What happens in the aftermath of a devastating storm? Natural disasters usually include seven main events. These events are: landslides, volcanic eruptions, tornadoes, lightning, tsunamis, hurricanes and earthquakes. While natural disasters are considered “an act of God” other disasters may involve negligence of another entity, like a corporate entity that was sweeping something under the rug (e.g., allegations related to PG&E and the California wildfires), or, as is true most times, an insurance company that has an unwritten, “Section U,” that tells adjusters to deny all claims initially then low-ball later (e.g., the insurance company portrayed in the fictional legal thriller, The Rainmaker). 

Natural disasters are commonly defined to be an event that causes property damage due to natural causes beyond one’s control. This event usually involves extreme conditions. Natural disasters are often characterized as involving, “substantial damage to property, hardship, suffering or possible loss of life.”

Any other event considered a disaster may need additional protection paid for separate from main insurance. Natural disasters can often be unpredictable and difficult to measure. In this way, it can often be somewhat challenging to recover losses for damage to property.

In 2020, the COVID-19 pandemic was declared a natural disaster by many state supreme courts, including the Pennsylvania Supreme Court. Pennsylvania defines a natural disaster as “a catastrophe, which results in substantial damage to property hardship, suffering or possible loss of life.” This includes “the ingress and egress to and from the disaster area, the movement of persons within the area and the occupancy to premises therein.

After a qualifying event, an individual would most reasonably expect the insurance claim to then be paid quite promptly by the insurance company. When a disaster occurs, insurance companies have the responsibility of ensuring their clients receive compensation in the efficient manner and way possible. 

People pay premiums in a timely manner in order to receive coverage in times like these. Disaster relief is born out of quite arduous circumstance and the resolution process from the incident to restoring property to its original condition from before the disaster can also be quite arduous as well. 

Sometimes, insurance policyholders can be denied coverage where the insurance company finds that their damage supposedly pre-existed the storm. Other ways insurance companies can fail to include sales tax in the coverage or that their adjuster estimates underrepresented how much it would cost to rebuild their homes. 

In the wake of Superstorm Sandy, flooding was represented as a natural earth movement rather than dangerous floodwater. Due to this, Sandy victims filed a number of lawsuits and congressional hearings, in turn forcing FEMA to conduct internal investigations and reform the National Flood Insurance Program. 

The question in the aftermath of the storm then becomes why insurance adjusters and engineers intentionally go out of their way to deny policyholders coverage for damages. Sadly, oftentimes, insurance companies almost routinely deny, delay or underpay property insurance claims. 

Who is to blame?  

Insurance Companies. 

The remnants of a destroyed house after a flood

The waters of insurance law can be very complex and often murky. Further, courts can quickly become overwhelmed by how complex the cases can be at the volume at which they are received. With natural disasters come litigants from both sides, and victims seeking to recover damages. 

Insurance companies often provide open umbrella policies for natural disaster coverage. However, insurance companies do not categorize damage by the type of natural disaster, but by the peril. After you report some type of damage on your property insurance claim, the insurance company sends an adjuster to evaluate and estimate damage to a house. 

Further, it can take from days to months for  follow up from an insurance company. After this period of determining what the insurance company will give in terms of a check for damages, policyholders are often lowballed. Checks can often be low compared to what repairs your house needs to restore it to its condition from before the damage occurred.

What do insurance companies classify as a natural disaster?

palm trees blowing in the wind during a storm

What do insurance companies classify as a natural disaster? A peril is a type of hazard that can cause damage. In general, property insurance is divided into open peril and named perils. Open peril covers all possible perils within a general category. Named perils cover only specific perils chosen and named in the policy. 

Often you must choose whether you want an open peril policy which is comprehensive, with nearly all possible scenarios covered- or named peril policies which can be more limited but also more cost efficient. However, while cheaper, named peril policies do not offer the depth of security an open peril policy has.

Certain types of natural disasters are not included in the open perils policy and need to be named to be covered by insurance. For types not included you have to purchase this type of coverage separate from the original policy either with an additional named policy or adding it onto the open peril policy. 

Also, sometimes a natural disaster will not be covered by insurance even if the disaster is included in your policy. This occurs where the insurance company believed the damage could have been prevented by human action. For example, because wind is a covered peril in most policies, a person will  likely then have coverage for the damage tornadoes cause. 

There are eight residential insurance policy forms, denoted HO-1 through HO-8. Homeowners insurance is used to prevent against natural disasters because natural disaster insurance does not exist as a standalone policy. Homeowners insurance most notably does not include flood and earthquake damage.

Coverage can mean homeowners can often recover losses associated with different types of property. Some of these types are: walls and insulation; power and electricity; carpets; asbestos; mold damage and additional expenses. 

The extent of damages you will be able to recover is also extremely reliant on the insurance provider. Many insurance policies do not cover common damages from disasters as mentioned above.

Why do Insurance Companies Underpay?

