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November 07, 2022
CLAIMS COMMANDMENTS

Claims Commandment VII - Thou Shall Never Lie to an Insured
Barry Zalma

Read the full article at https://lnkd.in/gUqxEHEp and see the full video at https://lnkd.in/gPzkFYhz and at https://lnkd.in/gt_Uq9N5 and at https://zalma.com/blog plus more than 4350 posts.

Insurance is, and has been since the first policy was carved into a clay tablet, considered a business of the utmost good faith. The principle of utmost good faith (uberrimae fide) was, I believe, first stated in the English speaking world, in the British House of Lords by Lord Mansfield in 1766 in a case where he concluded that the duty of good faith rests upon both the insured and the insurer and held the insurer to its knowledge at the time the policy was signed. The insurer, like the insureds, took the premium, knowing the condition of the security provided, and could not upon loss claim the insurer was deceived. [Carter v. Boehm, 3 Burr 1905 (1766)]

As the old maxim says: “honesty is the best policy.” There is no excuse for an insurance claims professional to lie to an insured. Not only is a lie to an insured a failure to act with the utmost good faith, but it is also an action fraught with danger for the claims person and the insurer for whom he or she works. Keeping up a consistent lie is almost impossible. All definite statements can be corroborated or proven false by further investigation. If a lie is about a material fact, the falsehood will be proved to the expense of the insurer.

Lies to insureds — even when done for what the claims person believes is a good purpose — will invariably cause the insurer problems. Lies created on the run invariably include internal contradictions. A lie told to an insured can be, and most certainly will be, used by the insured to prove that the actions of the insurer were made intentionally and in bad faith such that the insurer will eventually be punished with punitive damages.

For example, in Allison v. Fire Insurance Exchange, 98 S.W.3d 227 (Tex.App. Dist.3 12/19/2002) a major punitive damage award was obtained by a plaintiff who presented evidence from the adjuster, who admitted she lied to the plaintiff about the authority to resolve a claim for mold damage. Although the case was reversed because of an excess verdict the lie cost the insurer a great deal of money when the case was eventually settled and started a spate of bad faith cases claiming refusal to pay for mold damage because of the excess and punitive judgment at the trial of the Allison case.

Claims people get into trouble when they fail to tell the truth to the insured about, among others, the following:

The check is in the mail.

There is no problem with coverage.

I will pay the fees of the lawyer of your choice.

The claim is being reviewed by senior management.

I need another 30 days to complete my investigations.

I need a copy of your policy.

I need you to go to all of the places where you bought the stolen property to get a receipt.

I will hire a contractor to rebuild your house.

I don’t have authority to settle your claim.

I don’t need to do an investigation to know your claim is not covered.

I have confirmed coverage.

Any other statement that is not true.

California Insurance Code Section 790.03(h)(1) provides:

Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:

1. Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

Similarly, the California Code of Regulations, 10 CFR 2695.4 provides:

(b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.

This should be self-evident to anyone involved with insurance claims. It is a statement of prudent and common claims handling. Although this Regulation seems to apply only to surety bonds it also applies to any type of insurance. Nothing can be gained by an insurer concealing or misrepresenting information about the policy or the surety bond. Claims staff should be warned that violation of this regulation will be grounds for discipline and certain loss of employment.

On the other hand, proving that insurers and insured play the insurance claims game with a different set of rules, a mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be wilful. [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 95-97, 3 S. Ct. 507, 515-16, 28 L. Ed. 76, 82 (1884)]

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected] and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at
Zalma on Insurance
Insurance, insurance claims, insurance law, and insurance fraud .

By Barry Zalma

. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

00:07:06
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In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.

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Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages

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No One is Entitled to be Paid for the Same Loss Twice

In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.

BACKGROUND

In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.

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State Farm filed motion for summary...

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Read the full article at https://lnkd.in/gzvvdkMZ and at https://zalma.com/blog.

Below you will read from this post until you reach the the end of this blog post as the free part of an Excellence in Claims Handling post. To read the full article and receive all articles for members of Excellence in Claims Handling you should consider joining as a paid member to get full access to articles for members only, to our news, analysis, insurance coverage, claims, insurance fraud and insurance webinars, by clicking at the subscription link below.

A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...

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