What Happens When a Commercial Property Claim Is Partially Denied?

An insurance company’s decision to pay only part of a claim is often reluctantly accepted by policyholders as the final word on the claim, but in many situations, the determination can and should be appealed because it is not in line with the insurance company’s legal obligations.

Even when an insurance company does not completely deny a commercial property claim, the partial “yes” effectively amounts to a significant “no” to the policyholder. The insurer may agree to cover certain losses while excluding others that should be included under the terms of the policy. When that happens, the policyholder should ascertain their legal rights and how best to enforce them. If a close examination of the policy shows the insurer is not fulfilling its legal obligations, the decision can often be appealed administratively. If that does not produce a satisfactory result, litigation may be necessary.

What Does it Mean When a Commercial Property Insurance Claim is Partially Denied?

When a policyholder files a claim under a commercial insurance policy, the insurance company might deny all coverage and refuse to pay anything, or it might agree that some losses are covered but others are not. This would be a partial denial. This differs from a situation in which the insurer agrees to cover losses but then refuses to pay their full value.

Some ways that an insurance company might partially deny a claim under a commercial policy include:

• Covering the cost of cosmetic damage resulting from a fire but refusing to pay for structural repairs to the building
• Paying for damage to equipment caused by a lightning strike but not paying the resulting business interruption losses
• Covering roof damage from a hurricane but not covering the cost of interior damage caused by rain coming through the damaged roof
• Agreeing to pay for repairs but not covering the cost needed to ensure that repairs comply with current code requirements

The denial is often based on interpretations of policy language regarding covered losses or exclusions. The insurance company’s interpretation may not be correct, but it can be difficult to challenge without an advocate who understands the nuances of insurance policy language and applicable laws.

How Do Insurance Companies Justify Partially Denying Commercial Property Claims?

In our decades of experience resolving insurance disputes, we’ve seen several reasons that insurance companies partially deny claims.

Disputes Over the Cause of Damage

Insurance companies frequently refuse to pay for large portions of damage because they claim that damage resulted from a cause that is not covered under the terms of the policy. They often insist that damage is due to ordinary wear and tear, which is generally excluded from all policies because it is inescapable. 

Insurers may also allege that damage stems from faulty construction if that type of claim is excluded under the policy. Remember that insurance companies are always looking for a reason to deny or undervalue a claim, so they may try to shoehorn the circumstances into an exclusion rather than apply it evenly to see whether it fits.

Policy Exclusions and Coverage Limitations

Most commercial property insurance policies are full of exclusions and limitations, and many policyholders do not read them carefully before entering into a contractual agreement for coverage. Many losses that the policyholder expects to be covered are excluded. Coverage may be so limited that only small amounts of damage are paid for.

When losses are clearly excluded by policy language, then the policyholder is unlikely to succeed with an appeal. However, when an exclusion is applied illogically, it makes sense to appeal the decision.

Disagreements Over Cost Calculations

Insurers frequently dispute the scope of restoration required after a loss. This includes restoring physical damage and restoring finances due to losses caused by business interruption. For instance, the insurer might claim that the damage did not affect business sufficiently to trigger business interruption coverage. Or they might insist repairs can be made to code without certain measures that are required by law.

What Happens After a Partial Denial?

Generally, when a commercial property claim is partially denied, the policyholder can expect:

• A letter from the insurer listing what parts of the claim they will cover and what parts they will not pay or what portions are still under investigation
• The insurer may provide a check for partial compensation early on or payment may be promised later
• The business will need to pay for repair costs and absorb business interruption costs
• If the policyholder does not dispute the decision through a formal appeal or informal correspondence, then the insurer is likely to consider the case closed
• The insurer may ask for additional documentation regarding the disputed portions of the claim.
• The insurer may be willing to negotiate covering additional amounts
• If negotiation does not result in coverage consistent with policy obligations and the insurer’s internal appeals system has been exhausted, it may make sense to pursue litigation to obtain appropriate benefits.

In many cases, once an attorney initiates litigation and shows they have the evidence and arguments to succeed in court, the insurer will agree to settle out of court for a reasonable amount.

FAQs About Partial Denial of Commercial Property Claims

Should I accept a partial insurance payment?

Read the paperwork provided with the payment, as it may include terms stating that accepting payment means you agree to forfeit your right to seek additional amounts on the claim.

How do I challenge a partial denial of a commercial property claim?

The most effective approach varies by situation, but it is usually helpful to start by reviewing the policy language, requesting a detailed explanation of the denial, and documenting all losses in detail. You may submit additional evidence, request reconsideration of your claim, negotiate for additional amounts based on your evidence of losses, or appeal the decision through more formal channels.

When do I need an insurance attorney?

If the amount of losses in dispute will threaten your business’s recovery, or you believe the insurance company is acting in bad faith, contact an experienced insurance attorney as soon as possible. In less extreme situations, you might try negotiating better coverage on your own, but it can help to consult a knowledgeable attorney who can explain your strongest legal arguments based on your coverage terms and applicable legal requirements.

Ver Ploeg & Marino Supports Policyholders When Claims are Wrongfully Denied or Undervalued

When your business suffers a loss, the insurance company adds to your burden when it partially denies your commercial property claim. We may be able to help ease the pain. At Ver Ploeg & Marino, our experienced attorneys can review the circumstances, determine whether you have grounds to appeal, and take the most effective steps to recover the additional funds you should receive under your policy.

For a confidential consultation to discuss how we may be able to assist, call us at 305-577-3996 or contact us online today.

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