Post Claim Underwriting – Fixing the Odds Against You

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 19, 2018

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In the law, a contract is “aleatory” when a party’s duty to perform is conditional on the occurrence of an event that neither party to the contract is certain will occur. In the context of insurance, this means that the insurance company may or may not have to pay benefits under the policy. In other words, it is uncertain whether or when a claim will be filed.

The aleatory nature of insurance contracts makes the recognition and identification of risks an important step in the insurance company’s decision to provide coverage for potential claims. By the process of underwriting, an insurance company attempts to reduce the role played by guesswork by assessing the risks it agrees to assume. Underwriting and risk assessment, however, mean the insurance company must expend money up front, effectively reducing the amount of potential profit from premiums by the amount of money spent on underwriting. Effective underwriting eliminates applicants who are bad risks, increasing the amount of potential profit from the low-risk people it insures. But the insurance company does not realize any premium income from those persons who present an unacceptable risk because no policy is issued to them.

An insurance company engaging in post claim underwriting does not attempt to reduce the role played by guesswork in assessing risks before issuance of the policy. Instead, this insurance company issues policies after only superficial or no initial underwriting so that it can realize large amounts of premium income from many applicants. Then it attempts to deny coverage after a claim has been filed on the ground of misrepresentation by engaging in aggressive investigation of your medical history. In other words, it does its underwriting after you file a claim.

In essence, the insurance company attempts to defeat the odds, not through an informed gamble based upon reliable predictions by underwriting at time of application, but by fixing the odds by post claim underwriting because the practice allows the insurance company to transform an uncertain event – a claim expense – into an event that is certain. By fixing the odds of the aleatory contract it has entered into, the insurance company takes advantage of your vulnerabilities during the delay between its promise to insure you (the issuance of your policy) and its obligation to perform (paying your submitted claim).

The result: the insurance company not only receives premium income from those who never file a claim, but also receives premium income from high risk policies, knowing that at a later date it will likely raise inaccuracies in the applications for some of those policies to avoid liability for the loss for which it was obligated. The insurance company profits two ways, both from premiums paid by ineligible policyholders who never file a claim and by refusing to pay claims on those policies if claims are filed.

By fixing the odds, the insurance company has placed itself in a win-win situation in which you are always the loser. If your policy is cancelled after you file a claim, despite the premium refund you receive, you have lost the benefit for the claim and the opportunity to procure other insurance, which you would have had if the insurance company had underwritten and declined to issue at the time of application. You have also lost the security and peace of mind offered by insurance.

If your insurance company cancels your insurance after you file a claim, you should contact an attorney who is expert in the area of post claim insurance underwriting.

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