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Employers and Consumers: Read this Before You Buy Insurance

posted by Nathalie Martin

Two sad insurance stories follow, with one happy one at the end. I hope to get a conversation going about which companies pay claims and which don’t.

First, check out this clinic case. Ms. Garcia, a 60 year- Spanish-speaking housekeeper suffered an injury requiring surgery in June of 2010. Because of the surgery and recovery, she could not work at her job at a chain hotel. She applied for disability under the insurance contract her employer provided with Met Life. Met Life received Ms. Garcia's claim for disability in June, and denied her claim a month later on the basis that the injury was a pre-existing condition. Yet Ms. Garcia had been working at the same job since 2003.  MetLife only became the insurance carrier in January on 2010, when the employer hired a new insurer for disability. The employer went to bat for Ms. Garcia, informing Met Life that because she was a pre-existing policy holder, her condition was covered when MetLife took over the policy. 

Met Life admitted that this was correct, but claimed it needed more information on Garcia from the employer. MetLife then spent the next two months trying to get this information, but from the wrong hotel. The MetLife handler for the claim could only be reached once over a period of months on the phone, after which MetLife finally got the right address and phone number for the right hotel. By December, it appeared that MetLife was finally going to pay Ms. Garcia her disability, but in January 2011, it decided it would only pay through September 2010 (Ms. Garcia did not return to work until Jan. 3, 2011). Another long game of phone tag ensued, etc. etc. etc. Unbelievable. The impediments Met Life interjected between Ms. Garcia and her income substitute were bizarre and unreasonable. Still, I hesitated to blog about Met Life by name…until I spotted this other story about Jane Pierce.

Jane spent nine years struggling alongside her husband, Todd, as he fought cancer in his sinus cavity. The treatments were working. Then, in July 2009, Todd died in a fiery car crash. He was 46. Despite that a state medical examiner and a sheriff concluded that Pierce's death was an accident, Met Life bizarrely and inexplicably insisted that Todd’s death way a suicide, the result of which was denial of Jane’s claim to $224,000 in accidental death benefits.

Pierce argued with MetLife for months and supplied endless documents, including autopsy reports, medical records and a letter from the medical examiner saying the death was accidental. MetLife eventually had to be sued before it would pay up. Met Life is not alone. Insurance companies have found myriad ways to delay and deny paying death benefits to families, civil court cases across the U.S. show. Since 2008, federal judges have concluded that some insurers cheated survivors by twisting facts, fabricating excuses and ignoring autopsy findings in withholding death benefits.  

The happy story? The diamond fell out of my own engagement ring on election night, sad. But, within a week of getting my appraisal to Allstate, I had a check for the full value of the diamond.  
The take-away here?  Consumers and employers: do your homework on companies before you sign up, and if there are shenanigans, switch companies until you find a good one.



I'm tempted to say good things about my insurer without its permission, but I don't have to.
Consumer Reports rates insurance companies on their claims handling. A few companies persistently come out on top, including my auto insurer.

However, there is no such thing as a free lunch. The claims-friendly companies have at least one of two attributes: they are either expensive, or they screen applicants like crazy, either through conventional risk factors or by affinity marketing.

On the other hand, chiseling companies are not always the cheap ones. There may be no such thing as a free lunch, but rancid lunches are not hard to find.

Luckily people still have a choice of insurer. They can choose to go with a reputable company to reduce the chance of these problems. A good reason to retain competition in as many markets as possible.

While in no way meant to detract from your own experience with your ring, Professor, might I point you in the direction of "From Good Hands to Boxing Gloves" http://www.businessweek.com/magazine/content/06_18/b3982072.htm

Maybe things are generally handled differently with regard to property loss claims vs. PI and/or accidental death claims.

wow, interesting Mike...and another New Mexico person to boot.

Is it not common knowledge that insurers-albeit not all- are the modern version of organized crime,aka, protection rackets.

Want to know all about claims departments? Watch "The Incredibles"; Wallace Shawn nails it.

It would make sense for insurers to consider the present value of future premiums per policy holder such that younger richer policy holders would be more likely than older ones to have their claims paid. Thus at the end of life, one might suspect insurance companies to be at their stingiest.

I've noticed exactly this phenomenon in handling homeowners' claims for clients. I have a dozen or so in the same neighborhood where all the homes had the same smoke and ash damage after a wildfire came within a few feet of the houses. Some of the insurers paid promptly, others denied claims altogether, others created procedural barriers that made the claims process drag on for more than a year. (Allstate, btw, was one of the better companies.)

As it turns out, it is largely impossible for even the most vigilant consumers to assess differences in insurance companies on the basis of their coverage. Despite conventional wisdom to the contrary, there are huge differences among insurance carriers in the generosity of their insurance policies in the domain of homeowners insurance. Nonetheless, it is essentially impossible for ordinary consumers to learn about these differences. A forthcoming article in the University of Chicago Law Review, which I authored, shows why this is so. It is available here: http://ssrn.com/abstract=1687909.

Thanks Daniel, the paper looks great, perhaps the topic of a future blog!!

Oops. The link isn't working. Here it is again: http://ssrn.com/abstract=1687909

The paper looks interesting. Now to find the time to read it...

I think the actual issue (as implied by Mark's post) is not whether something is covered by the policy but whether the company will pay. As in Mr. Rife's comment on "The Incredibles", there can be problems getting some companies to pay the stated benefits.

A.M.Best provides insurance company ratings, but these appear to be financial stability, not willingness to pay. I don't know if there are ratings relating to claim payment other than things like online user rating sites (which will probably present a more negative view than reality).

Exactyly, Thomas, that is the issue, not can they pay but do they pay. Thank you!

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