When a tenant and an insurance company cannot agree on the amount of loss after a claim is made, it can lead to a frustrating and prolonged process.
Disagreements over the value of damages are common in insurance claims, especially if the tenant believes the loss is more significant than what the insurer is willing to cover.
What Happens When There’s a Dispute?
In most cases, when the tenant (the insured) and the insurance company fail to agree on the amount of loss, the process moves into what’s known as “appraisal”. This is a common dispute resolution method in property insurance claims. Here’s how it generally works:
1. Appraisal Clause Activation: Many insurance policies have an appraisal clause that can be activated when there’s a disagreement. Both parties select an appraiser—one for the tenant and one for the insurer.
2. Independent Umpire: If the two appraisers cannot agree on a loss amount, they select an independent umpire. The decision made by any two of the three (either both appraisers or one appraiser and the umpire) is typically binding.
3. Negotiation & Settlement: In some cases, the insurance company may negotiate with the insured directly to come to an agreement, avoiding the need for appraisal or litigation.
4. Litigation: If the appraisal process fails, or if one party refuses to cooperate, the insured may choose to file a lawsuit against the insurer. This step can be costly and time-consuming for both parties.
Real-Life Example: Hurricane Harvey (2017)
A relevant example is from Hurricane Harvey in 2017, where many property owners in Texas, including insured tenants, faced disputes with their insurance companies over the amount of loss. Many property owners claimed that their insurers were offering settlements far below the actual cost of repairs. This led to widespread use of the appraisal process, and in some cases, legal battles. The Houston Chronicle covered numerous stories of residents feeling shortchanged by their insurers and struggling to rebuild their properties .
Why Do Disagreements Happen?
– Differences in Damage Assessment: Insurers and tenants often differ in their assessment of the extent of damage. For example, tenants may feel that the cost to repair or replace property is higher, while the insurer might downplay certain repairs or recommend cheaper alternatives.
– Policy Interpretation: Disputes also arise over how the policy language is interpreted. For example, whether certain types of damages are covered or if depreciation applies to the payout.
– Fraud Concerns: Insurers sometimes suspect that tenants are exaggerating claims, leading to disputes.
How to Avoid Disputes
1. Thorough Documentation: Tenants should document damages with photos, videos, and detailed lists of affected property to provide evidence of their claim.
2. Hire Independent Adjusters: Tenants can hire a public adjuster to assess the loss independently from the insurer, which helps when there’s a disagreement on the amount of loss.
3. Understand Your Policy: One key to preventing disputes is understanding the terms of your insurance policy, including what is covered and any exclusions.
Real-Life Example: The California Wildfires (2020)
During the California wildfires in 2020, many insured individuals, including tenants and property owners, found themselves in disagreement with their insurance companies over the scope of coverage and the amount of loss. According to *The Los Angeles Times*, disputes arose over rebuilding costs, with insurance companies sometimes offering lower estimates than what the homeowners and tenants expected based on skyrocketing rebuilding costs due to the demand for contractors and materials after the disaster. This led to widespread complaints and an increased reliance on the appraisal process and litigation.
Conclusion
Disagreements over the amount of loss in an insurance claim can be complex, but with the right approach, tenants can safeguard themselves by understanding the claims process, documenting damages, and engaging in the appraisal process if necessary. In situations where a fair settlement cannot be reached, legal action might be required, though it’s often the last resort.
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