Don’t overlook a policyholder’s duty to mitigate

When it comes to an insurance claim defense, the duty to mitigate can significantly affect the outcome of a case – and insurers need to be proactive about documenting exactly what their policyholder did and did not do.

Every policyholder has a certain obligation to take reasonable steps to limit their own losses. However, some policyholders react to adverse events in unexpected ways, and that can end up making the costs to the insurer spiral.

When something goes wrong, make sure the policyholder understands their obligation

The best way an insurer can protect their interests is to make sure the policyholder is informed about their duty to mitigate their losses. What exactly that means can vary greatly according to the situation. It might include:

• Preventing further damage: If a pipe breaks in their home and the policyholder has water coming through the ceiling, the first step they should take is to cut off the water supply to prevent further damage and flooding.
• Making temporary repairs: If the front window of a policyholder’s store is busted, the policyholder could be expected to temporarily cover the opening with wood in order to secure their shop against other damage or thefts until further repairs can be made.
• Complying with requests for information: If the policyholder may have a claim against a third party for some of the damages, they need to cooperate so that the insurer knows where they can subrogate.
• Obtaining multiple estimates: Requiring policyholders to seek multiple estimates from contractors can help the insurer determine a fair price for any necessary repairs and avoid inflated bills.

By informing the policyholder of the steps they should take to reduce their losses (and getting it on record, if possible) insurers can reduce the possibility of bad faith claims or, at least, strengthen their defense.