Claims Handling and Settlement
This domain tests the claim lifecycle from notice to payment or denial. Questions cover investigation, coverage analysis, reserving, proof of loss, settlement, subrogation, salvage, fraud indicators, and good-faith handling.
Core rules
- The claim process starts with prompt notice, acknowledgement, and assignment. The insurer investigates the facts and the policy wording before committing to coverage.
- The insured generally bears the burden of proving a covered loss. The insurer generally bears the burden of proving an exclusion applies.
- Reserves are estimates of ultimate claim cost and are adjusted as facts develop. They are not payments or admissions.
- A proof of loss is a formal statement supporting the claim. Deadlines and documentation requirements should be explained clearly.
- Settlement should reflect indemnity, policy limits, deductibles, and applicable exclusions. Subrogation and salvage recoveries reduce the insurer's net loss.
- Unfair claim practices include unreasonable delay, failure to investigate, misrepresentation of coverage, and failure to explain a denial.
Worked example
A homeowner reports mold and dampness that developed over 18 months from repeated seepage. The policy excludes constant or repeated seepage and gradual deterioration. The claim is denied even though mold is present. If a pipe had burst suddenly and caused immediate water damage, the resulting loss would generally be covered, subject to exclusions and the deductible. The reasoning is that the proximate cause and the policy exclusions determine coverage, not the visible damage alone.
Traps that cost marks
- Admitting coverage before reading exclusions.
- Confusing reserves with payments.
- Missing subrogation or salvage opportunities.
- Failing to document the denial rationale.
- Ignoring proof-of-loss deadlines.