While Florida recently enacted legislation that provides limited protection against post-loss underwriting, this is a practice that every policyholder should understand. This is essentially a way for a homeowner’s insurance company to “have its cake and eat it too.” The insured submits an application and receives confirmation that his or her home is covered by a policy. The insurance company continues to collect premium payments from the insured until that homeowner suffers a loss. When the homeowner submits a claim, the insurer begins scouring the application and verifying information to identify a misrepresentation or omission. This factual error is then used to rescind the coverage, so the claim is not covered.
This scenario can constitute a particularly egregious form of bad faith by homeowners insurance companies. If the policyholder never experiences a loss, the insurance company can collect premiums for months or years without providing anything to the insured. However, the insurance company is insulated from fulfilling its contractual duties to the insured by trumping up a simple mistake the insured made during the application process. In this situation, the insured pays premiums for what is really an illusory form of insurance.
An example of how this scenario might play out provides a vivid demonstration of the unfair impact of this practice. A homeowner suffers catastrophic damage to his home and submits a claim for the policy limit of $1,000,000. The insurance company conducts an investigation, which includes a meticulous examination of the information in the original application submitted 5 years prior to the loss. The policyholder receives a letter from the insurer that indicates it cannot provide coverage for the loss. The letter informs the insured that the policy is being rescinded because of a misrepresentation in the information provided in the application. The letter also indicates that the insured stated he had not had a property lien filed against him during the prior three year period. The insurer’s search of property records revealed that an out of state property that the insured co-owned with his father had a property lien filed against it two years ago. The insurer indicates that the policy is being rescinded because of the misrepresentation, which means that the insurance coverage never existed.
While the policyholder will predictably challenge this denial by the insurance company because he was not aware of the lien, the insurance company might claim that this lack of knowledge is not a defense. The insurer might cite a “warranty” in the application that guarantees all statements are accurate and that there are no misrepresentations. This type of warranty will make it clear that the policyholder’s knowledge or lack of knowledge of the misrepresentation is immaterial.
Florida has recently enacted new legislation that prohibits this type of post-loss underwriting for credit information that is a matter of public record, so a policyholder who has experienced this despicable practice now has legal protection.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].