Insurance claim denials: what to do when your insurer refuses indemnity

Understanding indemnity in insurance

In insurance, indemnity refers to the principle of compensation or reimbursement for losses incurred by the insured party. When an insured event occurs, such as property damage, injury, or liability claims, the insurer agrees to compensate you or your business for the financial losses suffered up to the limit of the policy coverage. 

This compensation aims to restore you to the same financial position you were in before the loss without providing a financial gain or profit. Indemnity in insurance aims to provide financial protection and mitigate the adverse effects of unforeseen events on individuals or businesses.

Reasons why an insurer may refuse indemnity

If your insurer has refused to indemnify you against a claim, it is important to understand the reason behind their decision. In many cases, insurers deny claims due to an alleged breach of a policy condition. 

At this point, you should consider seeking expert legal advice to review their decision and look at the following:

1. Policy terms

Insurance policies are contracts between the insurer and the insured, and their terms can vary widely, so the starting point in deciding whether you are entitled to indemnity for any potential third-party liability claim is found in the policy terms. 

2. Cover

If there is a proven claim, the insurer will be liable to pay unless they can raise a valid defence. So, when an insurer is notified of a potential claim, the first step they take is to ensure that the insured was actually covered, or indemnified, for the risk which has arisen, as this may not be the case. An insurer will look at:

• the existence of an insurance policy
• the period of cover
• the cause of the loss
• whether the loss is covered or excluded under the policy.
• whether the insured failed to disclose material facts when the insurance contract was entered into.

It may be the case that the policy expired hours before the incident took place, or the policy does not cover an insurer for that specific risk, in which case an insurer may be able to avoid the claim under the policy and refuse cover.

3. Notification of a potential claim

One of the major provisions of an insurance policy is the need to notify your insurers as soon as possible of a potential or actual claim, but some people fail to do this. A failure to notify your insurer could lead to their refusing to indemnify you due to late notification, being one of the most commonly seen reasons.

Notice must be given to the insurer within the time specified in the insurance contract. Most tend to require the insured to notify the insurer "immediately" or "as soon as possible" of any event which might result in a claim.  

Is the insurer right to refuse indemnity for late notification?

Looking at the most commonly seen scenario – late notification of an incident - when can an insurer avoid paying a claim? 

• The duty to notify your insurer of a potential claim is a term of the insurance contract. If this term is breached, the insurer's rights to avoid paying the claim will depend upon the wording of the term itself.
   
• Regardless of the use or absence of any descriptive words, if the term requiring notification is classed as a "condition precedent" (i.e., an event which must take place before a party to a contract must perform their part), then late notification automatically entitles the insurer to refuse payment.
   
• If just a simple warranty or an innominate term, the insurer may be unable to avoid the claim.

Policies have varying conditions as to their reporting requirements, so the precise conditions of each individual policy need to be considered carefully, as their interpretation is essential when assessing an insured's duty to the insurer and whether they can refuse indemnity. Even slightly different wording can have a fundamentally different effect.

A breach of a condition by the insured gives the insurer a potential right to refuse indemnity or even to void the policy from its start.

What happens if there has been late notification of a claim?

When you report a claim, insurers will check to see whether they were notified of the risk of a potential claim earlier and may seize upon any late notification as a breach of the insurance contract and refuse indemnity.

The courts have tended to take a strict view of non-compliance as being sufficient grounds for an insurer to deny liability for the claim in its entirety, even where there has been no prejudice resulting from the late notification.

What happens if indemnity is withdrawn?

If this happens, the insurer may not cover the loss being claimed or the legal costs incurred by both the claimant and you, leaving you to defend and fund the claim yourself. Clearly, this could expose you to significant financial risk, which could, in the worst-case scenario, see you lose your business or your home with assets being sold to satisfy any court judgment made against you. 

Response strategy for indemnity withdrawal

If, for whatever reason, your insurer has refused indemnity, you will need to protect your position by dealing with the claim against you. Our specialist solicitors can assist by:

• Advising as to whether you have cover under the policy or not.
   
• Advising on their grounds for refusing indemnity and whether they are entitled to do so based on the policy terms and conditions.
   
• Identifying and advising on any time limits or deadlines under your policy.
   
• If proceedings have been issued in court, we will advise you on any time limits or deadlines you must comply with and the consequences of not doing so. Leaving matters and not taking any action may jeopardise your prospects of defending the claim or raising arguments to reduce any damages or legal costs you may be ordered to pay later on.
   
• Protecting your interests when exposed to significant financial and reputational risks.

Pragmatic approach

Our solicitors have expertise in defending insured claims and helping clients who are "uninsured" in a claim. 

Firstly, we will review the insurance policy to assess whether the insurer has sufficient grounds to avoid the policy and withdraw indemnity. 

If such grounds exist, we will advise on the most pragmatic and commercially viable approach to minimise your exposure to costly and lengthy litigation, including the associated legal fees on both sides.

In some cases, there may be an arguable defence to make the claim worth fighting, especially if it appears fraudulent. In others, the only approach is damage limitation, where we recommend taking a commercial view and resolving the claim as quickly as possible.

Key takeaways

Key points to remember if you or your business are faced with an actual or even a potential insurance claim:

• Notify your insurer as soon as possible of any event which may lead to a liability claim, preferably by phone and a follow-up e-mail. This avoids any risk of late notification and loss of indemnity and enables your insurer to have sufficient time to investigate and gather evidence, which it can use to defend the claim if brought in the future. If the insurer is not notified, their position may be prejudiced later.
   
• Collate evidence of the claim, such as photos, e-mails and documents, which may assist your insurer in defending it.
   
• Keep complete records of all documents sent to your insurers.
   
• Review the terms and conditions of your insurance policy to note any notification requirements, exclusions, and areas that are not covered. You do not want to run the risk of your insurers withdrawing cover when you most need it.
   
• Ensure all your details are correct and current, as these facts may have changed since you took out the policy. 
   
• Ensure your renewal date is diarised to allow you time to contact your insurer or insurance broker ahead of renewal if details need updating or the extent of cover needs changing.

Contact our insurance dispute solicitors

If you need help with an insurance claim dispute, contact Michael Mulcare, a consultant solicitor at SO Legal. Our litigation team provides extensive assistance to businesses and individuals across the country.

With solicitors in London, Brighton, Sussex, and Cumbria, we're well-equipped to help you resolve your insurance claims quickly and cost-effectively.