An insurance customer who has a loss is often treated as a threat by the insurance company. Claims managers and managers of claims managers are often to blame for creating a claims culture in which their customers are treated as common criminals because the claims department wants to minimize benefits paid rather than fully indemnify its customers in accordance with policy terms. This unethical claims culture is alive and well in some insurance companies as exemplified in my post from last week, State Farm Guilty of Defamation.

I have been thinking about this over the past five days while travelling to each of our offices in New Jersey, Phoenix, and Los Angeles. In New Jersey, the insurance industry is guilty of rampant claim delay. Even if claims are eventually fully paid, it is taking far too long for the insurer’s customers to get paid. Often, they are also getting paid far too little. In Phoenix, I met with different clients who told me of claim denials and intimidation tactics intended to prevent them from hiring public adjusters or their own construction consultants. In Los Angeles, Ken Kan recently settled cases and accepted new cases where insurers are denying cases and insinuating their customers are committing fraud. There is no evidence of fraud, only suspicious minds.

Nearly twenty years ago, Tom Baker wrote a law review article, Constructing the Insurance Relationship: Sales Stories, Claims Stories, and Insurance Contract Damages,1 describing this culture and differing views of the insurance customer:

Insurance companies tell two different sets of stories about insurance and two distinct points in the insurance relationship. When marketing their services, insurance companies tell what I will call “sales stories.” This first set of stories, drawn from insurance advertising, responds to the fears of dependency that are epitomized by King Lear. When handling claims, insurance companies tell a second set of stories, which I will call “claims stories.” This second set of stories, drawn from fieldwork with adjusters and from insurance adjustment trade literature, stresses the need to protect the insurance fund from overreaching, as dramatized (perhaps overdramatized) by King Richard III. These two sets of stories evoke quite different visions of the insurance relationship. The continuing trouble of the courts in defining the obligations of the insurance relationship stems in part from this duality, which is also apparent in judicial opinions.9 In the abstract at least, both visions are equally “right” (and just as equally “wrong”). Yet, the choice of lens can determine whether the insured in a particular case is seen as poor King Lear or wicked King Richard.

Insurance customers need insurance commissioners to stop this culture. Policyholders need to understand many claims adjusters are not looking for legitimate ways to explain and prove all benefits are owed. Stronger consumer protection is needed so those insurers will not profit from wrongful claims cultures at the expense of their customers and gain a competitive advantage over ethical insurance claim organizations. After all, only crooks are afraid of laws that enforce ethical obligations.

Until then, customers should be warned that some carriers consider them problems, not customers, after a loss occurs because many officers of insurance companies know it is far more profitable to promise good faith treatment at the time premiums are paid and not to fulfill that promise after a loss. This is the reason an unethical claims culture exists. I have never seen a claims manager get a "gold star" for maximizing a claims payment.  1 72 Tex. L. Rev. 1395, 1397-98 (1994).

  • shirley heflin

    Dear Chip:

    You’re right….clms mngrs don’t get “gold stars” cuz they probably get GOLD bonuses for every claim they save the “company” from paying out.

    You know people involved in the legal profession and even the medical profession often become “numb” to jury verdicts and/or tragic medical diagnoses, but, I must admit that I’VE NEVER BECOME NUMB to the look on one’s face when I tell them – and attempt to explain – that it’s their own insurance company that’s conducting their EUO and/or not paying their lost wages and/or discontinuing PIP benefits and/or denying their Homeowner’s claim, etc. At first they’re shocked, incredulous, hurt and then angry as they realize they’ve been duped and ripped off. This is when insureds seek assistance from attorneys. Frankly, the ones that seek legal help b4 their claim is denied are the ones that have already been thru the claims “experience” (and what an experience it is). The insureds that have not been through it, give “their” ins. co. the benefit of the doubt and are pro se (and why wouldn’t they?) right?

    For every legitimate claim paid, numerous legitimate ones are denied and/or delayed. :(

    (Tampa, FL)

  • shirley heflin

    P.S. Another reason an unethical claims culture exists is because it is rampant across the United States! No state is exempt from an insurance company’s “company policy” to delay, deny and ultimately defend an insurance claim. An adjuster working in AZ can transfer to FL and the “company policy” is still the same….if they’re not sure, they pull out the company handbook and follow protocol. Further, for the claims that are paid – or when a huge check is written by a carrier and publicized – it’s almost as if we should feel grateful that an ins. co. is doing what it’s supposed to do on every claim.

    (Tampa, FL)

  • David Bierman


    Having worked for the insurance industry in the 80s, 90s and early 2000, that is the main reason I became a consumer advocate, the insurance industry has become a corporation to make money and not to spread the risk among its insureds.

    Not only are they treating the insureds this way they are treating vendors this way as well.

    We need to change the culture in State Government in order to bring ethics and insurance back to the insurance claim process.

    There is nothing wrong with insurance companies making a profit as long as they properly and timely pay claims that they owe and that the premium charged is the correct amount based on the risk invovled

  • Mildred Loren

    Why did I pay LibertyMutualIns.premiums for 30 yrs from age 56 to age 86 so they could dump me in 2013/in fragile health, widowed and emotionaly unnerved by their cruelty because of Klotzbach & Grey’s predictions? I do not live near the Coast/Flood Zone. Had one claim/Wilma under $5,000.
    In a telephone conversation, Miss DeLongo(President’s Council) asked me if I wanted to be reinstated. When I phoned her two days later to ask if this was true offer, she denied asking me that question. Can anyone help?????

