Are insurance carriers asking engineers to falsify reports and deny valid claims? If so, how widespread is this practice?
A recent investigation into property damage claims in Texas found that third-party engineers working for USAA doctored engineer reports to deny valid claims. In every instance, the claim adjuster recommended full roof replacements on homes damaged by Texas’s notoriously large hail storms. Allcat Claims Service of Boerne, the third-party engineering firm working for USAA, doctored those reports resulting in denials and extremely low payouts.
Role Of Engineers In Property Damage Claims
Insurance payouts are based on strict guidelines outlined in coverage agreements and irrefutable facts about what caused the damage. If the damage is not a ‘covered peril’, the insurance can rightfully deny the claim. Engineers are hired by the carrier to evaluate the home or building in question and provide the evidence needed to make a coverage decision.
Instead of having engineers on staff, most insurance companies outsource this role to third parties. Depending on how the engagement with these outsources firms operate, they may not even send actual engineers to investigate the damage. Instead, they send a “trained” team member to reinspect the property and take photos/videos. That information is later reviewed by an actual engineer who never visited the property.
Conflict Of Interest Hurts Policyholders
It’s important to note that these engineering firms represent the insurance company’s interests, not the policyholder. It’s reasonable to assume that engineering firms rely on a steady stream of claims to remain in business. Ensuring claim outcomes favor the insurance company is one way to make that happen. This creates a situation ripe with conflict of interest and potential fraud.
Engineer reports and ties to claim decisions have been a hot topic for years. After Hurricane Sandy hit the east coast in 2012, a massive investigation into the claims process found that over 90% of reports were routinely changed to illegally deny homeowner damage claims. Homeowners were wrongfully denied more than $400 million of benefits rightfully owed to them.
What Recourse Do Policyholders Have?
If a property damage insurance claim has been denied due to an engineer’s report on the damage, policyholders still have options. Unfortunately, it’s an uphill battle and typically requires hiring additional experts like Public Adjusters, Lawyers, and others to fight the decision. In almost every state, extra costs to rightfully prove a claim fall on the policyholder, not the carrier. Some states like Florida have passed laws to limit how attorney’s fees are paid in the event the policyholder wins.
Perhaps an important question is also whether or not policyholders can hold engineers and claim experts accountable for knowingly submitting fraudulent reports.
Existing case law on the topic has found that in most cases, third-party individuals are not liable for how their decisions impact a claim, even if they made errors. The main responsibility falls on their employer and/or insurance company who hired them.
However, individuals can be reported to state agencies that manage the licensing process for engineers for bad behavior. Much like how medical boards oversee individual doctors and investigate consumer complaints, state organizations can see that fraudulent actions are documented and can remove an individual’s license to practice and impose set fines for violations. For a list of state licensing boards and complaint records, click here.
Join Us And Protect Policyholders
In addition to educating policyholders on the claims process, creating new laws that hold bad faith actions accountable is a top priority. Among them is paving a way for policyholders to recoup consequential damage costs needed to get fair payment. Become a member now to learn about state initiatives and join us to protect policyholders across America.
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“So…Sue me! Another misguided assumption, this time, on the part of third party claims adjusting and engineering firms, is that, because their contracts are between their company’s and the insurance companies who pay them, they can’t be sued by an insured who is not a party to the contract. This is based on what is known as “the Doctrine of Privity”, which is, a legal interpretation in contract law that says that contracts are only binding on the parties signing the contract. The idea is that, contracts are private agreements among the signatory parties, such as, a contract between a third party insurance adjusting company or engineering company and a P&C insurance company, which technically should have, under normal circumstances, no bearing on others who are not involved in making the contract, such as, insured policy holders. While the doctrine makes sense in certain situations, over time it has proved to be problematic and numerous exceptions to the Doctrine of Privity are now well accepted.
One of those exceptions, which is meaningful to your customers, as well as to you as contractors, is as follows; In the past, denial of the existence of legitimate damage by a third party adjusting company or third party engineering company would likely have been sued out as a bad faith breach of contract claim against the non-paying insurance company. As such, since the third party adjusting company or third party engineering firm was not a party to the contract – the policy, between the insurance company and the insured’s, they believed themselves to be immune from being held liable and accountable by the insured’s for their improper actions – in other words immune from insured’s lawsuits. Denial of the existence of legitimate damage by an insurance adjusting company adjuster and/or engineering company engineer however, would rightly and properly be deemed, not simply a bad faith breach of contract, but rather a ‘breach of a societal duty not to affirmatively mislead or advise without a factual basis that, in some cases, crosses the line from bad faith to criminal fraud – which, BTW, is what the American Policyholder Association is primarily focused on seeing prosecuted.
In other words, a ‘fraudulent misrepresentation that constitutes a breach of duty of honesty imposed by society, and not contractual duties’, which effectively removes the Doctrine of Privity protections from the picture and opens the door to potential multi-million dollar individual and class action lawsuits against, not just the actual P&C insurance companies, but the offending independent third party insurance adjusting and/or engineering companies as well. Fraudulent denial of the existence of legitimate damage by a third party adjusting company rep or third party engineering company rep may also land the offending party or parties, in jail…where they belong.
Larry Burtis – 3RSystems, LLC
Excerpted from: “Cutting Through the Claims Red Tape – How to Take Control of the Claims Playing Field”