Claims are typically classified as either underpaid, denied, or settled.
- An underpaid claim is simply when a claims adjuster pays you less money than you were entitled to according to your policy.
- Denial of a claim occurs when an insurance carrier determines that they have no obligation to provide coverage; therefore, they will not issue payment.
- Settlements occur when an insurance carrier issues a payment for damages suffered by an insured party, which may include actual cash value or replacement cost.
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Click to CallThe information provided in this article will assist you with understanding what constitutes an underpaid claim, recognizing when one has occurred, and what you can do about it. Wyly & Cook Law Firm has represented numerous policyholders who have been subjected to poor treatment by their insurance carriers regarding both the quality of service received and the amount of money owed.
| Type | What it looks like | Example |
| Partial payment | Insurer pays something, but not enough to complete repairs or cover all losses | Roof replacement costs $18,000; insurer pays $11,000 |
| Low valuation | Insurer calculates the value of your property or vehicle lower than actual market or replacement cost | Auto adjuster values a totaled car at $12,500; comparable vehicles cost $17,000 |
| Delayed payment | Insurer stalls long enough that you’re pressured to accept less just to move on | Claim drags on for months with no resolution; you accept a lowball offer out of desperation |
Why do claims get underpaid?
Profit motivations of insurers and depreciation
Insurance companies are for-profit organizations. The less money that is paid out, the more money will be kept. One of the main ways in which they achieve this goal is by depreciating the property’s Value. They determine how many useful years remain in your 12-year-old roof, and then reduce your payment accordingly based on this determination.
If your policy provides Replacement Cost Value (RCV), you will receive enough money to replace the item. However, if your policy only provides Actual Cash Value (ACV), the depreciation of the property will be subtracted from the ACV. Many homeowners are unaware of the type of coverage they possess until after they receive a check that appears too low.
Related Article(s)
Underpayment of damages through unreasonable estimates
Insurance companies utilize computer-generated repair estimates. Although Xactimate is the primary program utilized, many of the line-item prices within this program are lower than what contractors in your area charge. Additionally, labor rates used in estimating programs are established using regional averages that do not account for today’s market conditions.
Contractors’ overhead and profits are not included in these estimates. Code upgrades, which are required by local jurisdictions during repair work, are usually omitted. As such, although the estimator’s report may show a comprehensive breakdown of costs, a legitimate contractor evaluating the same scope of work may quote a much higher price. This disparity is generally due to the fact that the estimator failed to adequately list all costs associated with the repair work.
Policy loopholes & vague language
Homeowner and commercial property policies contain dense, lengthy language. Lawyers hired to represent the best interests of insurers drafted these policies. While most insureds understand what they believe is covered by their policy, many are surprised when reading their policies in detail to find numerous loopholes and ambiguous language that greatly impact what they are actually entitled to recover.
If you have not reviewed your entire policy lately (the majority of homeowners have not), you should review it immediately. Review any exclusionary clauses, any reporting requirements, and any endorsements that amend your basic coverage. There may be a significant difference between what you believed was provided and what the policy actually provides.
Delays used as a means to weaken policyholders
While some underpayment may involve mathematical errors, other underpayment methods are designed solely to delay the processing of claims. Insurers know that policyholders experiencing damage to their homes or outstanding medical expenses become increasingly frustrated over extended periods of time. Therefore, slow response times, excessive demands for documentation, and prolonged negotiation periods are commonly employed to pressure policyholders into accepting lower payments simply to expedite the processing of claims.
Insurance Lawyers
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Not all underpayments are intentionally made. Due to high volumes of cases assigned to each adjuster, damage assessments may be overlooked, or documents may be lost. Similarly, while the extent of a claim is being investigated, additional damages may go unreported. In many instances, correcting underpaid claims is simply a matter of presenting sufficient evidence and requesting a second inspection.
Identifying indications of underpaid claims
The following indicators suggest that your claim may have been underpaid:
- Estimates produced by the insurer are substantially less than those developed by licensed contractors. It is possible for one contractor to quote a price that is higher than the estimate developed by the insurer; however, multiple quotes from separate contractors that are consistently higher than the insurer’s estimate indicate that the insurer’s estimate is probably incorrect.
