Too often, people think that buying insurance solves all their problems. Not always. The real question is: How readily will the insurance company pay a valid claim? I am an attorney and have been handling consumer protection cases in Michigan now for 23 years. I wrote a post the other day about complaint methods that generally don't work and I got a ration of grief from readers telling me that attorneys are not necessary to solve consumer problems. I've got one more true story for you.

I had a client - let's call him Milo - who had a coin collection. He kept it in the home he owned with his wife, and insured with a smaller insurance company you have probably never heard of. Milo lived in a fairly small town and actually went into his agent's office each year to review his coverages and to chit chat. That's how people are in small-town Michigan. One year he mentioned his coin collection and his agent told him, "Jeepers, That needs a special rider." She filled out some forms, told Milo how much extra it was going to cost him, and he paid the premium. For the next few years he paid the premiums. Then, his house was burgled and, among other things, the coin collection was stolen. Milo called the police and then called his agent. The agent took his claim and said she would see to it that it was handled pronto.

After some dilly-dallying, also expected in small-town Michigan, the insurance company sent Milo a nice letter with a check. The check was short the exact amount of the coin collection's value - between $5,000 and $10,000 - and the letter explained why. "Your coin collection was excluded under your policy which specifies that coins, jewelry, monetary instruments [etc] are not covered unless you purchase a special rider specifically for them . . . "

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Milo called his agent and reminded her that he had bought a rider for the coin collection. And the insurance company had acknowledged this when they had billed him for the policy with the special rider the last few years.

"Golly, I"ll get right on that." About an hour later, she called him back. "Well, Heck. They won't pay the claim since coins aren't covered under your policy. You needed to buy a special rider for that."

"But I bought the special rider for my coin collection. I bought it from you."

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"Whillikers, I told 'em that. They said that coins still aren't covered under your policy because you'd need a special rider for that."

Yes, this was the paradox. He had bought the rider and the insurance company insisted he had no coverage because that would require a rider. Which he had bought. He had paperwork to prove it - copies of the rider, statements from the insurance company, canceled checks. And they insisted that without the rider there was no coverage. Sorry. Should have bought the rider.

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Milo wrote letters and called everyone he could think of. I did not witness the phone calls but I read the letters. He was calm and polite and explained his problem clearly. He attached copies of the policy, the rider, and the police report. His correspondence went unanswered. Whenever he got someone from the insurance company on the phone, they told him he had to speak to his agent.

Milo hired me; I filed suit. A day or so after the suit was served on the insurance company, I got a phone call. Much like the conversations above which have been reconstructed from memory, it went something like this:

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Me: Hello.

Insurance Company Attorney: Who do we make the check out to?

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When I asked why we were forced to file suit the attorney laughed and made some other non-verbal noises from his end of the line. Then, "I wasn't involved with that decision. The check is being ordered today."

Why didn't any government agencies help him? In Michigan, the department that oversees insurance is worthless. They take the complaint and give it to the company. If the company responds in any manner, they tell the complainant that it is a "civil matter." In other words: "Sue them."

Why did the insurance company deny Milo's claim? It may have been incompetence on the part of the company. They may have wondered if he would file a lawsuit. "Do people in small towns file lawsuits? Let's find out!" But, before he hired me, Milo had exhausted the more logical complaint methods - calling and writing to executives of the company, the media and so on. It wasn't until a suit was filed that he got his money.

Yes, I understand that this example is extreme. But these things do happen. We just hope they never happen to us. And for those who insist I plainly state the moral for every piece I write, it is this: Research your insurance to find out their customer service ratings, especially how well they pay claims. The information is out there on the interwebbly.

Photo: Petr Kratochvil

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Follow me on Twitter: @stevelehto

Steve Lehto has been practicing consumer protection and lemon law for 23 years in Michigan. He taught Consumer Protection at the University of Detroit Mercy School of Law for ten years and wrote The Lemon Law Bible. He also wrote Chrysler's Turbine Car: The Rise and Fall of Detroit's Coolest Creation and The Great American Jet Pack: The Quest for the Ultimate Individual Lift Device.