Insurance Company Economics

How much would you pay for a $45,000 boat? An insurance company’s answer might surprise you.

When our firm recently settled a case with an insurance company on the eve of trial, it made me think about insurance company economics and how these companies must be held accountable in order for their practices to change.

Using our case as an example, a disabled veteran had his boat catch on fire in the middle of the Atlantic Ocean. The insurance company had insured his boat for an agreed value of $45,000. When the company was unable to determine a cause of origin for the fire, after writing him letters for 5 months telling him to be patient, they denied the claim. We became involved at that point and litigated the case vigorously. Our top-notch expert was easily able to determine the origin of the fire as shorted wires at the lowest point of the burn. On the eve of trial we received a call from corporate counsel for the insurance company agreeing to pay the full claim plus interest, plus full costs plus our client’s attorney’s fees. When you add in the cost of what the insurance company paid on their end to litigate the case, their total outlay was probably SEVEN TIMES the value of the boat. So, why did they do it?

The answer is simple. If they deny 10 claims, only about 3 or 4 will have the wherewithall to contest the claim. Out of those, 2 or 3 probably settled for less than the value of the boat. That only leaves one claim that was ready to go to trial and that the insurance company would have to pay fully. Simply put, the company probably has learned that they can make more money by denying claims because only a few claims will eventually cost them big. This is why it is very important to contact a qualified lawyer if a situation like this ever happens to you. If all 10 of the wrongful denials decide to fight the insurance company, it will make more economic sense for them to pay rightful claims immediately rather than deny, delay, and hope all but a few of the claims go away. So if you’re ever in a situation such as this one, fight for your rights- you may end up changing insurance culture and economics.