When you hear the term “Insurance Fraud” you instantly think of the consumer defrauding the insurance company, however, there is a term called “Insurer Fraud” which is the fraud perpetrated upon the consumer.
Below are some examples of automobile insurer fraud and unfair or deceptive trade practices include:
An insurer may negotiate with a third-party claimant, but they cannot force a third-party claimant to accept non-OEM parts. With respect to first-party claimants, an insurer may limit by the terms of the policy the insurer’s obligation to only pay for non-OEM parts of similar equal performance, fit and quality. With respect to first-party claimants, insurance regulators need to take action to ensure that insureds can purchase coverage that will truly indemnify. In addition to forcing the claimant to not have a fully restored vehicle, the insurer refuses to pay for diminution. Not only does failure to replace damaged parts with OEM parts further diminish the value of the vehicle, but also makes puts prospective buyers on notice that the vehicle has been in a collision.
In many instances, these changes are sprung on the vehicle owner when they go to pick up their vehicle. The owner faced with storage charges and loss of their vehicle often pays the betterment/depreciation deduction. The owner will pay a betterment/depreciation charge not knowing that the insurer has a duty to calculate and document with precision the amount of betterment. Further, most states require for betterment/depreciation to be allowable that: 1) the value of the entire vehicle to have increased; & 2) the parts replaced be subject to replacement during the normal life of the vehicle (light bulbs, belts, oil and air filters, etc…).
While potentially legal with respect to first-party claimants, diminution in value is owed to a third party claimant, and insurers consistently refuse to pay for diminution. Insurers are free to negotiate with third-party claimants over the amount of diminution. Insurers do not negotiate, they steadfastly refuse to pay, and tell claimants they will have to sue the insurer to collect the diminution, knowing that their tortfeasor/insured owes the claimant the diminution and that it is not economically feasible for the claimant to institute litigation just to collect the diminution in value amount.
This is a clear misrepresentation as to well-established law regarding the rights of a victim against the tortfeasor, and consequently their liability insurer.
and when the insured makes a claim (where the pre-loss property value had not decreased significantly, claiming that the actual cash value of the item is only $8,000). The insurer charged a premium appropriate for their accepting a $30,000 risk, yet now claims that their liability is less than a third of the risk they accepted and charged a premium for. This practice is tantamount to post-claim underwriting, a practice which is illegal in most states.
Many states require insurers to give claimants a choice in repairers. Other states require insurers to guarantee the work of repairers they selected. Insurers illegally control their costs by getting unrealistically low bids from contractors, stating to claimants that the insurer will not pay more than that bid, and then claiming that the claimant selected the insurer’s repairer when they used the only repairer they could afford due to the insurer’s refusal to pay more, even if the next lowest bid is still below the prevailing rate. (Note: One recent court opinion concluded that the insurer had not forced the insured to choose the insurer’s repairer by refusing to pay more than the absolute lowest bid, who subsequently failed to properly repair the property, because the insurer had stated in their policy that it was their goal to make sure the insured was satisfied.)
Insurance Bad Faith describes a tort claim that an insured person may have against an insurance company for its bad acts. In the United States, the law in most jurisdictions protects the insured (or “policyholder”) against unfair dealings and bad faith acts from their insurance company.
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