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Do policyholders have rights after accepting a low settlement?

On Behalf of | Mar 11, 2024 | Property Damage Insurance Claims |

Homeowners insurance is a key resource for those who have invested in real property.  Properties are at risk of damage due to environmental factors or crime, and homeowner’s insurance can help mitigate some of that risk. All it takes is one major storm to leave a property unsafe to inhabit and in need of thousands of dollars in repairs. Homeowners insurance helps cover repair costs after certain types of losses, including major storm damage. Often, insurance providers respond to claims by offering settlements.

Policyholders can receive a single, lump-sum payment for all their losses. Such payouts can provide immediate relief for the financial stress often associated with property damage and pending repairs. Unfortunately, homeowners might realize once they begin working on their property that the settlement is not nearly sufficient.

What recourse, if any, does a property owner have when their insurance provider has paid them an inappropriately low settlement?

A bad faith insurance lawsuit could be an option

Federal and state laws require that insurance companies operate in good faith. After they set terms for a policy with a client, they should uphold that policy until the time for renewal comes. At that point, they could negotiate new terms. Sadly, many insurance providers do not uphold their policies in good faith but instead make every attempt they can to minimize what the company pays on a claim. They may engage in unfair claims practices that leave their policyholders without the coverage they purchased.

A low settlement is a great solution for an insurance company. The company theoretically meets the needs of a policyholder without paying out the maximum amount possible or the full cost of the covered losses. However, a settlement could give rise to bad faith insurance claims just like a claim denial might.

If policyholders can establish that insurance adjusters should reasonably know the payment was insufficient and that they intentionally manipulated the policyholder into accepting inadequate compensation, the insurance company could have to cover additional costs. In fact, there could be additional financial penalties imposed because of the bad faith insurance practices the organization demonstrated.

While settlements typically absolve insurance providers of future liability and prevent policyholders from submitting secondary or follow-up claims, a settlement is not always the end of the claims process for someone who has been denied adequate compensation despite investing in appropriate insurance coverage. Being able to recognize bad faith insurance practices during a frustrating claim can help policyholders fight back against company misconduct.