  • John Merchant

    I have been a licensed FL general lines insurance agent from 1990 to 2000. I quit insurance for 8 years and I got re-licensed as an agent and an independent adjuster in 2008.

    I decided in 2008 that I should sell roofs and worked hurricane Ike in Texas.

    In December 2008,I had a conversation with a fellow IA (who attended the same IA claims adjuster training school I did, where we were both taught that wind lifted shingles with seals broken had to be replaced) and he agreed with me that TWIA’s requirement to reseal the shingles was wrong and inappropriate, but that there was nothing he could do about it.

    At that moment I realized that TWIA was gonna get sued big time and I told the guy I had a letter from shingle manufacturer, Owens Corning, that said re-sealing shingles whose seals were broken by hurricane force winds will VOID that manufacturers shingle warranty.

    Again he said “he was just doing his job and following orders”. I told him to be careful as he might get caught up in the future litigation and for his own well being that he should more carefully choose which insurers that he handles claims for in the future.

    I met Chip Merlin on linked in and learned he was suing TWIA.

    I have learned a lot from Chip’s blog and I obtained my Associate In Claims designation as a result of reading his blog.

    I told him that I had a letter that would help him in his lawsuit and asked if he would like a copy of it? He replied yes and I sent it to him.

    I was glad to help a consumer advocate like Chip Merlin in his battle against corporate greed.

    After 5 years of helping consumers get their roofs properly repaired, handling a few claims as an independent adjuster, I have decided that I should get a public adjuster’s license.

    At this time I am studying for the FL Public Adjusters exam and may get a PA license any place where a big storm hits.

    I would like to thank Chip for this valuable information that he is sharing with the public and I look forward to working with him again in the future.

  • Claimant2b

    I so appreciated your post. I’m dealing with State Farm right now on a roof claim in which we’ve had water damage (leak). It started after some bad weather here (not hurricane). The adjuster came, cut us a check for interior damage, but didn’t SEE any shingle damage or missing shingles on the roof–so chalked it up to a clogged gutter issue, which is of course not covered.

    Long story short, we cleaned the gutter, sealed it, put a debris trap in…and next time we had rain with heavy wind, water came in the house. Determined to find the leak, I got binoculars and a hose and felt the shingles I could reach. My hand could literally extend under the shingles some 5-6 inches in some spots. I tested the location with the hose, and sure as heck the water came in. I called the adjuster–as I’m certain the shingles lifted from wind damage in the storm.

    The adjuster had to check with her colleague re whether they simply allow for resealing the shingles, or replacing them. And get this–the colleague is saying that it doesn’t sound like wind damage but defective product!! The roof’s been on for around 8 years, and out of the blue it’s defective? Mind you, the same storm caused some siding to dislodge as well.

    Then, the adjuster has the audacity to tell me that if there is further damage–as we’re expecting rain this week–that it’s considered a separate claim. I said, no, the root cause is the same and while this is unresolved, it is the same claim.

    They’re due out here again tomorrow to look at the roof again, but I was already starting to get the runaround and a feeling of resistance. It’s crazy.

    Guess we’ll see, but I want to know my recourse as I surely don’t trust their “appeals” process.

  • Coeen Tayor-Smithh

    July 21, 2013 we came home to find the Fire Department fighting a fire in our home. It was a total loss, I retired the first of April and lost everything I had worked for, for 40 years.

    Short of a year after the devastation we purchased a another home, this time I wanted something that was less likely to burn, brick, tile roof and concrete siding. Called my agent to have a binder sent to escrow, low and behold State Farm denied our coverage due to the claim of the fire. I have been insured with State farm for home owners for 30 or so years and 48 yrs for auto. My agent asked for a an exception was flat told NO.

    So I guess They are not the good neighbor they claim to be.They used the excuse of the fire claim an another one for 600 dollars a few years back for storm damage.How do they get away with things like this we pay for our policy for years and years and then get dinged.

    As if the stress of our loss wasn’t enough they needed to add more.I always thought that is why we have insurance was to protect our property, but apparently its meant only to make the ins company richer and they only want the customers that never need to file a claim.

  • D HW

    I too am dealing with water damage from my shower after starting a renovation on my master bathroom where the contractor asked me to call my insurance company. My home is 28 years old. I did and found that a leak was somewhere and dripped over the years causing the flooring and pan to rot and crack. They paid that claim but we still saw water, low and behold we found the source of the water in a wall two feet away from the builder of my home not properly doing their job, State Farm treated it as a second claim as the bathrooms were piggyback. State Farm wanted an inspection by an independent plumber on my home which I did immediately. And mailed it in. Not even a month later my Kenmore aka Whirlpool washing machine filled up and kept filling up and flooded my downstairs kitchen while I was upstairs. I immediately shut off main water all neighbor came over and wet vac it up but it was ruin. Called State Farm they paid for the claim then sent me a cancellation notice that I did not comply with the Plumbing inspection which I did and had a copy of the cancelled check and form that was sent to their home office and now dealing with them. Been a state farm customer for over 40 years. I have a four bedroom house in Alpharetta Ga. Insurance is not cheap.