Woody Allen once said “[t]here are worse things in life than death. Have you ever spent an evening with an insurance salesman?” Insurance is generally the last thing people want to think or talk about. Even so, it is an important part of most, if not all, peoples’ lives – and can be a very important means of financial protection. It can involve every aspect of life, from health to homeowning. But you don’t want to have to use your insurance, because that means that something bad has happened.
A landlord will often get insurance to cover everything from vandalism from his tenants to water damage from a storm. These policies have typical insurance practices, for example, most policies will require a duty to cooperate with an insurer’s investigation during when damage to property occurs. An insurance company will make requests for documentation, including pictures and reports to verify the extent of the loss. The longer it does not receive this documentation, the longer it takes to determine what must be covered. When the company does not receive this information for too long, or infrequently after many requests, courts can find that the insurer’s rights have been “materially dilute[ed].”
In Vidi v. Cumberland Mutual Fire Insurance Company, a New Jersey Appeals Court decision, plaintiff policyholders sought to recover from their defendant insurance company after their commercial building suffered two losses – one from sewage backup from one of the units and another from snow on the roof. The insurance company made multiple requests for the lease agreements, for the plaintiffs to file a claim for each source of damage separately and made other requests for estimates, photographs, and proofs of loss to assess the damage. When Plaintiffs did not respond after receipt of five separate letters from the insurance company, it denied their claim. Plaintiffs then filed suit. The trial court granted judgment for the insurance company stating that “I think the policy is pretty clear and unambiguous, that you have to cooperate before you file suit. The record is just void of any evidence of compliance at all.”
The appellate court here reversed the decision, finding that even though there was no dispute that the plaintiffs did not promptly respond to the insurance company’s requests, they did not find that the insurance company could prove that their delays “materially diluted” it’s ability to investigate the claim.
While Vidi shows is an instance where the court did not hold the plaintiff’s delay against them. It is critical to note, though, that this was because the insurance company did not prove that their investigation was “materially diluted” by the delay. In other cases, the delay in the production of documents was deemed to have met this standard and the property owner lost. It’s not clear what a particular judge may decide is a “material dilution” of an insurance company’s investigation, so it is best to promptly respond ASAP whenever possible.