At a fine restaurant run by a Korean owner, a problem occurred due to water leakage.
It was discovered that the cause of the problem was a burst water pipe inside the wall that separated the restaurant and the business adjacent to it. This water pipe was connected to the restaurant’s ice making machine. Because it was a busy restaurant with many customers, once he made a claim with his insurance company, the owner decided to operate the business as usual by repairing the broken pipe out of his own pocket, concluding that the repair cost should not be too much, and believing that it would be difficult to run the business normally if he had to wait for reimbursement from the insurance company.
So the owner hired a plumbing company and had the water pipe repaired. Also, as a temporary fix, he covered the wall and had it partially painted.
Even though he thought it was relatively a small issue, a complicated problem arose for this business owner.
The problem was that the owner of the famous franchise restaurant next door suffered a loss of $5,000.00 from the cost of repairing his restaurant wall and the wall paper due to the water damage and mold which began to grow. Including the loss suffered by the Korean business owner, the total amount of damages suffered was substantial.
Not knowing the exact cause of the damage, the owner of the franchise restaurant made a claim to its own insurance company.
The insurance company realized, after sending out an agent to thoroughly examine the damage, that the problem occurred when the pipe that burst was connected to the ice making machine which belonged to the Korean businessman.
The next door restaurant’s insurance company refused to compensate for the water damage loss on the ground that the problem occurred from the Korean restaurant owner’s piping arrangement, and concluded that the Korean business owner had to make the compensation.
Therefore, because there seemed to be no other option and even though some time had passed, the Korean business owner made a claim to his insurance company after receiving a request to pay $5,000.00 from his neighbor. However, after examining the site, the Korean business owner’s insurance agent denied the claim for the following reason.
“Because there is no way to prove whether the water damage loss is due to the insured’s piping arrangement or that of the building owner, we deny the claim. If you feel that this is unfair, you can submit a complaint to the state insurance bureau.”
In this case, in our opinion, the insurance company did not do its duty even though it was not able to visually confirm the piping arrangement issue without breaking the wall again.
From a common sense standpoint, the Korean business owner had no reason to repair something other than his own piping. Therefore, the decision to deny the claim just because they could not confirm to whom the piping belongs was simply wrong, especially since there definitely were traces of repairs to the wall with a repair bill.
The heart of the problem is that the insurance company did not even attempt to cut into the wall, even though it could have easily confirmed the piping problem had it cut out even a small area of the wall.
There is an important question that the insured needed to know: when problems such as this arise, who has the responsibility to figure out the cause? Is it the insurance company? Or is it the insured?
Of course, the obligation belongs to the insurance company. It is not the insured’s duty. In this case, the insurance company could have examined the pipes once it got permission from the insured by asking, “May we open a part of your wall to see the piping?”
As long as the insured did not purposely close the wall to hide the cause, but rather did what he thought was needed to run the business, the insurance company had to open the wall to find out the root cause.
The Korean business owner is under great stress, receiving threatening letters from the neighboring restaurant with the message that unless he pays for the repair costs, they will sue him. It was not possible, due to mental fatigue and because of his lack of English skills and professional knowledge, for the Korean business owner to continue operating the business while fighting with the insurance company regarding the denied claim.
Finally, he decided to suffer the loss by compensating his neighbor for the neighbor’s total repair cost out of his own pocket.
Currently, our company has started to dispute this claim, free of charge, in order to correct the insurance company’s bad faithaction.
In the case of automobile claims, there is not much room for dispute, but in the case of building structural damage, unless the damage is evident, the insurance companies are coming up with various reasons to either deny or reduce compensation as long as the insured does not have much knowledge.
In the case of this claim, the insurance company failed to assertively examine the situation even though it could have easily done so, and passed on the loss to the insured as if it was the insured’s fault. In situations such as this, in my 18 years experiencing handling some 1,700 claims, I have never found the insured disputing with the insurance company, even if the insurance company has denied the claim. I believe the insurance companies’ claims departments also have a good grip on this point.
Denying claims for vague reasons that are not clearly stated in the insurance contract clauses are occurring quite frequently.
I plan to let you all know the process and result of this issue later in a subsequent article.
This draft not only does not disclose any specific names, but it is not a legal analysis, just an opinion of a professional analyzing an insurance issue. Any issues the reader may have should be submitted to an insurance claims.
Jung Park, PA
Excel Public Adjuster