Insurance: The Business of Selling Promises 

Homeowners insurance is a contract for a promise.  You are paying for the promise that if something happens to your property, you will be protected.  In some commercials, insurance companies liken the promise they sell to a good in a store – or a present under a tree.  But it isn’t like that at all.  In fact, the nature of the contract – the promise to pay if a covered even happens – is somewhat illusory.  If you do not sustain a covered loss in the policy period (usually, a year), they don’t return your money.  Ask yourself these simple questions: 

  • How long have you been with your insurance company? 
  • How many years have you made claims? 
  • In the years you didn’t, did they return any of the premium? 

To understand how insurance works, you need to know that a portion of your premium goes to pay their expenses – including the typical overhead (office space, equipment, payroll, etc.) as well as their robust advertising budget.  Other parts of your premium go to pay other claims for other people.  And then some % of your premium is used by insurance companies to invest.  Insurance companies measure their profitability by looking at the ratio between claims paid + expenses/premiums received.  But, while insurance companies are in the business of making money, and they can certainly make decisions for many of their business practices based on what makes them the most money, insurance companies cannot consider profitability when deciding if or how much to pay on a given claim.   

The bottom line is this: you buy a promise.  In the years when you need the insurance company to deliver on that promise, they cannot reject, underpay, or deny your claim in bad faith.  That means that the insurance company must accept liability and promptly pay your claim if liability for the claim is reasonably clear.  Not crystal clear.  They must give you the benefit of the doubt.   

Our firm is dedicated to representing policyholders against their insurance companies and holding insurance companies to the promises they sell.  Let our knowledge and experience work for you.  We are happy to review your claim for free.    

Insurance Is Not Like Other Businesses 

As much as insurance companies want you to think they are like other businesses, they are not.  Your are not buying a good like you would at Wal-Mart or that you can return if you are unhappy.  Insurance companies like to make it look like that – going so far as analogizing a policy of insurance to a Christmas present.  But that is not what you are buying.  Insurance just isn’t like other businesses.  Our U.S. Supreme Court said it this way: 

The contracts of insurance may be said to be interdependent.  They cannot be regarded singly, or isolatedly, and the effect of their relation is to create a fund of assurance and credit, the companies becoming the depositories of the money of the insuredOn the other hand, to the insured, insurance is an asset, a basis of credit. It is practically a necessity to business activity and enterprise. It is therefore, essentially different from ordinary commercial transactions, and, as we have seen, according to the sense of the world from the earliest times, certainly the sense of the modern world, is of the greatest public concern.” (with emphasis)1 

Because insurance is not like other businesses, special rules govern how they treat you when you file a claim.  The reason for that was because courts have found policy holders to be “particularly vulnerable”2 while insurance companies enjoy a “disproportionately favorable bargaining position.”3  This “special relationship” between a policyholder and the insurance company and the “unequal bargaining power” lead courts across the country to adopt and apply a duty on insurer to treat their policyholders in good faith.4  This duty was adopted because of “unscrupulous insurers”5 and it is “separate and apart” from the contract, which requires its own promised duties.   

We are a dedicated firm of lawyers with over thirty years of combined experience in holding insurance companies accountable for the promises they sell.  Let our knowledge and experience work for you.  Call us for a free review and evaluation of your claim.   

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