Padding claims: Not in fineprint

Even then there is the public perception that the insurance company will invoke the ‘fine print’ in the policy to either throw out your claim or to brow beat you into submission with a less than adequate settlement figure leaving you out of pocket.

That is not a view confined to Trinidad and Tobago only but rather this is a worldwide perception of the insurance industry.

Insurance is based on legal principles that have been settled over many years and the law of contract since an insurance company will issue a policy document that reduces into writing terms and conditions under which the policyholder will be entitled to claim as well as exclusions that spell out the circumstances in which no claim will be paid.

In the recent ongoing legal imbroglio involving the Honourable Chief Justice, we as mere spectators, must be thoroughly confused by the analyses and pronouncements of the legal fraternity where there is no certainty what is the correct interpretation of the situation until the country’s highest court hands down a definitive ruling.

While a minority of insurance companies may use the court system to delay the settlement of valid claims, the vast majority of insurance companies avoid recourse to the Courts. Still, in most instances it is case of the ‘candle costing more than the funeral’ and simply not worth the trouble. Business decisions have to be taken, especially when the legal costs involved may be more than the amount to be paid out as there is no guarantee of success, notwithstanding how strong the case is.

Insurance companies sometimes face a dilemma when presented with a claim that has a probability of fraud but it is cheaper to pay than to defend in the Court.

We have a culture in Trinidad and Tobago when it is seen as alright to deceive an insurance company and benefit over and beyond the actual loss and therefore many claims are padded in the hope of getting away with it. In many jurisdictions insurance fraud is a serious matter, but not here in Trinidad and Tobago and this contributes to delays as insurance companies closely scrutinise claims in order to root out ‘padding’.

The first principle is that you must act in a manner as if you had no insurance in place and therefore it requires a behaviour of reason and taking all steps necessary to minimise your loss. If this principle is put into practice, it follows that you would act prudently and only claim the actual loss- repair costs instead of wanting replacement unless you are prepared to contribute the depreciation element. Insurance is predicated on the fundamental principle of indemnity - to restore you to a position that existed prior to the loss- it is not to profit from a loss.

In property (fire) insurance, if you claim for an item which is later proved that it was never destroyed, the entire claim can be thrown out. That is the legal principle which most persons do not know!

When buying insurance the consumer has the responsibility to provide correct information on his risk/property and not to obtain coverage through deception because the insurance company has the option to turn down your claim if the information submitted proves to be incorrect.

A policyholder might feel aggrieved if his claim is denied because of the wrong information provided when the policy was taken out but the premium is quoted based on the facts presented and therefore if this information is wrong then the basis of premium setting will naturally be wrong. This is the risk evaluation exercise and the facts are only known to the policyholder- not the insurer, so it is imperative that all material information must be correct.

The insurance company issues a contract and that outlines under what circumstances it will respond to a claim and therefore its first task upon the presentation of a claim is to determine whether coverage exists : whether the circumstances fell within what was contemplated by the insurer.

At this stage, there could be disagreement as the insurer might come to the view that the circumstances did not meet the threshold or for that matter the policy specifically excluded such an event. This is where policyholders sometimes believe that insurance companies are quick to invoke the ‘fine-print’ but an insurance company cannot settle a claim when coverage clearly did not exist as that brings in issues of corporate governance. And if there is any reinsurance involved any such settlement does not bind a reinsurer to pay unless there was prior consultation and agreement.

Gone were the days when insurers could bind reinsurers unilaterally even outside the terms of their contractual arrangement and when losses that fell outside of the contract are intended to be paid insurers are required to consult. In some instances reinsurers might agree but they are free to refuse to pay their share in which case any payment will have to be met entirely by the insurer. We live in a world that is vastly different from the past and all parties are likely to stick to the terms of their contractual arrangements and in some instances it would require these disputes to be taken to Arbitration or even to the Courts to settle differences.

Every party has a responsibility. The insured to behave in a responsible and reasonable manner as if he carried no insurance and to be truthful in his representations while the insurer has a responsibility to respond in accordance with the promise undertaken in the contract and if all parties observe these tenets there will be few occasions for disputes and disagreement. However, life is not that simple and the frailties of human nature result in having to take matters to third parties to settle and resolve disputes.