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Insurance Coverage Disputes: Legal Implications For Businesses And Insurers

The legal implications of insurance coverage disputes for businesses and insurers can be complex. These types of disputes can directly impact a business’s financial stability and risk management strategies. When an insurer and a policyholder disagree on coverage terms regarding a claim, it helps to understand the policy language, the scope of coverage, and the laws that govern insurance contracts. To learn more, consider consulting with an experienced business litigation attorney with Schwab & Gasparini by calling the Syracuse office at (315) 422-1333, the Albany office at (518) 591-4664, or the White Plains and Hudson Valley office at (914) 304-4353.

What Are Insurance Coverage Disputes?

Insurance coverage disputes may arise when an insurance company and a policyholder disagree about the coverage terms in a policy. These disputes often involve differences in interpreting policy language, understanding coverage amounts, and applying exclusions. Dealing with insurance coverage disputes can affect a business’s overall financial stability, reputation, and ongoing operations. Business owners may find these disputes particularly stressful, as they tend to occur after a loss when the company is particularly vulnerable. Businesses must stay informed about policy exclusions, conditions, and endorsements to effectively manage potential risks and avoid costly litigation.

Insurers must balance the risk of litigation with customer relations and their duties according to the terms of the policy contract. Preventing and dealing with insurance coverage disputes requires a keen ability to assess how policy coverages will apply to specific circumstances. For instance, if the insurer denies a claim based on an exclusion clause, a thorough examination of the language of the policy and the circumstances of the claim may be required. Disagreements over the claim value often involve discrepancies between an insurer’s valuation of a loss and that of the policyholder. These disputes can escalate to require appraisals, mediation, or even litigation.

Common Causes and Types of Insurance Coverage Disputes

Insurance coverage disputes can have a range of causes, from differences in interpreting policy language to allegations of bad faith. Common disputes often arise after an insurer denies a claim based on policy exclusions, underpays a claim, delays processing a claim, or disagrees about the value of a covered loss. According to Chapter 28, Article 26, § 2618 of the Consolidated Laws of New York, insurers have 15 business days after they have received all required proofs of loss to inform claimants in writing about the decision to accept or reject the claim. Additionally, insurers have the option to utilize a 30-day extension if more time is needed to make a determination.

The types of disputes can include property damage claims, liability claims, business interruption, and professional indemnity. Each type can have unique challenges and legal implications, necessitating a comprehensive approach to effectively resolve the dispute. Disputes between insurers and policyholders can take many forms, ranging from denied claims to disagreements over the value of a claim. Common types of disputes can involve policy exclusions, interpretations of ambiguous policy language, non-disclosure of relevant information, and the timeliness of the claim process. Each type of dispute can have different legal considerations that require a unique approach to resolution.

How Do Businesses and Insurers Settle Insurance Coverage Disputes?

Settling insurance coverage disputes typically begins with a thorough review of the policy contract and the facts surrounding the claim. When businesses face insurance coverage disputes, a business representative and the insurer may first attempt to negotiate a settlement to avoid the potential costs and time involved in litigation. If initial negotiations fail, the parties may seek alternative dispute resolution (ADR) methods, such as mediation or arbitration. During mediation, a neutral third party facilitates discussions between the parties with the goal of reaching a resolution. Mediation typically requires the parties in a dispute to compromise until they can agree to the terms. 

According to the Legal Information Institute, arbitration requires each party to present the facts before a qualified arbitrator who will decide the case. Arbitration is conducted outside the courtroom and is generally less expensive and more casual than litigation. However, there are different rules regarding discovery and evidence, and the parties will generally not be able to appeal. An insurance contract may include a mandatory arbitration clause that requires the insurer and the business representative to utilize arbitration rather than litigate the case. If the parties cannot reach a settlement using an alternative dispute resolution method other than arbitration, litigation may be the next step.

Steps in the Legal Process for Businesses Facing Insurance Coverage Disputes

If initial negotiations and settlement attempts are unsuccessful, the parties may need to proceed with litigation to resolve the dispute. Throughout the litigation process, businesses work closely with their legal counsel to develop a strong case, protect their rights, and navigate the complexities of the legal system. The steps involved after filing a lawsuit can include: 

• Discovery 
• Pretrial hearings
• Court-ordered mediation 
• Trial 
• Appeals

During litigation, both sides will present their case, and a judge or jury will determine the outcome based on the evidence and applicable state law. The process can be lengthy and complex, often requiring expert witnesses. A skilled business litigation attorney from Schwab & Gasparini may be able to offer legal expertise and develop an effective strategy for trial. 

Impact of Insurance Coverage Disputes on Business Operations and Reputation

Insurance coverage disputes can have significant repercussions on a business’s operations, often leading to financial strain as resources are diverted to dealing with the dispute. The uncertainty and potential cash flow issues from unresolved claims can hinder a company’s ability to operate effectively.

Disputes can become public, potentially harming a business’s reputation and affecting customer trust and investor confidence. Lengthy legal battles can further signal instability. Therefore, businesses will need to manage disputes promptly to focus on preserving their reputation.

How To Prevent Insurance Coverage Disputes

Preventing insurance coverage disputes begins with clearly understanding insurance policies and their provisions. Businesses can establish proactive relationships with insurers, invest in thorough policy reviews, ask for clarification for ambiguous terms, and carefully document communications with insurers before disputes arise. Performing regular risk assessments and updates to coverage can also minimize the likelihood of disputes.

Businesses should maintain accurate records of their assets in order to clearly define their losses in a claim. An attorney can help with reviewing policy terms to further aid in preventing insurance coverage disputes. 

How New York Businesses Can Manage and Mitigate Insurance Disputes

New York businesses can manage and mitigate insurance disputes by being proactive in their approach to insurance coverage. This includes regularly reviewing policy terms, maintaining open communication with insurers, and documenting all correspondence and transactions. When a dispute arises, an attorney with experience in New York insurance law may help to achieve a favorable outcome. Additionally, businesses can reduce the risk of disputes by implementing thorough risk management practices and ensuring accurate and complete disclosure of all relevant information when initially purchasing insurance coverage. New York businesses can enhance their ability to effectively handle potential insurance coverage disputes by being prepared and staying informed.

Contact a Commercial and Business Litigation Attorney 

Insurance coverage disputes are a significant concern for both businesses and insurers, with legal and financial implications that can be far-reaching. Having an advanced understanding of the nature of these disputes, the resolution process, and potential strategies can be beneficial if disputes arise. The goal for both insurers and businesses should be to resolve disputes as fairly and efficiently as possible. When they recognize the potential for disputes and take proactive steps to prevent them, businesses and insurers can foster a more collaborative and less adversarial relationship. This will ultimately benefit all stakeholders. If your New York business is disputing over insurance coverage, consider contacting a commercial and business litigation attorney with Schwab & Gasparini by calling (315) 422-1333 in Syracuse, (518) 591-4664 in Albany, or (914) 304-4353 in White Plains and Hudson Valley to schedule a consultation today. 

Sun Oct 13 2024, 12:00am