Associations May Challenge Wrongful Insurance Claim Denials

Homeowner Associations and Condominiums often ask their insurance companies to pay for needed claims. This can include environmental issues,  fire damage claims, thefts and claims relating to employee misconduct. 

While some claims may not be covered, you should know that some insuance companies do deny claims in cases where at least some coverage SHOULD be provided.

When insurance companies deny claims, they must do so for reasons that relate to the insurance policy. Insurance policies are written contracts between the insurance company, also known as the insurer, and the policyholder, also called the insured. If a claim occurs that is covered under the terms of the insurance policy, the carrier must provide coverage.

It is always wrong for an insurance company to deny coverage when no reason exists for denying coverage. When you feel that your insurance company has wrongfully denied your claim, you may have to sue your insurance company. This type of lawsuit is called a declaratory judgment action. You are asking the Court to declare that there is coverage and to order the carrier to pay all necessary costs.

In certain instances, if an insurance company really misbehaves, Courts will allow cases to proceed seeking punitive damages against the insurer even when it ultimately is determined that there is no right to coverage. In these cases, Courts have generally held that insurance companies have a duty to deal with their insureds fairly and in good faith.

This duty of good faith and fair dealing comes from a recognition that insurance companies have a special relationship with their policyholders. Policyholders purchase insurance so that they know that in a time of need, an insurance carrier will be standing next to them. When an insurance company intentionally avoids its obligations by acting in bad faith, this leaves the policyholder in an even worse situation then he/she should be in.

It is incumbent upon the insurance carrier to act fairly and in good faith. The carrier must make a decision based on the language in the contract and the carrier needs to remember that it enjoys a special relationship with the policyholder, one based on trust, and sold on this notion of trust. We all know that we are told that we are in "good hands" with one insurance company and another acts like a "good neighbor."

In fact, many companies are responsible. But when policyholders are mistreated, they need to remember that a statute of limitations may require that litigation be filed by a certain date or the right will be lost. In such cases, policyholders should promptly seek out the services of experienced legal counsel.
Insurance companies have many lawyers who work for them and protect them. More often than not, they treat their policyholders fairly and with dignity. But in the rare instance when a carrier act badly, you should even the sides by retaining competent professional assistance to fight back and protect your rights.