Insurance Claim

Insurer�s obligations

The insurer�s obligation to pay a claim is perhaps the most common issue in insurance disputes. The insurer’s obligation to pay a claim depends on certain factors, like the circumstances surrounding the loss and the precise coverage of the insurance policy.
Normally a court chooses the most acceptable interpretation of the obligation if a disagreement arises over the words of the policy document. In fact to protect the insured, an incontestability clause is included in many insurance contracts.

This clause denies the insurer the right to contest the validity of the contract after a specified period of time.

Insured�s compliance

If the insured party had hidden or distorted a material fact in the policy application the insurance company is within its rights to deny or cancel coverage.

On the other hand if an application appears to have the potential for high risk of loss for the insurance company, it may reject the application or alternately offer a very high premium.
If an insured defaults in paying his premiums, the insurer may cancel the policy. Also if the insured intentionally caused the loss or damage the insurer can refuse to pay any claim for the same. It may so happen that the insurer may knows that it can withdraw a policy or deny a claim, but conveys to the insured that it has willingly given up this right. In such circumstances the insured could maintain that the insurer had waived its right to contest a claim.


The coverage of a liability policy may induce an insurer to defend the insured in a lawsuit filed against him by a third party. Also the insurer can sue the third party in place of the insured if the said third party causes a loss covered by the policy held by the insured. This right is called subrogation and it is aimed at the party that is responsible for the loss, to bear the burden of the loss. This process also prevents an insured from recovering his losses twice, once each from the insurer and the responsible party.

However an insurer can subrogate claims only on certain specific policies. For instance, property and liability insurance policies allow subrogation because the basis for the payment of claims is indemnification or reimbursement of the insured for losses suffered.

But life insurance policies do not allow subrogation. In life insurance an insured is not indemnified for losses that could be measured in dollars because it is a policy for the insured and his nominee. A life insurance policy does not cover any liability to a third party. It pays a fixed sum of money to the beneficiary and consequently the insured does not stand any chance of making two recoveries, from the insurer and the third party. As far as the insurer is concerned the question of suing a third party does not arise in the event of a claim.

Insurance claim management

Most insurance companies are identified by their efficiency in handling claims as it is one of the most important parts of the business if not the most important. It has been observed that the credit rating of many insurance companies took a beating due to poor claims handling. Many insurance companies in their stubbornness to dispute a claim had to take heavy losses after damaging litigation. But the best insurance companies take this aspect of their business seriously and have tried to improve their claims handling with more resources and technology.

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