Insurance claim settlement disputes – policyholder and insurer options

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Mthokozisi Maphumulo | Senior Associate | Litigation Attorney | Adams and Adams | mail me |


When a liability insurance policyholder is being sued, they refer that legal case to their insurer. If a claim in question falls within the four corners of a policy, the insurer handles the claim on behalf of the policyholder. If the matter goes to court, the court papers cite the policyholder (not the insurer) as the litigant.

Also, a policyholder plays a critical role in assisting an insurer to defend the claim. In defending the claim, an insurer is at liberty to defend the action or settle it.

Policyholder’s role in liability claims

Like any other litigant, there are many factors that an insurer considers in deciding whether to litigate or settle a matter. However, there may be an instance whereby an insurer decides to settle a claim whereas a policyholder believes that they are not legally liable, and therefore, the claim should not be settled.

Unless properly addressed, this can be problematic because, if an insurer decides to settle such a claim, a policyholder is almost always expected to pay an excess (depending on the policy wording). Therefore, a decision to settle a claim may have financial implications for a policyholder, and if they believe that they are not legally responsible, a decision to settle may cause serious issues between an insurer and a policyholder.

Settlement versus litigation

To avoid problems in settling claims, almost all policies specifically include a clause that addresses the abovementioned predicament. This clause states that once a claim is referred to an insurer, an insurer takes over the claim and decides on how best to resolve it. Therefore, a decision to litigate or settle ordinarily lies with the insurer.

It must be noted, however, that even in the absence of such a clause, the insurer would, by operation of law, still decide on the way forward – due to the principle of subrogation. Insurers, however, are encouraged to include this clause to avoid potential disputes with policyholders.

No South African case law was found where such a dispute has arisen; however, there is an English case where a similar dispute arose, albeit with slightly different facts. In Beacon Insurance Co v Langdale, the insurer settled a claim without the knowledge of the policyholder. The insurer did not, however, admit the negligence of the policyholder. After the insurer settled the third-party’s claim, the insurer sued the policyholder for the excess, as provided for in the policy. The policyholder disputed that he was liable and, therefore, he refused to pay.

Importance of subrogation and policy clauses

The court found that the insurer had acted properly and in a manner that was advantageous to both the policyholder and the insurer. This case demonstrates the kind of issues that may ensue where the policy does not sufficiently address the extent to which an insurer is able to control the litigation.

Whilst an insurer takes charge of a matter and handles it in a manner it deems fit, it must not unjustifiably admit liability. As stated above, settlement of a claim has financial implications for a policyholder, and therefore, any unjustifiable admission of liability may disadvantage the policyholder – for which an insurer may attract liability. The insurer must act reasonably at all times and settle a matter in line with the stipulations of the policy wording.



Related FAQs: Insurance claim settlement disputes

Q: What are the common causes of insurance claim disputes?

A: Common causes of insurance claim disputes include differences in interpretation of policy terms, discrepancies in the amount claimed, insufficient documentation and disagreements over the insurance coverage provided by the policyholder’s insurer.

Q: How can I resolve a dispute with my insurance company?

A: To resolve a dispute with your insurance company, you can start by reviewing your insurance policy and relevant documentation. If necessary, you can file a complaint with the insurer, seek mediation or escalate the issue to the ombudsman if applicable.

Q: What is the role of an ombudsman in insurance claim disputes?

A: The ombudsman serves as an impartial third party who assists in resolving insurance claim disputes between policyholders and insurers. They review the complaint, investigate the circumstances and provide recommendations to help resolve the dispute.

Q: What documentation is relevant in an insurance claim dispute?

A: Relevant documentation in an insurance claim dispute includes the insurance policy, claim forms, receipts, correspondence with the insurer and any evidence supporting the claim, such as photos or witness statements.

Q: What steps should I take if my claim is denied?

A: If your claim is denied, first review the denial letter to understand the insurer’s reasons. You can then gather relevant documentation to support your case, contact your claims adjuster for clarification and consider filing an appeal or reaching out to the ombudsman.

Q: What is the difference between arbitration and mediation in dispute resolution?

A: Arbitration involves a neutral third party making a binding decision on the dispute, while mediation focuses on facilitating a conversation between the parties to help them reach a mutually acceptable resolution without a binding decision.

Q: Can I seek legal advice for my insurance claim dispute?

A: Yes, seeking legal advice can be beneficial if you are facing a complex insurance claim dispute. An attorney specialising in insurance law can help you understand your rights and options and assist in negotiating with the insurance provider.

Q: How can I prevent insurance claim disputes in the future?

A: To prevent future insurance claim disputes, ensure that you thoroughly understand your insurance policies, keep accurate records of all correspondence and claims, and provide complete and precise information when filing a claim.

Q: What should I do if I disagree with the settlement offered by my insurer?

A: If you disagree with the settlement offered by your insurer, you can request a review of the settlement amount, provide additional documentation to support your claim, or consider mediation or arbitration as a means to negotiate a better settlement.



 



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