the complaint and may require the insurance company to pay the claim if it determines that the claim was wrongfully denied.