What Happens If An Insurer Refuses To Pay A Claim Due To Minor Policy Errors?

If an insurance company refuses to pay a claim due to minor errors in the policy or application, it can be frustrating, especially when the errors do not significantly affect the coverage or intent of the policy. Fortunately, there are steps you can take to challenge the insurer's refusal and seek fair compensation. Here’s what you need to know:

When Minor Policy Errors Occur

Minor policy errors are typically mistakes that do not substantially alter the terms of the coverage or the risk assumed by the insurer. These might include clerical errors, minor omissions in the policyholder’s application, or small discrepancies in the information provided at the time of underwriting (e.g., a typo in the applicant’s address or an incorrect date).

Insurers are generally required to act in good faith, meaning they cannot deny a claim based on minor or insignificant errors that don’t materially affect the coverage. If the insurer refuses to pay a claim based on minor policy errors, they may be acting improperly, and you have options to dispute the decision.

What You Can Do If Your Claim is Denied

1. Review Your Insurance Policy: The first step is to carefully review the policy to understand the terms, conditions, and exclusions. Identify the specific error the insurer is citing and assess whether it truly impacts the validity of your claim. Errors like typos or clerical mistakes may not be enough to deny coverage if they don’t change the meaning or scope of the policy.
2. Clarify the Error with the Insurer: Contact your insurer and ask for clarification about the specific error they claim invalidates your claim. You may be able to correct or provide further documentation to show that the error was minor and does not affect the claim's validity. For example, if the error was a misquoted date of birth or a transposed address, you could submit proof to correct the mistake.
3. File a Formal Appeal: If the insurer denies your claim due to a minor error, you can file a formal appeal. Most insurers have an internal appeals process that allows policyholders to contest claim denials. In your appeal, present the following:
   • A clear explanation of the minor error and how it does not affect the validity of the claim.
   • Any supporting documentation that shows the error was clerical or did not materially impact the terms of the policy.
   • If relevant, reference legal standards or industry practices that support your position, such as the principle of good faith in insurance contracts.
4. Consult the Insurance Ombudsman or Regulator: If the insurer refuses to reconsider its decision after an appeal, you can file a complaint with the insurance regulator or ombudsman in your jurisdiction. Many countries and states have regulatory bodies that oversee insurance companies and can intervene in disputes. They may investigate the denial and help mediate a resolution, especially if the insurer acted in bad faith.
5. Seek Legal Advice: If your claim remains unresolved, consider consulting an attorney specializing in insurance law. A lawyer can assess whether the insurer’s refusal to pay is lawful, guide you through the next steps, and help you challenge the decision through legal means. They may also help you determine whether you have grounds for suing the insurer for bad faith or breach of contract.
6. Mediation or Arbitration: In some cases, your insurance contract may require you to enter mediation or arbitration to resolve disputes. These are alternative dispute resolution methods that allow you and the insurer to present your case before a neutral third party. Mediation or arbitration can be a quicker and less expensive way to settle the matter than going to court.

Legal Grounds for Challenging Claim Denials

1. Good Faith and Fair Dealing: Insurance contracts are governed by an implied duty of good faith and fair dealing. If an insurer refuses to pay a claim due to a minor error that doesn’t materially affect the coverage, they may be in violation of this duty. Insurers are not permitted to deny claims based on trivial errors or omissions unless the error is material to the risk or the policyholder's eligibility for coverage.
2. Materiality of the Error: An insurer cannot refuse to pay a claim based on a minor mistake that does not alter the risk of loss or the contract's terms. If the error is trivial and does not impact the outcome of the claim, such as a typo in a name or an address, the insurer may still be obligated to pay the claim.
3. Breach of Contract: If the insurer refuses to pay a claim based on minor errors that do not invalidate the contract, this could be considered a breach of contract. The insurer may be required to honor the terms of the policy despite the mistake, especially if the error does not significantly change the coverage the policyholder is entitled to.
4. Consumer Protection Laws: Many jurisdictions have consumer protection laws that guard against unfair or deceptive practices by insurers. If you believe the insurer's denial is unreasonable or unjustified, you may be able to pursue a legal claim for unfair business practices or breach of contract under these laws.

Example

Let’s say you file a claim with your auto insurance provider after an accident, but the insurer denies your claim because the policy application mistakenly listed your car’s make as Honda instead of Hyundai. If the error was a minor clerical mistake and does not affect the risk, your eligibility for coverage, or the terms of the policy, the insurer’s refusal may be unjustified.

In this situation, you could:

1. Provide Documentation: Submit documents like the original application, proof of vehicle ownership, or a copy of the title to correct the error.
2. Appeal the Decision: Appeal the claim denial, explaining that the error was clerical and does not impact the coverage you were provided.
3. Seek External Help: If the insurer refuses to reconsider, file a complaint with the state insurance commissioner or consider legal action to force the insurer to honor the policy.

Conclusion

If an insurer refuses to pay a claim due to minor errors, the denial may be unjustified, especially if the error does not affect the terms of the policy or the risk covered. Policyholders have several options, including filing an appeal, contacting the insurance regulator, or seeking legal advice. By demonstrating that the error was minor and did not alter the terms of coverage, you can challenge the insurer’s decision and increase the likelihood of a favorable outcome.