A man in orange searching through the wreckage of a s=destroyed house with a german shepherd trying to find survivors

Insurance companies underpay or deny claims. Underpayment of an insurance claim is however 5-10% more common than a claim being wrongfully denied. Claims practices can depend on the type of policy, the company itself, and even the agencies that sell their policies. There are a number of complex factors involved in the wake of a denied insurance claim that tend to make it difficult to understand exactly how to proceed.

Insurance companies often are able to get away with underpaying insurance claims due to the simple fact that claimants are not aware of their rights. Further, insurance policyholders often do not have the capability or skill to manage the claim of the claimant. Due to this, insureds end up paying for damage repairs themselves.

Private insurance companies process certain claims on behalf of FEMA, and while they face penalties for repaying excess money to victims of damage from floods, they do not face equally severe penalties for underpaying policyholder claims. 

While the federal government funds flood insurance policies, and there is no profit motive in this case, in homeowner’s coverage where companies pay out of their own pockets, they do have a profit motive. In some cases, insurance companies try to reduce costs by paying less and delaying payment of claims, in effect making profit. 

Companies have discovered they can save millions by lowballing policyholder’s claims. At the point where insurance companies accept a portion of damages covered under the policy, these companies often undervalue claims. The insurer usually does this by setting limits on the number of items that can be repaired or setting limits on the amount they are willing to spend on repairs. 

Insurance companies often set limits on the number of limits that can be repaired or the amount they would be willing to pay to potentially repair your home. In many states, statutes allow property insurance companies to pay for the cash value of replacements opposed to replacement cost value. Replacement cost value is far more accurate to fully restore a house to its condition from before damage. 

Insurance companies often outright deny claims as well. Reasons for this could be pre-existing damage or damage not covered by policy as well as normal wear and tear or the faulty maintenance of property. Insurers will often try to undervalue claims in an effort to pay only cash value.

How do Insurance Companies Operate?

the shell of a house that has been destroyed by flooding

In dealing with insurance claims, one might have to deal with adjusters as well. Adjusters get paid on the percentage of claims they do. So in essence, adjustors are incentivized to write large amounts of estimates too quickly, not with the interest of the policyholder in mind, but instead with their system of compensation in mind. 

There are private and public adjusters. A private adjuster does this and grifts customers in this manner. These adjusters do not work for an insurance company, and only work for customers. A public adjuster works for the insurance company. 

A policy of insurance is also known as a fiduciary indemnification contract. Fiduciaries take on a role of trust and confidence. With indemnity, the insurance company is required to compensate another party to a contract for any losses the other party incurs during performance of said contract.

Insurance companies are required to pay any claim that falls within the terms of an insurance company. If an insurance company denies your claim they must have a good faith and reasonable basis for doing this. 


Men in orange jumpsuits searching through the wreckage ofa  destroyed home

Some examples of how insurance companies underpay on claims can be found in lawsuits. 

Hurricane Isaac

In one lawsuit, Louisiana Citizens Property Insurance Corporation (LCPIC), a state run insurance company was sued for underpayment of residential property claims following Hurricane Isaac. The bad faith insurance lawsuits varied. Some claims were underpaid by $40,000 and other claims were underpaid by up to $70,000. Families were left in the aftermath of destructive storms unable to repair their homes due to purposeful claim underpayment. 

Superstorm Sandy

After Superstorm Sandy, many insurance policyholders were denied insurance coverage for damages obtained after flooding from superstorm Sandy. Engineering reports determined damage from the house pre-existed the storm or could have been due to natural earth movement as well. After this storm, experts in the field of insurance policy determined that insurers systematically rejected legitimate insurance claims, and when they did pay, they paid less than they should have. 


The American flag displayed on top of a pile of wreckage

  Many people who are underpaid by their insurance provider do not wish to go through the pain and hassle of settling this claim in the court of law. Insurance companies are familiar with this idea, and know that this is the majority opinion. However, to deter this behavior, policyholders must begin to take their providers to court.

Some tips to take if you believe you have been underpaid are to:

1)    Review the original insurance contract to understand what is covered and the coverage amounts.

2)    Ask the insurance provider how they calculated the claim at hand

3)    Hire a private claims adjuster that does not work for an insurance company

4)    Hire a bad faith attorney if the insurer continues to deny or underpay your claim

In court, the insurance company can be held accountable for the full amount of damages that you may have experienced and further, any additional damages from the company’s delayed payment. Further, the insurance provider may be liable for emotional distress suffered as a result of delay. 

It may be possible to sue the insurance company through a bad faith lawsuit. A bad faith insurance claim may be filed if the insurance company denied you policy benefits without any just cause. 

Therefore, if you are able to prove your insurance company acted in bad faith in processing your natural disaster claim, you can potentially recover the amount that should have been paid in the claim originally plus attorney costs. 

If you believe your insurance coverage for natural disasters should cover your claim, and are being denied for your claim. Consult with a Cochran Firm attorney near you who can give you guidance on your rights.

The experience of our attorneys ensures that we can find a solution for you as well as the most effective and efficient way to provide that solution. The denial of your claim has severe implications that a Cochran Firm attorney can walk you through. Please visit https://www.cochranfirm.com/natural-disasters/





How Insurance Companies Underpay Insurance Claims