Some examples of homeowner insurer fraud and unfair or deceptive trade practices include:
-Insisting that the insured allow the insurer to generate the loss inventory after a covered loss. Often the insurer will remove the personal property from the residence prior to the loss inventory being generated so that the insurer can try to salvage the property. Once the insurer has completed their salvage effort, the insurer returns the salvaged property with a loss inventory that lists the total loss items. Often the items are listed as "2 toys" or "5 books." From this vague description the insurer assigns a value, and attempts to leave the homeowner without the ability to figure out what property was discarded by the insurer, let alone challenge the unrealistic values assigned to the unreturned property.
-Issuing policies with declaration page policy limits such as “$30,000 or actual cash value,” and when the insured makes a claim (where the preloss property value had not decreased significantly, claiming that the actual cash value of the item is only $8,000). The insurer charged a premium appropriate for their accepting a $30,000 risk, yet now claims that their liability is less than a third of the risk they accepted and charged a premium for. This practice is tantamount to post claim underwriting, a practice which is illegal in most states.
-Using economic coercion to force the claimant to use their preferred repair vendor. Many states require insurers to give claimants a choice in repairers. Other states require insurers to guarantee the work of repairers they selected. Insurers illegally control their costs by getting unrealistically low bids from contractors, stating to claimants that the insurer will not pay more than that bid, and then claiming that the claimant selected the insurer’s repairer when they used the only repairer they could afford due to the insurer’s refusal to pay more, even if the next lowest bid is still below the prevailing rate. (Note: One recent court opinion concluded that the insurer had not forced the insured to choose the insurer’s repairer by refusing to pay more than the absolute lowest bid, who subsequently failed to properly repair the property, because the insurer had stated in their policy that it was their goal to make sure the insured was satisfied.)
-A follow on to the preceding scenario, most policies cover living expenses so that while their home is being repaired, they will be covered for the reasonable cost of substitute housing. Many unscrupulous insurers threaten to cut off this policy benefit if the insured resists the insurer's usually ridiculously low bid. Faced with no home and no way to pay for substitute housing, many insureds relent, and their house is "repaired" by the insurer's low bidder in such a way that the house's prior value is siginficantly diminished. While some insureds sue the insurer and usually recover their losses and then some, most insureds do not, thereby making this practice profitable to insurers.