An article written by an insurance agency, When a Client Blames You for a Denied Claim — What Seasoned Agents Do Differently, raises a topic everyone in the insurance claims and insurance agent business should consider. A denied insurance claim often feels like the end of the road to policyholders. In truth, it may be the beginning of another inquiry. The question is not always whether the insurance company got it wrong. Sometimes, the more uncomfortable question is whether the coverage the policyholder thought they had was ever there to begin with.
The article is aimed at insurance agents, advising how to handle clients who blame them after a claim denial. It was thoughtful in parts, particularly in urging agents not to overstep into legal interpretations of coverage and to document communications carefully. That is prudent advice not to practice law. But the article also revealed something more significant, something that policyholders need to understand when involved in these situations, especially when coverage was available but not purchased.
For decades, insurance agents have marketed themselves as advocates for policyholders after a claim occurs. “Call me if you have a claim, I’ll help you through it,” has been a staple of the insurance agent business. Yet, behind the scenes, the risk calculus has changed. The increased frequency of errors and omissions claims against agents has made many more cautious about how far they go in supporting an insured once a claim is denied. The result is a subtle but important shift in behavior that policyholders ignore at their peril.
As noted in the International Risk Management Institute (IRMI) article, “Avoid Agent E&O When Handling Problem Claims,” this issue is no longer theoretical. It is being openly discussed in the agent community:
Insurance agents—be careful about advocating for your clients when the insurance company has denied their claim. Insureds—understand that your insurance agents may be more hesitant to “go to the wall” for you on a claim than in the past for fear that you may end up suing them.
Most agents tell their insureds that one of the prime benefits they provide for their clients is that they will advocate for them with the insurance company when there is a claim. So, I was surprised recently to hear advice from one of the nation’s leading providers of insurance agents’ errors and omissions (E&O) coverage that agents should be very careful about advocating for a client when there is a claim denial. Their bottom line was that agents need to take due precautions about when and how they advocate for their clients so they do not end up on the wrong end of a lawsuit themselves. As a result of that shift, I believe insureds may need to take more responsibility to advocate for themselves.
That quote should hit every policyholder like a cold splash of reality. If your agent is pulling back at the very moment you expected them to lean in, it is not necessarily because they do not care. It may be because they are protecting themselves. It certainly raises a critical issue. When an agent steps back, it may be precisely because their own conduct is now part of the story.
In my experience, some denied claims are exactly what they appear to be. The insurer is wrong, the policy covers the loss, and the fight is about interpretation, causation, or valuation. Those are the cases most people think of.
But there is another category that is far less understood and far more dangerous to ignore. Those are the cases where the denial exposes a coverage gap.
The policyholder says, “I thought I had coverage for this.” The insurer says, “You don’t.” And somewhere in between lies the question of what was requested, what was promised, and what was delivered. Did the agent procure the coverage requested? Were limitations or exclusions explained? Was the application accurate? Were renewal changes communicated? Those questions do not get answered by arguing with the adjuster. They require a different kind of investigation.
This is where policyholders can make a costly mistake. They spend months, sometimes years, arguing with the insurer over coverage that does not exist, while the clock may be running on a claim against the agent or broker who failed to obtain it. By the time they realize the problem, the issue about the rights and responsibilities of the agent’s conduct may have lapsed.
The agent-focused articles I referenced earlier tend to frame client complaints as confusion. Sometimes that is true. Insurance policies are not written for easy reading. Candidly, not every dispute is confusion. Sometimes it is about intentionally buying “cheap” insurance coverage. Sometimes it is miscommunication. Sometimes it is an omission. Sometimes, it is outright failure to deliver what was requested.
The reality is that a denial letter is not just a legal document. It is a diagnostic tool that tells policyholders what the insurer believes is covered and what is not. But it should also prompt a second, equally important question. Is this the policy coverage I asked for and was told I had?
When faced with this situation, the agent’s file and materials need to be examined. The policy, endorsements, applications, proposals, and communications with the agent all matter. The story of the placement is often just as important as the policy’s language.
There is also a broader lesson here for the insurance industry, and in particular for insurance agents who promise to help policyholders find the best coverage at the best price. The insurance business is built on trust. Policyholders trust that the coverage they purchase will be there when the loss occurs. Agents have long been the face of that trust. If agents are now being advised to step back at the moment of claim, the industry needs to recognize the gap that creates. It should be disclosed to the policyholder if that is what is happening. Not to do so is a breach of that trust. This is because policyholders will still need someone to step forward on the issue of why a coverage gap exists.
The best outcomes occur when everyone understands their role. Insurers should honor the coverage they sold. Agents should accurately procure and explain that coverage. Policyholders should be informed enough to ask the right questions before and after a loss. When that balance breaks down, disputes follow.
A denied claim is not always the end of the story. Sometimes, it is the first clue that the real problem started long before the loss ever occurred.
For those interested in the topic of insurance agent negligence, I suggest reading the following post and the articles cited within it: “Insurance Agent Negligence Cases Are Rarely Easy to Prove.”
Thought For The Day
“In the business world, the rearview mirror is always clearer than the windshield.”
— Warren Buffett