- Missing Line items
A missing line item may indicate that several areas of expense were not accounted for. For instance, a line item for contractor overhead and profit is generally absent from Estimates developed by the insurer. Similar to overhead and profit, a line item accounting for code upgrades is also frequently absent. Any missing line items from the original loss inventory should also raise suspicion. - Vague depreciation calculation
It is normal for depreciation to be applied to older items. However, unless the adjuster provides adequate justification for the application of depreciation, including calculation details and references to Policy provisions allowing for depreciation calculations, it cannot be assumed that depreciation was appropriately calculated. - Lack of coverage for future expenses
Some types of damage create secondary issues, such as water intrusion causing mold growth. If the estimate does not account for potential subsequent problems created by existing damage, it is an indication that there was inadequate consideration given to future costs. - Confusing or lack of explanation regarding claim amount
Unless your insurer can clearly describe how they determined your claim amount, this is an indication of possible underpayment. It may be helpful to obtain a detailed explanation regarding how they determined your claim amount. - Partial payments or delays without a reasonable time frame
If you experience repeated partial payments or delayed payment without reasonable explanation as to why there is a delay in resolving your claim, it is possible that you are experiencing underpayment.
Additionally, red flagging low-ball repair estimates include:
- Labor rates lower than local contractors charge
- No overhead/profit Line item provided to contractor on larger jobs
- No allowance provided for code upgrades when required by jurisdictional ordinances
Calculating low-ball repair estimates
Repair Estimates are calculated by an insurer utilizing either Replacement Cost Value (RCV) or Actual Cash Value (ACV).
Replacement Cost Value (RCV) is the cost of replacing or repairing the damaged property with new materials of like kind and quality, not reduced for depreciation.
Actual Cash Value (ACV) starts at the RCV number and then deducts the depreciation based upon age, condition, and expected lifespan of the property. Therefore, a roof estimated to have a 20-year life span which was installed ten years ago would be reduced approximately fifty percent of its RCV number.
Injured in an Accident?
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Get Compensated For Your Injuries & Damages! Call Us For A FREE Case Review. Call Us For A FREE & Confidential Case Review Today!Regardless of whether you are entitled to RCV or ACV is determined solely by your policy.
Some policies provide ACV initially and then pay recoverable depreciation once you complete repairs and submit documentation.
However, the bigger issue is that estimating tools utilized by insurers are calibrated using their own pricing databases, which may not reflect current costs for materials and labor within your city.
Contractors building an estimate using Xactimate or another system will arrive at different numbers for identical work because they price according to what materials and labor actually cost locally.
Therefore, the most important thing you can do is obtain a copy of every single Line item from the adjuster’s estimate and compare those against bid prices from independent licensed contractors. Wherever gaps exist between the two is where your negotiations start.
What should I do if I believe my claim has been underpaid?
Review your policy before doing anything else.
Read your policy carefully now and determine the following:
- coverage limits
- deductibles
- endorsements modifying basic coverage
- language addressing replacement cost versus actual cash value
- language addressing how depreciation is applied
- deadlines for filing appeals
You cannot argue you were owed something if you do not know what your policy provides.
Gather all available evidence
Obtain at least three separate estimates from licensed contractors evaluating the same scope of work.
- Document every aspect of damage with photographs.
- Keep a record of receipts received after making purchases related to your loss.
- Maintain a record of every communication made during the course of your loss processing.
- Maintain records of any professional opinions obtained relative to your loss.
Request details behind the adjustment methodology used by the insurer
Send written correspondence to the insurer demanding an explanation for how your claim was calculated.
Demand a list of each individual component used in developing your adjuster’s estimate.
Track all communications relating to this matter, including emails sent and letters received.
If the insurer cannot clearly explain their methodologies for determining your claim amounts, that is telling.
Use appraisal clause or dispute resolution process
An appraisal clause contained within many homeowners and business policies allows both sides to hire independent appraisers when there exists a disagreement concerning the amount of loss.
Each party selects their own appraiser; if the parties are unable to agree on who shall serve as umpire, the state will appoint one.
This process may be more efficient and less expensive than litigation. Please note that the availability of this provision may depend on various provisions within your policy, including deadlines for invoking it and any fees associated with participation.
File internal appeal or formal complaint
If your initial dispute does not resolve the problem, follow the internal procedures established by the insurer for appealing decisions.
If you receive no satisfaction from the above procedure, consider filing a complaint with the Texas Department of Insurance.
Filing a formal complaint creates a record and often stimulates additional action from the insurer.
Consult Experts
Public adjusters are professionals working independently on behalf of policyholders rather than insurers to document and negotiate claims.
For structural issues, engineers or experienced contractors may offer expert testimony that carries significant weight in disputes.
These costs may also be recovered via settlement agreement.
Act quickly
Texas statutes establish certain deadlines pertaining to insurance claims.
Likewise, your policy likely contains timelines for reporting disputes and other remedies such as appraisal.
Do not delay; waiting too long reduces options.
