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Understanding Underpaid Home Insurance Claims

If your home or property gets damaged from a storm, fire or another event, a homeowners insurance claim can provide the funds you need to restore and rebuild. Unfortunately, insurance companies often try to protect their profits by undervaluing and underpaying claims. As a claimant, it is critical to understand the true value of your claim before you settle – and to contact an insurance attorney if you believe an insurance company is underpaying your claim.

Why Do Insurance Companies Underpay Claims?

Underpaying a claim means offering a settlement that is less than the true value of the claim. The insurance claims adjuster – the person assigned to evaluate your insurance claim – may estimate your losses and property damage at an amount that is less than you need to cover your home repair costs. Underpaying a claim may also mean failing to offer the amount promised to you when you purchased the policy.

Many different issues could lead to an insurance company underpaying a home insurance claim, including:

  • Inadequate investigation. An insurance company might rush through the investigative process, failing to take enough time to adequately assess the damage. In this scenario, the low value of your claim might have been a good-faith attempt to pay the right amount; the adjuster just might not have accurately evaluated the damage.
  • Paying the actual cash value. In some cases, the claims adjuster tries to only pay the actual cash value of the home insurance claim, rather than the full cost of repairs or property replacement. The actual cash value is what your property is worth today, rather than what it will cost to replace or repair your property.
  • Depreciating the labor costs. Another common tactic is to underestimate the cost of labor. An insurance adjuster may accurately estimate the cost of the materials needed to repair your home, but underestimate labor costs to lower the overall value of your claim. Be sure to check the cost of labor in the insurance company’s calculations for accuracy.
  • Insurance bad faith. Finally, an insurance company may deliberately offer an unfairly low amount for your claim as a form of insurance bad faith. Insurance bad faith means the company is knowingly or intentionally mishandling your claim in an effort to save money on your payout. Purposely undervaluing claims is a common form of bad faith.

No matter what the reason, if you believe your homeowner’s insurance company is undervaluing your claim, do not accept the settlement. Keep in mind that once you accept, you generally cannot reopen your case or renegotiate a better value. This is why it is important to be absolutely certain that the offer is fair before saying yes.

What to Do If Your Claim Is Underpaid

If you think your home insurance claim has been undervalued or underpaid by a claims adjuster, do not accept the offer. Take it to an insurance lawyer for review. Unlike an insurance company, an attorney will want to maximize your financial relief. Your lawyer can review the facts of your case and the insurance adjuster’s offer to assess its fairness. Then, your lawyer can help you fight for a greater settlement, if applicable.

The first step in disputing an underpaid claim is contacting the insurance company and requesting a second review. Ask if there’s anything you can do to change the value. If the company needs further evidence of your losses, for example, submit this. If the insurance company stands by its original offer, you can hire an independent appraiser to estimate the cost of the damage. If the insurer still will not revise its offer, you can take legal action against the insurance company for bad faith with help from a lawyer in Phoenix.